The capital markets landscape in Cyprus has seen development over the last few years, supported by the country’s strong professional services sector and a growing investment funds industry. As a regional market with personalised service, Cyprus’ offering is increasingly sought after by international businesses seeking a cost-effective way to diversify their portfolios and tap into the capital markets of the EU and emerging niche markets.
Cyprus’ appeal as a listing jurisdiction is steadily growing due to its cost-effectiveness, investor-friendly and transparent tax framework, European ‘passport’ for issuing, euro currency, and the free transfer of funds and offer of securities. The country has set its focus on building a reputation as a key listing jurisdiction for other emerging markets and to establish itself as a convenient gateway into the European capital market. At the heart of these efforts is the Cyprus Stock Exchange (CSE). The Exchange has positioned itself as an essential growth lever for the further development of the Cyprus economy, and has continuously been launching initiatives and new boutique services to attract more participants and satisfy discerning market demands.
Taking into consideration the need for local companies, and the Cyprus economy in general, to recover from the negative effects of the Covid-19 pandemic, the key goal for the CSE in 2020 is to strengthen its role within the economy as a vital capital raising tool to enable companies and institutions to expand their activities. Equally important in this quest is to attract new companies to list their securities on the CSE’s markets thus providing new investment opportunities. The CSE has numerous strengths and offers multiple advantages. The Exchange provides all basic securities’ operations, such as listing, trading, clearing and settlement, as well as registry services. The Exchange also operates within an advanced legal and regulatory framework, complying with all EU Directives and internationally accepted securities’ practices.
Tapping into Markets
The Exchange currently operates a Regulated Market and a Multilateral Trading Facility – the Emerging Companies Market (ECM) – for shares and bonds, which operate under the Cyprus Securities and Stock Exchange Law and the Investment Services and Activities and Regulated Markets Law (MiFID). Shares, rights, warrants, corporate bonds, government bonds/ treasury bills, collective investment schemes and Global Depositary Receipts (GDRs) can be traded on the CSE, with the most popular being shares and bonds. Currently, CSE participants include 20 Members (Broker Firms), 13 Custodians and 56 Nominated Advisors.
The Main Market, Alternative Market, Corporate Bonds Market, Government Bonds Market, Collective Investment Schemes Market and the Depository Receipts are all segments of the Regulated Market, which currently lists 65 International Securities Identification Numbers (ISINs) for shares, 21 ISINs for bonds and 21 ISINs for funds.
The ECM also accepts listing of shares and bonds for companies whose registry is not kept by the Cyprus Central Securities Depository and Central Registry (CSD) – with 44 ISIN’s for shares and 24 for bonds listed in total. The ECM offers simplified listing criteria at a low cost and is successfully attracting companies both locally and internationally. It has evolved from being mainly focused on small domestic companies, to a growing international market offering opportunities to companies from around the world – and allows for a more personalised service at 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 within the EU. The ECM has proved resilient and successful in the last years, despite the adverse economic climate and offers companies with an attractive commercial proposition the opportunity to attract funds.
Additionally, the Exchange has the responsibility for the establishment and management of a Central Depository and Central Registry (CSD). The majority of the securities listed on the CSE are also registered in the CSD. Furthermore, issuers of non-listed securities that wish to have their registry maintained by the Cyprus Stock Exchange may assign this job to the Cyprus CSD.
Diversification and Expansion
In an effort to expand its business, the CSE is focusing on sectors that are showing strong performance, such as funds, shipping, and energy. The aim is to ensure that the securities’ market can provide the necessary tools and prospects to participants to achieve their targets, and also provide regional market participants and companies a convenient venue for listing and investing in a transparent, efficient and business-friendly environment.
With regards to funds, the Cyprus Stock Exchange has taken several initiatives. CSE operates two markets for listing funds, the Market for Tradable Collective Investment Schemes and the Market for Non-Tradable Collective Investment Schemes. Listing provides visibility and transparency to investors, and the Exchange provides fast and simple listing procedures and a competitive pricing policy. In addition, the CSE has launched a new service in order to offer registry services to fund managers, which means maintaining the registry of unit holders of non-tradable funds at the CSE’s Central Depository and Central Registry in a dematerialised form, and handling redemptions and transfers of funds’ units.
In the energy sector, the CSE holds a 10% stake in the Hellenic Energy Exchange (HEnEx) – which was founded as part of the EU’s target model to create a single energy market and is expected to launch operations in accordance with the new target model as set by EU within 2020. The CSE is also examining other opportunities regarding the energy sector which are expected to be published in the near future.
For 2019, the turnover amounted to €85.3 million, which represents a year-to-year decrease of 35.40%, compared to the turnover of €132.1 million in 2018. The daily average turnover for 2019 was €0.35 million per trading day, compared to €0.53 million in 2018. At year-end, the equity market capitalisation, amounted to €1.89 billion, compared to €1.93 billion at the end of 2018, thus registering a decrease of 1.99% from the previous year. The financial sector was the largest economic group as far as market capitalisation of the equity market is concerned, with 56.75%, followed by the industrials services with 12.68% of the equity market capitalisation.
Strong Funds Industry
A sector that was nearly non-existent a few years ago, Cyprus catapulted itself into recognition by overhauling and modernising its investment funds regulatory framework. There has been growing interest from fund professionals around the world, but most notably from Europe, Asia and the Middle East, whose fund managers are increasingly seeking access to the EU market. Assets under management (AuM) in Cyprus have increased by 200% from €2.7 billion in 2016 to €8.3 billion in 2019, demonstrating that Cyprus is able to compete with Europe’s longer established fund domiciles.
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 transparent fund profile and credibility to investors. It has fast and simple listing procedures with minimum bureaucracy, advanced technology, infrastructure and effectiveness at a low cost. There is great potential for listing Collective Investment Schemes, of both UCITS and Alternative Investment Funds (AIFs) on the CSE, allowing fund promoters to attract greater interest from institutional investors. The favourable environment provided by Cyprus attractive tax regime, the legal framework which is harmonised with EU Directives, and the vast pool of skilled professionals provide the necessary prerequisites for enabling the future growth of the funds industry. 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. Additionally, two AIFs are also listed on the non-tradable Collective Investment Schemes, one single scheme and one umbrella scheme with two sub-funds.
The island is positioning itself as a cost-effective alternative to the larger European fund centres like Luxembourg and Ireland, and many in Cyprus believe the sector has a great future ahead, estimating that AuM could reach €12 billion in the next five years.
A key strategy of the Cyprus Stock Exchange is one of regional growth and collaboration with neighbouring stock exchanges, by signing Memorandums of Understanding with other exchanges.
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 (Athex Group) through the Common Trading Platform established between the two Exchanges. Through 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.
Additionally, the Exchange also introduced a regulatory framework for the operation of the Depository Interests (DIs) to facilitate the clearing and settlement of cross-border trades between the CSE and London Stock Exchange (LSE) 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 – a system that makes use of digital signatures. Regarding digital signatures, the CSE has been assigned the role of a Local Registration Authority (LRA) of an authorized Registration Authority (RA). The CSE, as an LRA of an authorized RA, mediates for the issue of: Qualified Certificates for Electronic Signatures (natural person), Qualified Certificates for Electronic Signatures (natural person associated with legal person) and Qualified Certificate for Electronic Seal (legal person). Organizations or Companies can obtain from the CSE qualified certificates for electronic signatures/ seal, which they may use in their operations. An increasing number of organisations and companies choose to adopt the use of qualified electronic signatures to replace procedures requiring documents in printed form (ratified by seals and signatures).
In addition, the CSE acts 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. The CSE issues Legal Entity Identifier Codes (LEI) to interested legal entities. 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.
Raising Future Funds
Unfortunately, the economic consequences of the global Covid-19 pandemic cannot be easily assessed. Even though the majority of listed companies announced to the investing public the effects of the pandemic on their businesses, there remains uncertainty about the future. The CSE has an important role to play in the recovery of the Cyprus economy and as such it has the necessary tools to attract new companies to raise funds through the listing of their securities thus providing investors new investment opportunities. Over the years, Cyprus has time and time again proved its resilience, and armed with numerous comparative advantages – such as its geostrategic location, EU membership, investor-friendly environment and strong professional services sector – there is much potential to be harnessed in developing a stronger and more dynamic market and cement the country’s foundations as a key EU player in the wider region.
For more information, contact Cyprus' investment promotion agency, Invest Cyprus.
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