pathfinding scheme to enable Bermudians to invest indirectly in foreign-owned companies while avoiding exchange control restrictions.

They have put together a structure which will allow Bermudians to invest in local "investment instruments'' which mirror the price of overseas shares and dividend payouts.

By buying these instruments or notes, local investors do not have to take out foreign currency to buy actual shares and avoid having to pay ten percent purchase tax and the $25,000 annual ceiling on foreign currency purchases.

The new scheme has been introduced in time for the public offering of shares in Bermuda-based ACE Insurance, whose offer is due to close soon.

BCB's managing director Mr. Richard Francis said: "You buy an investment instrument locally and the performance of that instrument is indexed to the performance of the ACE shares.'' BCB's newly-formed wholly-owned subsidiary BDR Company Ltd. will guarantee the investment instrument, which, initially, can be traded on the over-the-counter market offered by First Bermuda Securities.

He added: "Local investors who want to sell them can either sell them on the over-the-counter market or, alternatively, they can sell them back to the issuer, i.e. BDR Company Ltd.'' BDR stands for Bermudian Depositary Receipt, which is the local equivalent of an American Depositary Receipt -- a substitute certificate for stock in a foreign company held in trust by US banks.

Once issued, the ADRs are traded on US markets in much the same way as domestic shares are traded.

Mr. Francis said: "BDR is a specially created company which will buy back the investment instrument from the investor at a rate equal to the ACE price on the New York Stock Exchange.

"This is a departure from the norm in Bermuda. The investment instrument is not an equity, preference share or a bond. It's more akin to a dividend bearing note.'' The method was an alternative to buying foreign currency and going out into the open market for shares, he said.

BDR will use its own money in the United States to buy ACE shares in corresponding amounts to the number of notes it issues.

"If we issue $1 million worth of BDR company notes we will go into the market and buy $1 million of ACE shares and they will be owned by us,'' said Mr.

Francis. "The investor does not own the shares: we do.'' One of the great attractions for Bermuda Commercial Bank, First Bermuda Securities and ACE was that Bermudians can invest in foreign-owned companies which have operations in Bermuda and which benefit the Island.

"You're investing in a domestic industry which just happens to have its shares listed somewhere else,'' he added.

FBS, which is underwriting a portion of ACE's stock offering, is extremely excited about the new scheme and the potential to extend it to other public companies such as EXEL and Mutual Risk Management.

"This will be looked upon in 25 years time as one of the most important things to happen in the local business community as far as investments are concerned,'' said Mr. Joe Taussig, FBS' managing director.

"Bermudians for the first time have the opportunity to invest their Bermuda dollars in something that is basically a non-Bermuda dollar issue.

"In doing so, they can avoid the $25,000 foreign currency annual limitation and the ten percent foreign currency purchase tax.'' The Ministry of Finance has apparently given its blessing to the new scheme.

MR. RICHARD FRANCIS -- BCB's managing director.