Bermuda: An innovative exchange making a global impact

By: The WFE Focus Team Dec 2021

Name: Greg Wojciechowski

Title: CEO, Bermuda Stock Exchange

On day five of the Tokyo Summer Olympics the entire island of Bermuda cheered on ‘golden girl’ triathlete Flora Duffy as she stormed to a dominant victory and the island’s first ever gold medal – the smallest nation in the world to win Olympic gold. This incredible achievement demonstrated Bermuda’s reputation for punching above its weight – be it in sports, tourism or business.  

Similarly, the Bermuda Stock Exchange (BSX) has focussed on being innovative and agile which has had a notable impact globally. The BSX celebrates its 50th anniversary in 2021 and continues to expand its role in supporting businesses and communities domestically and internationally in the world’s third largest reinsurance market.  

The pandemic has brought many changes to the way we work. In your view, what changes are here to stay that will shape the workplace of the future?  

What the pandemic has shown, and certainly what we have experienced at the BSX, is that technology allows us to work from almost anywhere. With the BSX exchange platform being fully electronic, and securities being dematerialized and held in electronic book entry form, addressing business interruption and resiliency was built into our platform from the beginning. As a result, we were prepared to address business interruption from events such as COVID-19 thanks to our robust operating systems. They proved efficient, with the listing of new securities, supporting daily trading, settlement and the operation of our securities depository continuing uninterrupted during the pandemic. In a trend that looks set to continue, many companies now allow more remote working and utilising new tools and technology to facilitate an increasingly decentralised workforce. 

Companies are also very focussed on their enterprise risk management framework, having learned from the past two years. A pandemic can create challenges for   operations, employee health and well-being, supply chains and everything that impacts business. Given all the pressures and external challenges that have been amplified because of the Covid pandemic, Enterprise Risk Management (ERM) has become more important today than ever. Regulators are now asking regulated entities to disclose more and provide policy clarity around their ERM frameworks. Given that the pandemic forced many people to work remotely, and that crypto and digital assets are becoming more mainstream, there is an increased focus on cyber security and online crime as well.  In 2022 and beyond, ERM as it relates to companies operating in digital assets and Decentralised Finance (DeFi) space will be a significant area of focus for businesses.  

What do you see as the biggest challenges and opportunities for your exchange in the year ahead?   

While the Covid pandemic initially caused some challenges that were quickly overcome, opportunities abound. The BSX shares many similarities with its global peers but with a distinct and unique Bermudian flare.  The BSX has a fundamental role to support Bermuda’s domestic capital market and is central to the economy. It provides an open, transparent and well-regulated market platform for capital raising support and the trading of domestic securities while providing market oversight and retail level investor protection and education for Bermudian investors. 

The BSX is also an international securities market intermediary and provides exchange support to the many businesses that do business in or from Bermuda, including the island’s flagship global reinsurance industry.  Bermuda is known as the “World’s Risk Capital” and the BSX works in an adjacent vertical to the market by supporting the listing of Insurance Linked Securities (ILS) vehicles. ILS provides natural disaster recovery and resilience to entities around the world, be it from hurricanes, wildfires, floods, drought, earthquakes or other disasters. 

At the end of October, the BSX reported a record number of 1,256 listed securities. The Exchange is the global leader in the support and listing of ILS with over 700 vehicles listed representing approximately $50 billion, or 95% of global issuances. As Bermuda forges ahead with being a centre of excellence for climate risks, the BSX is embracing the opportunity to assist the insurance industry by providing a regulated platform for exchange traded risk.

The BSX also continues to see increasing interest from global capital market participants to list international debt on the exchange. 

What was your most memorable moment this year as a leader? 

While the BSX is celebrating its 50th anniversary of securities trading in Bermuda this year, we are very much focused on the future. This is reflected in the Exchange’s relocation to a new office in Exchange House that will see an expansion of activities both domestically and internationally. 

The most significant recent development for the BSX is the continued integration with our parent company. Miami International Holdings, Inc. (MIH), an owner and operator of three fully-electronic U.S. options exchanges, an equities exchange and the Minneapolis Grain Exchange (MJEX), obtained a controlling interest in the BSX at the end of 2019.  

Since its founding in 2012, MIH and its Exchange Group has been a generator of technological innovation and their fully electronic exchanges have challenged legacy trading platforms. This partnership will provide additional support to the evolving global (re)insurance risk market through innovative products with a view toward the futures market. 

The BSX continues its focus on the growth of our existing business lines especially in the Re/Insurance and ILS market as well as international debt listings. In partnership with MIH, and embracing the Bermuda government’s pioneering legislation – the Digital Assets Business Act (DABA) – with the island working diligently to be a market leader in the development of digital asset strategies and DeFi.  

With the support of our parent company, MIH, the BSX is in a position to drive innovation in the ever-changing securities market landscape. At the same time, we’re supporting new commercial opportunities and changes within the industries in which Bermuda’s strengths are known. The BSX is very much in step with developments in the jurisdiction and has supported innovative indigenous developments – be it ILS or digital assets. It touches every piece of business in Bermuda, supporting not only our own corporate growth but also Bermuda’s efforts to develop leadership in these areas.  

During the last few years, the Exchange has certainly led the way in forging new paths in the growing digital asset space. In September 2020, the BSX announced the listing of the Hashdex Nasdaq Crypto Index ETF, an open-ended investment fund structured as a traditional ETF, with a creation and redemption mechanism involving the delivery of a basket of assets or cash by authorized participants. It will track the Nasdaq Crypto Index to represent the institutional investable landscape of cryptocurrency assets.  

In June this year, BSX joined the Pyth Network, a decentralized financial market data distribution platform.  The BSX has subscribed to U.S. equity market data from the MIAX Pearl Equities exchange and began publishing this data through its independent node to the network in September. The Pyth Network is an Oracle network designed to provide high fidelity financial market data to the block chain industry using a block chain protocol on the Solana network.  

What are three key industry themes you will be focused on in 2022?  

Environmental, Social and Governance (ESG) initiatives will be a primary focus in 2022 and beyond. As a WFE member, the BSX has committed to embracing and actioning sustainable and responsible growth for member companies, listings and the wider community.  

As part of our ESG commitment, the BSX joined the Sustainable Stock Exchange (SSE) Initiative in May 2021, joining more than 100 Partner Exchanges to engage in a peer-to-peer learning platform and enhance corporate transparency on ESG. ESG guidelines for listed issuers on BSX are scheduled to be issued Q4 2021. At the BSX, we continue to implement corporate sustainability initiatives including office recycling, energy usage, LED lighting, green building and reduced travel.  

In relation to ESG principles, ILS provides climate change recovery and resilience to communities and is deemed compliant with United Nations Sustainable Development Goal #11 to ‘Make cities and human settlements inclusive, safe, resilient and sustainable.’ ILS is helping communities around the world close the $1.2 trillion ‘protection gap’ for entities that are un/underinsured, especially for resilience to climate change and natural catastrophic disasters including hurricanes, wildfires, earthquake.  

Also on this theme, Bermuda, with the support of Government agencies and the business community, is positioning itself to be a world leader in climate risk finance. This will largely be through work done in tandem with existing insurance/reinsurance sector that has been a world leader in this sector for more than 70 years.  

The BSX, in conjunction with MIH, will continue to explore opportunities in digital assets and decentralised finance arena. An evolving and dynamic financial revolution is taking place that will forever change everything from banking to insurance to exchanges and those who don’t embrace and adapt to this new paradigm will be relegated to the history books.  

Cybersecurity and the prevention of cyber-related crime in the exchange ecosystem will remain a heightened focus for not only the BSX but all of our colleagues in the global exchange space.   

Tell us one thing that will change in 2022 and one thing that won’t? 

What is already changing is the increased importance and adoption of much more robust corporate social responsibility initiatives to ensure that the business community addresses ESG issues. Given the ongoing rapid digitisation of so many aspects of corporate operations, and the exponential increase in cyber hacks and attacks, there will also be increased focus on cyber security and protecting company assets.  

One thing that won’t change is the critical role of exchanges around the world in facilitating orderly functioning of capital markets, providing liquidity and empowering community development. There will increasingly be a responsibility to facilitate the urgent and critical actions that must be taken to address climate change. What also won’t change, certainly within the next year or more, is an end to the pandemic and ongoing restrictions and changes to our way of life.  

While there are certainly challenges ahead, the future is exciting, dynamic and geared towards being a globally responsible corporate citizen for the betterment of the environment. We are helping address and empower action on social issues while adhering to the highest standards of governance and regulatory accountability.