Consternation Among Investors

The English Channel island of Guernsey has long been a haven for low tax rates and lower regulation.  Now the island is serving as a bypass of EU regulations mandating transparency in bond transactions.

On Guernsey, those rules don’t apply. A key flashpoint for investors is the use of password-protected websites to restrict access to company financial information. Unlike in the rest of the EU, where companies with publicly listed shares or bonds must make financial reporting readily available to the public, bond issuers in Guernsey can keep such information under virtual lock and key and can restrict who has access.

Some companies dealing through Guernsey’s facility even require nondisclosure agreements be signed before they’ll agree to sell bonds to prospective buyers.

This has authorities in an uproar—naturally, since they object to being challenged by their subjects market participants.  It also has investors’ knickers in a collective twist, though, and there’s the rub.  Martin Reeves, of London-based Legal & General Investment Managers:

It is in everybody’s interest to have equal and transparent disclosure by bond issuers. It is an open question how password-protected websites are justified.

Regarding Reeves’ first claim, of course it is. Information is power, and spread-about information dilutes the power.  Regarding his second claim, though, there’s no question about it: the free market is happy to have such things—else they wouldn’t exist.

The bottom line is this, and it pertains especially in a free market milieu.  There’s no reason for consternation among investors over the bonds issuing from non-transparent Guernsey.  No one—not any government, not any individual—is holding a gun, figuratively or literally, in any investor’s ear, forcing him to buy bonds in Guernsey.

If investors don’t like the lack of transparency, they shouldn’t trade there.  If Guernsey is the only place such secretive bonds are traded, then Guernsey also is the only place where such unassessed and unassessable risk occurs.  If investors don’t like that risk spilling over onto companies publicly traded in markets or exchanges that are more regulated, they should not trade those companies’ securities anywhere.

In fact, they’re putting in peril their fiduciary duty or their personal or families’ wealth when they trade “Guernsey bonds” or securities of companies that peddle bonds there.

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