Shares can be traded off the exchange by two parties who agree to sell and buy at a certain price.

Shares sold on the exchange are subject to opening bidding in the manner of an auction.

Mr. Charles Gunn, chairman of the Bermuda Stock Exchange, described trading off-the-exchange as more of negotiated deal, than an auction. "There is a place for both,'' he said.

In a reserved judgment, the Court unanimously held that the Stamp Duties Act 1976 should be amended by section 15 (3) of the Bermuda Stock Exchange Company Act 1992, which exempts instruments of transfer on sale of shares listed on the Bermuda Exchange.

Section 15 (3) was a key aspect of the Act that stockbrokers interpret as indicating that all securities listed on the exchange can be traded free of stamp duty.

This section states: "The provisions of the Stamp Duties Act 1976 shall not apply to any instrument which relates to a transfer on sale of a security, which is listed on the exchange.'' The appeal overturns the judgement of Chief Justice Mr. Austin Ward, given on November 23, 1993.

Mr. Robert Pires is chairman of the Bermuda Association of Securities Dealers, the body which is funding the legal challenge, and president and chairman of Bermuda Investment Advisory Services (BIAS).

He said that the Accountant General's office, on the advice of the Attorney General's chambers, had interpreted Section 15 (3) to mean that in order for a local share to trade free from stamp duty, a share needed to be listed, and also traded through a member of the exchange.

"This interpretation meant that the independent investment firms were therefore required to pass all trades through the Bermuda Stock Exchange despite the fact that to date the current members of the Exchange, the banks, have not allowed them to join,'' said Mr. Pires in a statement prepared yesterday.

"The benefit to the banks of this situation is that for the past several years our members have been required to transact all trades generated by themselves through the banks, therein being forced to compensate the banks with a percentage of our revenue flow.

"This `tenant farmer' relationship with the banks has been entirely unacceptable to my member firms.

"The ruling by the Appellant Court reinforces a literal interpretation of the Act,'' said Mr. Pires.

Finance Minister Dr. David Saul said that, in principle, the judgement concurred with the Government's longstanding intentions for the recently incorporated Exchange.

"The whole intention from the beginning was to encourage people to purchase stocks and buy shares in Bermuda companies, and in order to encourage that, Government went along with the private bill on the assumption, stamp duty would be lifted on appeal.

"The Accountant General had no choice but to defend the action as it concerned a private bill passed in Parliament, as prepared by a private member,'' said Dr. Saul.

Solicitor General Mr. Barrie Meade represented the Attorney General in the case. He would not comment on Friday's judgement.

Mr. Pires disputed Mr. Meade's interpretation of who should benefit from the exchange.

It appeared that he regarded the exchange as for the benefit of the banks, he said.

Mr. Malcolm Williams, general manager of the Bermuda Monetary Authority, said the authority, which is the main supervisor of the stock exchange's activities would examine the implications of the decision.

"We will see how it affects our supervisory role and if there is a need for the Authority to increase its liaison with those involved in the securities industry.

"The Authority will need to understand the breadth and depth of the activities of those engaged in trading off the stock market.'' Mr. Pires said: "The exchange is for all the companies who are listed on the exchange, and who wish to raise capital through the exchange. Therefore, it is the listed companies who must primarily benefit from this Act.'' Mr. Gunn said he welcomed the decision by the Appeal Court.

"We want to encourage the trading of shares,'' he said.