A specialisation in niche markets is boosting the Cyprus Stock Exchange’s (CSE) status as an interesting regional player, a move also noted by international investors and issuers who are increasingly recognising the CSE as a competitive European listing location.
The Cyprus Stock Exchange (CSE) has set its sights on becoming the region’s leading specialist securities exchange and gateway to the EU capital market for small cap and non-European issuers. With a strong focus on niche markets the CSE is steadily making a name for itself as an enticing and credible EU listing jurisdiction and provider of high-quality ancillary services. With Cyprus’ economy experiencing a return to healthy growth rates and with projects in energy, tourism, real estate, and investment funds, the country is attracting serious international investor interest.
Emerging Regional Player
A key strategy of the Cyprus Stock Exchange is one of regional growth and collaboration with neighbouring stock exchanges. The signing of memorandums with other exchanges has provided the opportunity to collaborate on a wide spectrum of reciprocal issues of interest. These collaborations also contribute to creating more comparative advantages, while also increasing awareness of smaller regional exchanges to large international institutional investors in a bid to attract investments.
Tailored Services and Easy Access
The CSE offers fully computerised online trading, clearing and settlement, as well as access to the Athens Exchange through its Common Trading Platform. Through the same platform, Greek Market Participants (Brokerage and Custodians) are able to have access in the Cyprus Securities Market. The CSE launched a new service, whereby non-listed companies can submit their registries for handling to the Cyprus Central Depository and Central Registry – a service already successfully used by a number of Market Participants. A Regulatory Framework has also been prepared for the introduction of Global Depository Receipts (GDRs). These certificates are traded in international and developing stock exchanges and represent the ownership stake in a company which can be converted to shares at any time. This also provides an opportunity for family businesses to enable members to divest without disrupting the company set-up and to increase liquidity by opening up the investor base. Another innovative CSE initiative has been the introduction of a system for the electronic online submission of applications for listing by the issuers via the CSE’S website (online Application Portal), and more recently, the Exchange also introduced a Regulatory Framework for the operation of the Depository Interests (DIs) to facilitate the cross-border trades between Cyprus and the UK for dually listed interested companies.
A Boost in Trading Volume
The total volume of trading on the CSE has seen solid growth in the last three years, with the total increasing from €75 million in 2014, to €150 million in 2015 and 2016 reaching around €307 million. However, total market capitalisation, including the Bonds Market, reached €3.9 billion in December 2016, compared to €5.7 billion at the end of 2015, showing a decrease of 31.5%. The financial sector was the largest group, as far as market capitalisation of the equity market, with 69.53%, followed by consumer services with 12.54%. The total number of securities traded in 2016 reached 830.6 million. Shares traded contributed around 30.5% of the total volume, while Corporate and Government Bonds contributed 69.4% of the total turnover. Investors primarily focused their interest on the shares of Bank of Cyprus Public Company Ltd and also on shares of Hellenic Bank Public Company Ltd, with 25.19% and 1.11% of the total value respectively.
Strong Growth Attracting New Investment
The benefits of the improving economic climate and the increase of business activities in Cyprus have also filtered into the CSE. Growth in specific sectors of the economy, such as banking – which has seen significant foreign investment from the private sector – has instilled strong confidence in the market and created new opportunities for the future. Other sectors, such as tourism, real estate and the implementation of large scale projects, have gradually begun to recover with increasing investor interest. Another significant prospect for Cyprus is the oil and gas sector, where in the medium term a number of international energy giants are expected to launch more exploration and commercial activities thanks to the hydrocarbons deposits in Cyprus’ Exclusive Economic Zone (EEZ). These promising sectors could enable foreign investors to geographically diversify their investments and operations. Similarly, new business and investment opportunities would certainly arise as a result of a possible settlement to the political problem of Cyprus.
New Market Initiatives
In 2015, the CSE brought significant changes to the categorisation and structure of its markets, with the aim of aligning itself with relevant international trends and the economic and market conditions in Cyprus. The new segments on the Regulated Markets are the Main Market, the Alternative Market, the Market of Bonds (Corporate), the Market of Government Bonds and the Market for Funds.
In addition, the Emerging Companies Market (ECM) of the Cyprus Stock Exchange offers simplified listing criteria at a lower cost and is successfully attracting companies both locally and internationally, in addition to foreign investors. The boutique size allows the Exchange to provide a more personalised service at very competitive fees, particularly to companies too small to list on a larger exchange or who wish to gain initial experience with EU capital markets. The ECM Market is comprised of the Equities Segment and the Bonds Segment, and has proved resilient and successful in the last years, despite the adverse economic climate.
With staunch efforts to continuously improve its service to the market and broaden the range of products and services, the CSE has also amended the Council’s Regulatory Decisions and the OASIS Trading System, with the aim of creating two new markets in the Emerging Companies Markets: a Shares Market for issuers whose Registry is not kept with the Central Depository/ Registry and a Bonds Market for issuers, whose Registry is not kept with the Central Depository/ Registry.
In 2016, the CSE introduced a new service tailored for the issuance of Legal Entity Identifier Codes (LEI). For interested legal entities, the CSE provides the ability to acquire a LEI code with the Assisted Registration process. This service is provided by the CSE in cooperation with the London Stock Exchange (LSE)/ Unavista, and the issuance of LEI codes is done through the Unavista platform. The CSE also continues to successfully provide the ISIN and CFI codes to interested market participants as the authorised ANNAs National Number Agency Representative for Cyprus.
Building a Strong Fund Profile
A CSE listing provides a number of advantages for fund managers and investors. The CSE is an EU-regulated and recognised exchange, which provides a better fund profile and credibility to investors. It has fast and simple listing procedures with minimum bureaucracy, advanced technology, infrastructure, flexibility and effectiveness at a low cost. There is great potential for listing Collective Investment Schemes, and both UCITS and Alternative Funds (AIFs) on the CSE, allowing fund promoters to attract greater interest from institutional investors. The CSE’s top priorities include the development of an Exchange Traded Funds (ETFs) Market. This, together with its other advantages such as Cyprus’ 12.5% corporate tax and access to European and other regional capital markets, could significantly help to further raise the CSE’s profile. The listing of UCITS units or shares and various other types of units of collective non-private investment schemes on the CSE became possible in 2012, following a relevant amendment of the Cyprus Stock Exchange Law. The CSE amended its regulatory decisions to cover the listing process of these investment schemes (with or without trading) in December 2013.
In regard to Alternative Investment Funds, Cyprus’ new fund framework allows the licensing of AIFs marketed to retail investors. Following an initiative taken by the CSE, an amendment to the legislation was brought into effect to also provide for the listing of AIFs on the CSE.
The CSE has a competitive pricing policy for both market participants and investors, with the potential to increase a fund’s investor base. Funds that obtain a listing can be more effectively marketed to investors and can therefore be considered as an eligible investment proposition for particular institutional investors, overcoming specific restrictions from investing in non-listed securities, or in investments that are not listed on a recognised exchange. A CSE listing also provides visibility and transparency to investors with the prices of Breakdown of Total Turnover Market Capitalisation of the Equity Market Listed Funds posted on the CSE’s website and disseminated to the market through the Exchange by major data vendors. Adequate price mechanism is provided, either through net asset value (NAV) postings or market prices, if traded. This parameter is important for fund managers who require a publicly quoted securities exchange price for their investments.
The Cyprus Stock Exchange has already accepted listings for 17 non-negotiated Collective Investment Funds – more specifically, two single scheme UCITS funds and 16 sub-funds of one UCITS umbrella scheme – bringing the total assets under management of these Listed Funds to €66.5 million. With the sector gaining momentum, more funds are expected to follow. Since 2014, Cyprus has received numerous enquiries from fund managers interested in listing their funds on the Exchange, following the amendment of CSE’s Regulatory decisions covering the listing process of investment schemes (with or without trading).
A Bright Future
Cyprus is creating a new regional market and is one of the fastest growing fund centres in Europe. The small yet dynamic Cyprus Stock Exchange is continuously diversifying its activities and services, and is committed to enhancing the competitiveness and accessibility of Cyprus for foreign investors. The CSE is establishing itself as an integral part of the country’s growth strategy, supporting efforts to strengthen Cyprus’ role as both a regional business hub and a financial centre.
To list in the Tradable Collective Investment Schemes Market, the key requirements are to obtain a license from the competent Authorities of the country of origin, assets of at least €200,000 and the appointment of at least one Market Maker on a continuous basis, for the purpose of sufficient trading. Also, a submission of the registry of unit holders or shareholders to the central depository of the CSE is required. In the case of an Exchange Traded Fund (ETF), the index provider must have granted the ETF issuer a license to legally use an underlying index in the name of the ETF and that it has the license to offer its units to investors in Cyprus. The key listing requirements for the Non-Tradable Collective Investment Schemes market are to have a license from the competent authorities of the country of origin and the Common Fund’s assets, or the variable capital investment company’s assets, must be at least €200,000. The CSE’s listing fees in regard to Collective Investment Schemes are considered very competitive, when compared to larger exchanges across Europe. The listing fee or application fee for the Tradable Collective Investment Schemes is €1,000 and for Non-Tradable Collective Investment Schemes €500. In addition to the application fee, there is an annual subscription fee of €1,000 for single Funds and €1,000 for umbrella Funds plus €400 per class or Sub-Fund.
Updated: March 2017