Cyprus: International Securities Law And Regulation – Second Edition - Cyprus

Last Updated: 14 June 2016
Article by Elias Neocleous and Achilleas Malliotis

Introduction

In General

The modern era for the securities sector in Cyprus began in 1996 with the inauguration of the Cyprus Stock Exchange (CSE), the first official stock exchange in Cyprus.

The CSE is modeled on current international securities rules and practices and aspires to consolidate the position of Cyprus as a regional business and financial services centre and boost the growth of capital markets in Cyprus.

Sources of Law

The principal legislation governing the issue and trade of securities in Cyprus is as follows:

  • Securities and Stock Exchange Law, 14(I) of 1993, as amended;1
  • Securities and Stock Exchange Regulations of 1995−2005 (Part 1);2
  • Securities and Stock Exchange Regulations of 1995-2005 (Part 2— Supplements);
  • Trading Rules (Regulatory Administrative Act) 409/2006, as amended;3
  • Regulatory Administrative Act 209/2011, as amended;4
  • Securities and Stock Exchange (Central Securities Depository and Central Registry) Laws of 1996−2006;5
  • Securities and Stock Exchange (Registering, Trading, and Settlement of Dematerialised Securities) Regulations 161/2001, as amended;6
  • Regulatory Administrative Act 81/2005, as amended, relating to members of the Cyprus Stock Exchange;
  • Regulatory Administrative Act 166/2005, as amended, relating to the Cyprus Stock Exchange Code of Conduct;7
  • Regulatory Administrative Act 596/2005, as amended, relating to the listing of securities on the Cyprus Stock Exchange, continuous obligations of issuers, and fees; and
  • Regulatory Administrative Act 398/2006, as amended, relating to the operation of the Central Registry and Central Depository.8

Regulatory Authorities

The CSE was established under the Securities and Stock Exchange Law in April 1993. A seven-member Council (CSE Council) is responsible for the day-to-day management of the CSE and the implementation of its policies.

The CSE is supervised by the Cyprus Securities and Exchange Commission (CySEC), which comprises a government commissioner, a representative of the Central Bank, and three other members appointed by the Council of Ministers.

The regulatory regime aims to balance the interests of issuers and investors, by providing proper protection to local and foreign investors, without making it unduly onerous for companies to obtain and maintain a listing on the CSE.

Admission to Cyprus Stock Exchange

The CSE is the only official investment exchange in Cyprus. The roots of the CSE date to 1979 when the Cyprus Chamber of Commerce and Industry established an unofficial over-the-counter exchange to regulate the growing securities market. As a result, a dynamic market had developed by the time the CSE opened its doors.

Market Participants

Only members of the CSE holding the requisite licence from the CSE Council may exercise the profession of stockbroker. The licence is readily granted if the broker satisfies a set of prerequisites relating to educational qualifications, professional experience, and personal and financial integrity.

Types of Traded Securities

Under the Securities and Stock Exchange Law, listed public sector securities, corporate securities of listed companies, and other securities which the CSE Council has declared as Stock Exchange securities can be traded on the CSE. These securities include shares, rights, warrants, corporate bonds, government bonds, and treasury bills.

Types of Transactions

The CSE boasts advanced technology comparable with that of established overseas exchanges. Its fully automated computerised trading system (consisting of the Central Registry Depository and Clearing & Settlement System) became fully operational on 7 May 1999 under section 22 of the Securities and Stock Exchange Law and regulation 33 of the Securities and Stock Exchange Regulations.

Opening Trading Account

All securities traded under the Central Registry Depository and Clearing & Settlement System are in dematerialised form with transfers effected through a central electronic book entry system maintained at the CSE. Investors who wish to execute stock exchange transactions can do so only if they have trading accounts. There are two types of trading accounts, namely:

  • A general trading account where an investor gives discretion to a member of the CSE to effect stock exchange transactions in relation to listed securities; in particular, the member is given the right to sell any security which the investor has or will have transferred to the general trading account, as well as the right to buy any security; and
  • A special trading account where the investor gives discretion to a member of the CSE to purchase (but not to sell) securities which will be transferred to the depository account of the investor as soon as they are acquired; the member is not given access to those securities and does not have the discretion to sell them.

Generally, an investor can open a number of trading accounts with various brokers and for a number of different purposes including for 'buy only' or 'buy/sell' trades. General or special trading accounts are easily opened using the prescribed form of application, namely, Form 10A for a general trading account and Form 11 for a special trading account.

A prerequisite to the opening of a trading account is the opening by the investor of a depository account, irrespective of whether or not there are any securities in the depository account. A depository account is the account in which all the dematerialised securities which an investor holds at the CSE Central Registry are recorded. A person wishing to acquire listed securities for the first time must open a depository account by application to the CSE using prescribed Form 1.

Central Registry and Depository and Settlement System

The Securities and Stock Exchange (Central Securities Depository and Central Registry) Law, 27(I) of 1996, provides for the establishment and operation of a central register for all securities listed on the Cyprus Stock Exchange, the dematerialisation of these securities, the settlement of transactions in respect of dematerialised securities, and related matters.

The Central Registry and Depository contains personal information on individual investors, details of the securities owned by them, and any changes in their shareholdings. More specifically, the Central Depository and Securities Register entails the replacement of share certificates by electronic computer records. Instead of certificates of securities, beneficiaries of registered securities are granted a certification of their status, the securities involved, and any charges they carry.

The Settlement System is the part of the Cyprus Securities Depository by which trades and transactions due for settlement are processed within the CSE. The Settlement System deals with the securities side of settlement at the individual investor level as well as the funds side of settlement at the market participant level (brokerage firms).

Security positions occur automatically within the system on the settlement date, while the settlement of cash positions between market participants and the clearing house occurs on the settlement date through the banking system. The system supports delivery versus payment settlement. There are two settlement methods which are utilised and which have as their intention the reduction of settlement risk and the enhancement of investor confidence and volume of trading. These are as follows:

  • Contractual Netting Settlement — where cash is netted by a market participant who is either a net buyer or a net seller; and
  • Trade-for-Trade Settlement — where each trade is settled for cash separately with no netting.

Over-the-Counter Transactions

As a general rule, the Securities and Stock Exchange Law prohibits over-the- counter trading of securities. However, certain transactions set out in section 23(1) of the Securities and Stock Exchange Law may be executed outside the CSE provided that they are notified to the CSE within three working days. To transfer securities in accordance with the Stock Exchange laws and regulations, the following must be delivered to the CSE:

  • A transfer document in the prescribed form (Form 2), signed by both the transferor and the transferee;
  • A form for notification of practices involving listed securities (Form 3); and
  • Transaction fees payable to the CSE9 in accordance with the Fees for Stock Exchange Transactions, Law Number 161(1) of 1999, as amended.10

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Footnotes

1 Laws 32(I) of 1993, 91(I) of 1994, 45(I) of 1995, 74(I) of 1995, 50(I) of 1996, 16(I) of 1997, 62(I) of 1997, 71(I) of 1997, 83(I) of 1997, 29(I) of 1998, 137(I) of 1999, 19(I) of 2000, 20(I) of 2000, 39(I) of 2000, 42(I) of 2000, 49(I) of 2000, 50(I) of 2000, 136(I) of 2000, 137(I) of 2000, 141(I) of 2000, 142(I) of 2000, 175(I) of 2000, 9(I) of 2001, 37(I) of 2001, 43(I) of 2001, 66(I) of 2001, 79(I) of 2001, 80(I) of 2001, 81(I) of 2001, 82(I) of 2001, 105(I) of 2001, 119(I) of 2001, 120(I) of 2001, 1(I) of 2002, 87(I) of 2002, 147(I) of 2002, 162(I) of 2002, 184(I) of 2003, 164(I) of 2004, 205(I) of 2004, 43(I) of 2005, 99(I) of 2005, 115(I) of 2005, 93(I) of 2006, 28(I) of 2007, 56(Ι) of 2009, 90(I) of 2009, and 171(I)/2012.

2 Regulations 214 of 1995, 342 of 1997, 268 of 2000, 361 of 2000, 59 of 2001, 139 of 2001, 329 of 2001, 141 of 2002, 306 of 2002, 368 of 2002, 614 of 2003, 579 of 2004, and 559 of 2005.

3 Rules 409 of 2006, 228 of 2007, 598 of 2007, 107 of 2008, 193 of 2008, 221 of 2008, 357 of 2008, 396 of 2008, 484 of 2008, 48 of 2009, 100 of 2009, 172 of 2009, 234 of 2009, 346 of 2009, 380 of 2009, 215 of 2011, 366 of 2011, 38 of 2012, 181 of 2012, 189 of 2012, 350 of 2012, 419 of 2013, 447 of 2014, 541 of 2014, 12 of 2015, and 119 of 2015.

4 Rule 508 of 2012 and 421 of 2013.

5 Laws 27(I) of 1996, 62(I) of 2001, 121(I) of 2001, 136(I) of 2002, 43(I) of 2003, 8(I) of 2005, 92(I) of 2006, 100(I) of 2008, 55(I) of 2009, 91(I) of 2009, 100(I) of 2010, 133(I) of 2011, and 148(I) of 2014.

6 Regulations 161 of 2001, 367 of 2002, 393 of 2003, and 123 of 2005.

7 Rule 526 of 2005.

8 Rules 446 of 2006, 22 of 2007, 170 of 2007, 552 of 2007, 604 of 2007, 64 of 2008, 340 of 2008, 21 of 2009, 102 of 2009, 255 of 2010, 317 of 2010, 363 of 2010, 507 of 2012, 48 of 2013, 179 of 2013, 423 of 2013, 449 of 2014, 55 of 2015, and 205 of 2015.

9 The seller of the securities or the person notifying the sale to the Stock Exchange, as the case may be, is the party responsible for the payment of the relevant transaction fees to the Stock Exchange.

10 Laws 167(I) of 2001, 28(I) of 2002, 92(I) of 2002, 231(I) of 2002, 187(I) of 2003, 60(I) of 2005, 150(I) of 2005, 192(I) of 2007, 142(I) of 2009, 177(I) of 2011, and 87(I)/2012.

Previously published by Juris Publishing

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Elias Neocleous
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