The Bermuda Stock Exchange has become more attractive to hedge funds due to a National Association of Securities Dealers, Inc. (NASD) amendment to its rules.

When the amendment comes into effect August 17, a BSX listing will make it easier for hedge funds to buy into the initial public offerings of designated "hot issues'' -- over-subscribed public offerings of stock trading at a premium.

Hedge funds had effectively been barred from investing in such public offerings due to restrictions intended to prevent brokers from artificially inflating the price, or reserving the issue for themselves or preferred clients.

NASD regulations required hedge funds to maintain segregated accounts for clients who were subject to the restrictions as a means of preventing brokers from getting around the rules though the fund's investments.

The requirement means many hedge funds avoided the potentially lucrative initial public offerings market as it meant revealing their strategy to other investors.

Now NASD has relaxed the rule for its members allowing them to sell "hot issues'' to offshore funds if these are listed on a foreign exchange like the BSX, has more than 100 investors, does not investment more than five percent of its assets in the issue, and does not have a restricted investor who holds five percent or more of the fund.

BSX chief executive officer William Woods believes the amendment will make the exchange attractive to hedge funds. He has already had inquiries from a number of hedge funds about listing on the BSX since the change was announced.

"The NASD interpretation presents another reason for hedge funds to seek listings on an offshore stock exchange and the BSX is a preferred exchange for listing hedge funds,'' he said.