It seems illogical that an isolated archipelago nation with a population of just 80,000 would ever be able to launch a securities exchange – there wouldn’t be enough liquidity to make trading worthwhile. Yet the Seychelles bourse is well on the way to becoming a reality.
The man behind the project is Richard Bonnichsen, an executive with Anglorand Group, a major South African brokerage. "I visited Seychelles four years ago and was told they had all the legislation in place from 1995 but hadn’t done anything about it," Bonnichsen recalled. "We said, ‘Why don’t we look at getting it going?’."
Anglorand’s proposal envisages a two-tier system: A bourse focused on niche products for Seychelles’ offshore sector would generate the cash and subsidize a local exchange tacked on the side.
Conrad Benoiton, managing director of law firm Appleby in Seychelles, was until recently with the central bank department responsible for overseeing the securities industry. He expects the licensing of stock exchange operators – there must be three founding members – to be completed in the first quarter of 2010. "We will see the emergence of a stock exchange serving small domestic operations but also having an added offshore element, which would in my view be the running element," Benoiton said.
Anglorand wants this offshore element of the exchange to be dedicated to contracts for difference (CFD), a kind of derivative that allow investors to take long or short positions on underlying financial instruments such as a stocks. CFDs, which are traded on margin, are particularly popular in the City of London where they are used to hedge against exposure to equities. There is no requirement to own the underlying shares, so in theory CFDs can be based on any global index, commodity or currency.
The bulk of CFD trades are over-the-counter (OTC) between a client and a financial institution. Australia is the only country that offers exchange-traded CFDs, and the idea is that Seychelles would become the first to offer the products in a tax-efficient environment.
"Following the financial crisis, there is increasing pressure to get OTC products cleared on an exchange," said Bonnichsen. "That is what we are trying to do."
The exchange would be fully automated, making manpower limited, but Bonnichsen believes it could raise the bar across Seychelles’ financial sector as a whole, bringing in demand for new and sophisticated ancillary services.