Leveraging on its geostrategic position, EU membership and cost-effective operating environment, Cyprus is determined to establish itself as a key listing gateway for both the EU capital market and emerging regional markets.
The Cyprus capital markets sphere has been developing over the last few years, supported by the country’s robust professional services sector and a growing investment funds industry. An added boost has come from shaking off the crippling weight of the 2013 financial crisis, with the country bouncing back to economic growth reaching almost 4% in 2017 – making Cyprus one of the fastest growing economies in the Eurozone.
There are numerous factors why the country’s appeal is slowly yet steadily growing as a listing jurisdiction. In these times of global financial and political upheaval and uncertainty, the small and stable European Union member state provides an efficient and cost-effective launch pad to tap into European markets. In addition, thanks to its favourable geostrategic location and solid relationships with its neighbours in the eastern Mediterranean region, the country serves as an ideal gateway for investors in the Middle East and the Balkan region, as well as in southern and eastern Europe.
Cyprus’ investor-friendly offering of a favourable and transparent tax framework, a European ‘passport’ for issuing, its euro currency, and the free transfer of funds and offer of securities, are becoming increasingly sought after by international businesses seeking a cost-conscious way to diversify their portfolios and tap into both the EU capital market as well as emerging regional and niche markets.
The Cyprus Stock Exchange
The Cyprus Stock Exchange (CSE) currently operates a Regulated Market and a Market in the form of Multilateral Trading Facility (the Emerging Companies Market - ECM), which operate under the Cyprus Securities and Stock Exchange Law and the Investment Services and Activities and Regulated Markets Law (MiFID).
Listed securities at the Cyprus Stock Exchange at present are shares, corporate bonds, government bonds/treasury bills, and Collective Investment Schemes (UCITS and AIFs), while the main participants of CSE are the members and custodians of the Stock Exchange – brokerage offices – as well as listed issuers and investors.
Additionally, in accordance with the relevant laws, the Exchange also has the responsibility for the establishment and management of a Central Depository and Central Registry (CSD). Securities listed on the CSE are registered in the CSD, and also unlisted securities, whose issuer wishes the maintaining of the registry by the Cyprus Stock Exchange.
The CSE has numerous strengths and offers multiple advantages. The Exchange operates on a ‘vertical silo’ model and provides all basic securities operations, such as listing, trading, clearing and settlement, as well as registry services. It operates with minimum bureaucracy and offers simple listing procedures, quick and effective processes and competitive pricing policies – all with the support of its experienced and specialised personnel to assist market participants.
The CSE also operates within an advanced legal and regulatory framework, complying with all EU Directives and internationally accepted securities practices – such as MiFID II, CSDR, Benchmark Regulation and GDPR – and offers a range of markets to accommodate various investor needs.
Emerging Companies Market
The Emerging Companies Market (ECM) of the Cyprus Stock Exchange offers simplified listing criteria at a low cost and is successfully attracting companies both locally and internationally. It has evolved from being a market mainly focused on small domestic companies, to a growing international market offering great opportunities to companies from around the world. The boutique size of the Market allows the CSE to provide a more personalised service at very competitive fees, particularly to companies that are too small to list on a larger exchange or wish to gain their first experience of listing securities in an EU capital market. The ECM Market has proved resilient and successful in the last years, despite the adverse economic climate of the last few years and allows companies with an attractive commercial proposition to launch successful IPOs.
Collective Investment Schemes
A CSE listing also 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, of both UCITS and Alternative Funds (AIFs) on the CSE, allowing fund promoters to attract greater interest from institutional investors.
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 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-tradable Collective Investment Schemes – more specifically, two single scheme UCITS funds and 15 sub-funds of one UCITS umbrella scheme – bringing the total assets under management of these listed funds to €56.5 million. With the sector gaining momentum, more funds are expected to follow.
The total volume of trading on the CSE showed a decrease in 2017 of €83.5 million compared to €307 million in 2016. However, total market capitalisation, including the Bonds Market, reached €4 billion in 2017, compared to €3.9 billion at the end of 2016, showing an increase of 0.25%. The financial sector was the largest group, as far as market capitalisation of the equity market, with 63.35%, followed by consumer services with 15.97%. The total number of securities traded in 2017 reached 190 million. Shares traded contributed around 75.2% of the total volume. Investors primarily focused their interest on the shares of Bank of Cyprus Holdings Plc and also on the Convertible Capital Securities of Hellenic Bank Public Company Ltd, with 62.82% and 4.7% of the total value respectively.
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.
The Exchange is also a full member of various international associations, such as the WFE (World Federation of Exchanges), Federation of European Securities Exchanges), ANNA (Association of National Numbering Agencies), ECSDA (European Central Securities Depositories Association) and FEAS (Federation of Euro-Asian Exchanges). In addition, the CSE in cooperation with FTSE Russell, calculates the FTSE/CySE20 Index, with the purpose of providing a real-time measure of the trend of the prices of the 20 listed companies in accordance with FTSE criteria.
The CSE offers fully computerised online trading, clearing and settlement. Investors have access to the Securities listed on the CSE Market as well as to the securities listed on the Athens Exchange Market through the Common Trading Platform established between the two Exchanges, Athens (Athex Group) and the CSE. rough this platform, Greek Market Participants (Members and Custodians) have access to view and trade the securities listed on the CSE and vice versa.
The CSE also provides a successful service to non-listed companies that wish to submit their registries for handling by the Cyprus Central Depository and Central Registry.
A Regulatory Framework has also been pre- pared for the listing 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.
Additionally, 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 companies.
The CSE has also been appointed by the Cyprus Securities and Exchange Commission (CySEC) as the Officially Appointed Mechanism for the Storage of Regulated Information (OAM) for Cyprus according to the provision of the Transparency Directive. The OAM system makes use of digital signatures and has replaced the previous procedure which required the submission of announcements by fax and e-mail. The CSE also provides digital signatures to interested parties.
Additionally, the CSE has been appointed by the Ministry of Agriculture, Rural Development and Environment to act as the auctioneer of Greenhouse Gas Emission Allowances (EUAs) in the Republic of Cyprus. The Exchange is responsible for the supply of allowances to be auctioned in the Primary Market on behalf of the Cyprus Government.
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/Unavista, and the issuance of LEI codes is done through the Unavista platform. The CSE also continues to successfully provide the FISN, ISIN and CFI codes to interested market participants as the official National Representative for Cyprus, as appointed by ANNA.
A Promising Future
Cyprus Stock Exchange aims at exploiting its comparative advantage of being geographically positioned to become an ideal link between a number of regional markets and the European Union. Additionally, the Exchange intends to play a substantial development role by meeting the specialised needs of both Cypriot businesses and international market players, while at the same time being part of the country’s broader plans of economic growth and expansion into new areas and markets. These ambitions coming to fruition are supported by Cyprus’ strong professional services sector consisting of highly trained lawyers, accountants, custodians, tax and investment advisors, as well as portfolio managers – all ready and able to cater to the growing interest from international investors.
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