Apr 2021 Interview with Greg Wojciechowski, President and CEO, Bermuda Stock Exchange, Bermuda
Prisma Reports (PR): Back in December 2020, the continued integration of the BSX into Miami International Holdings (MIH) was completed. What is the significance of such an acquisition for both the Stock Exchange and Bermuda as a whole?
Greg Wojciechowski (GW): The MIH acquisition was a win-win transaction as it gives the BSX access to a larger exchange group with deep experience in technology, market structure and resources, while it gives MIAX Exchange Group one of their first ever footprints in an international jurisdiction. The acquisition is important to both entities in relation to global business development efforts. There are not a lot of crossovers in terms of our product areas or the markets we support, so from a synergistic perspective, it is a complimentary transaction. From a corporate perspective, we are similarly focused on future development and niche areas of growth. MIAX is the 15th largest global derivatives securities exchange by volume, has a significant presence in the United States and is enthusiastic about having a footprint in Bermuda. We plan to continue developing the current areas of business in which we excel, which is providing listing services for international debt structures, providing capital market support for the Insurance Linked Securities (ILS) space, and looking at ways that we can, as an internationally recognized stock exchange, support the jurisdiction’s desire to provide a regulated platform for the crypto and digital assets space.
(PR): 2020 was undoubtedly a challenging year shaped by a global pandemic and extreme volatility in financial markets and exchanges across the world. For BSX the year ended positively with a 63% growth year-over-year on the number of ILS securities listing, and a total market capitalization of $255 billion. What factors drove this increase?
(GW): Exchanges and clearing houses are critical components of the global financial system, so they must continue to operate in times of systemic pressure. The global financial crisis in 2008 was an effective test. As the credit markets seized up, exchanges were amongst the few entities in the global financial services market infrastructure that continued to function and provide liquidity. Our global thought process was not dissimilar going into the pandemic, and our digital readiness helped us immensely. As for Bermuda in general, the government agilely thought out and communicated its containment, testing and tracing strategy effectively; the community responded by adhering to the guidelines; and companies complied with work from home restrictions. Operationally the BSX did not miss a beat. The market traded and settled, inquiries still came in from overseas, and, as a result, the market segments which we support continued to develop and did well considering the headwinds of the pandemic. The results speak for themselves. 2020 was a record year for us and that pipeline continues into 2021.
The BSX has 1,130 listed securities, of which about 500 are ILS securities. ILS is a particular area of expertise and pride for us as Bermuda has dedicated expertise and support for the development of this asset class. In our view, the ILS asset class development was a natural extension of the specialized insurance and reinsurance experience which Bermuda has been supporting for over 70 years to a global audience. All the big names in global reinsurance and speciality insurance have a presence in Bermuda. Times have changed, and so too has the capital formation process. ILS provides a more direct conduit for the capital markets to access insurance risk. Hence, there is greater participation from the capital markets with the transference of that risk into securitised risk transfer securities that the capital markets consume. Ultimately, this is beneficial as the more capital that is made available, the greater the pool deployed to narrow what we call the protection gap for those countries, cities, and companies that are uninsured or underinsured. Bermuda is unique in that is has all the components working together to effectively support this evolving asset class which is illustrated by our success.
From the BSX’s perspective, we saw early on that ILS securities were a natural evolution in the reinsurance sector. Bermuda is the Silicon Valley for the sector, host to the key insurance players, the service providers, and an exchange that understands the market. We have a regulator that is extremely familiar with the market and provides a bespoke but commercially sensible regulatory framework. These elements came together to create a solid platform for this asset class to develop and grow. The Bermuda ILS support platform is best-in-class, the regulatory framework works, and global regulators recognize it. We have many of the largest investors in ILS vehicles located here and we continue to see more risk being transferred through capital market vehicles. It has been exciting to watch the space develop, and interesting to watch other jurisdictions that are much larger than Bermuda develop a presence in this space. The latest ILS market trends include more diversified risk being securitised and new geographies being catered to.
(PR): Bermuda has seen an influx of new capital of between $12 to $15 billion into the insurance and reinsurance market. What are the prospects going forward?
(GW): It may actually be up to $20 billion that has come into the market. This influx and the development of ILS is due largely to Bermuda’s reputation and longevity in this business area. Bermuda’s support is tried, tested and respected, and the world looks to the island for innovative solutions at times of systemic risk or natural catastrophes. Having the appropriate regulatory framework in place is critical to support commercial development. Bermuda and the BSX understand this implicitly. In respect of the BSX, we sought recognition from our regulator, the Bermuda Monetary Authority (BMA), and the World Federation of Exchanges (WFE). In fact, we are one of the only offshore exchanges that is a full member of the WFE, and this is the BSX’s second turn sitting on the board representing the North American region. The BMA is a full member of IOSCO, and the BSX is an affiliate member. Bermuda is one of only three countries that have been deemed equivalent from the European Insurance and Occupational Pensions Authority (EIOPA), the other two being Switzerland and Japan. To meet the level of standard which is applied in the European Union is a significant development and speaks volumes to the regulatory experience at the BMA. Furthermore, last year the National Association of Insurance Commissioners in the United States listed Bermuda as a reciprocal jurisdiction.
Bermuda’s world-class and respected regulatory regime, combined with the experience of the industry professionals and global companies creates an efficient and fertile ground for innovation. These components come together so that when a market needs to place new business, they know it can be done quickly and easily in Bermuda. New businesses become partners in the Bermuda market, continue to expand and support new areas of business. This framework is not easily replicated. It takes time to develop, and that is what has been carefully cultivated in Bermuda. In addition, there are few places that are nestled comfortably between the deepest capital and largest insurance markets in the world.
(PR): The current government is very vocal in its ambition for Bermuda to become a global fintech hub. What role is the BSX set to play in this regard?
(GW): As a key component of Bermuda’s financial market platform and the country’s exchange infrastructure provider and operator we recognize the opportunity that DeFi, or decentralized finance, presents domestically and globally. The acceptance of crypto currencies and digital assets continues to attract the attention of increasingly larger institutional investors. We appreciate that the crypto and digital asset arena is still new comparatively speaking and important market mechanisms that support transparency and user protection are in a rapid state of development to address the concerns that traditional market regulators, operators and investors have raised.
Bermuda has done very well over the years in protecting the integrity of our commercial environment through solid banking, capital market and insurance regulation predicated on rigorous KYC and AML protocols.
Bermuda’s Premier, David Burt senses the growing importance and the opportunities in the digital asset and crypto currency spaces with Bermuda providing commercial support for this developing industry.
Bermuda’s cautious yet commercially sensible regulatory approach has been extended to the crypto and digital asset world. In 2018 the BMA, in conjunction with local and international consultants, designed and promulgated the Digital Asset Business Act (DABA) that regulates the licensing of digital asset platforms and ICO activity and the operational procedures they must follow.
These regulations, updated in 2020, make significant progress in addressing fundamental concerns that have hampered growth in this new industry since its inception. The digital asset industry has responded favorably as it realizes that operating in compliance with a regulatory framework is essential to the continued development of the global digital asset ecosystem. As a result, key players in the digital asset industry have visited Bermuda to learn more about our commercial environment and many have established Bermuda entities for the continued development of their companies.
In respect of the BSX, there is clearly a role for us to play in this space domestically and internationally and we are aggressively assessing these opportunities. What makes the BSX particularly important in the fabric of Bermuda’s digital asset ecosystem is that we are an internationally recognized securities market that has been supporting the Bermudian economy for 50 years. In the early 1990s the BSX undertook a complete overhaul to modernize its regulatory and operating infrastructure to be in a better position to compete internationally. The BSX has since become a market leader in the listing of international debt securities and insurance linked vehicles and has now focused attention on positioning itself to support the growing digital assets business in Bermuda. MIAX also sees the opportunity in this market. They have investments in entities that operate crypto derivative or digital asset exchanges. Thus, there is corporate experience in this space which will be leveraged to help BSX develop a sensible digital asset exchange solution which will be an important BSX contribution to Bermuda’s digital asset and crypto ecosystem.
(PR): In September 2020, the BSX listed one of the world’s first Exchange-Traded Funds (ETF) designed to track digital asset investments — the Hashdex Nasdaq Crypto Index ETF — an open-ended investment fund that will operate as a traditional ETF and will track the Nasdaq Crypto Index. How would you assess the appetite for this fund?
(GW): The launch and BSX listing of the Hashdex Nasdaq Crypto Index ETF was a significant development for Hashdex Asset Management, the BSX and Bermuda. The Hashdex Nasdaq Crypto Index ETF is one of the world’s few ETFs launched to give investors access to the digital asset market by tracking the Nasdaq Crypto index.
As the BSX works to develop and launch its digital asset strategy, supporting the listing and trading of traditional structures which focus their commercial or investment activities in the digital asset space or other emerging commercial areas is a way for the BSX to gently begin to work with these new markets through mechanisms with which we are familiar.
The listing of the Hashdex Nasdaq Crypto Index ETF on the BSX was a significant first step for the BSX which also underscored Bermuda’s growing importance to the international crypto and digital asset market. We are confident that the listing of the ETF on the BSX has helped draw attention to the fund.
(PR): 2021 marks BSX’s 50th anniversary. What are your short and medium-term strategic goals?
(GW): In terms of our immediate goals, we continue to experience momentum in providing listing services for ILS. Another tremendous opportunity is to provide a unique international debt listing platform similar to those in Europe and Asia here in the western hemisphere. We continue to attract attention from the North American markets as well as the Latin and South American markets, which are interested in our listing services on an exchange in their own time zone.
Other areas of our strategic focus include supporting listing various bespoke products and the continued analysis of our digital asset and crypto strategy. We will continue to investigate other logical affiliations for BSX with similar exchanges or platforms to create economies of scale.
As always, we are focused on how we can continue to engage the domestic investor in Bermuda so they can gain more exposure to successful Bermudian domestic listed issuers. We are committed to supporting and driving the development of the domestic capital market. Having a community that invests in local companies creates a connection between community, investor, and commerce and helps to contribute to the health of our economy.
We also feel strongly about incorporating ESG (Environmental, Social, and Corporate Governance) into our business. In that regard, we are drafting guidelines that will underpin the development of a BSX ESG listings board for interested ESG focused companies. It is an important topic in Bermuda and globally and the concept needs to be woven into everything, whether it be insurance, government, capital markets, etc. We want to make it a priority to spark activity and conversations around resiliency and aid for communities around the world.