Cyprus: Securities Finance: An Overview Of The Legal Framework In Cyprus

Regulatory Regime

Statutes and regulations governing securities offerings

The main statutes governing securities offerings are: the Public Offer and Prospectus Law, 114(I) of 2005 that implemented Directive 2003/71/EC on the contents of prospectuses when securities are offered to the public or admitted to trading (the Prospectus Directive), the Insider Dealing and Market Manipulation (Market Abuse) Law, No. 116(I) of 2005, implementing the EU Market Abuse Directive (2003/6/EU), the Cyprus Securities and Stock Exchange Law, 14(I) of 1993 and The Cyprus Securities and Exchange Commission (Establishment and Responsibilities) Law, number 64(I) of 2001; but also the Regulations made under the Cyprus Securities and Stock Exchange Law, and in particular the 1995 Regulations as amended.

To the extent that securities would be offered as part of a takeover bid then the Public Takeover Offers Law, 41 (I)/2007 would apply.

Regulatory authority

The Cyprus Securities and Exchange Commission is the regulatory authority that is primarily responsible for the administration and enforcement of Cyprus securities laws and therefore approves the prospectuses including the consistency of the information given and its comprehensibility. The Cyprus Securities and Exchange Commission also supervises the organised markets operating in Cyprus.

By section 6 of law 64(I) of 2001 the Commission "shall be entrusted with the responsibility of supervising the capital market, securing its smooth operation and methodical development and the monitoring of transactions in transferable securities taking place on the territory of the Republic through the Stock Exchange or outside the Stock Exchange."

Public offering of securities – regulatory/stock exchange filings.

No offer of securities to the public can be made without the publication of a prospectus which has been approved by the Cyprus Securities and Exchange Commission. Supplementary information also requires approval from the Cyprus Securities and Exchange Commission.

Information to be included

Information contained in any prospectus is governed by the Public Offer and Prospectus Law (114(I) of 2005), ensuring a high level of protection to investors. Section 8 of the said law provides that the prospectus shall contain all the information which, according to the particular nature of the issuer and of the securities offered to the public or admitted to trading on a regulated market, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the issuer and of any guarantor, and of the rights attaching to such securities".

The information must be in a language that is readily understandable to the investor and must allow the investor to make an informed decision as to whether to acquire or maintain securities in the company. There is a special requirement that, when explaining the risks involved in any investment or in the specific sector of the company's activities, non-technical language must be used.

A prospectus approved by a competent authority of another EU member state shall and will be accepted in Cyprus for making an offer to the public.

Offering regulated securities to the public without a prospectus is a criminal offence punishable by imprisonment of up to two years and/or a fine of up to C£100,000 (equivalent to approximately €172,500).

The prospectus need not be one document but may comprise of a number of documents viewed together as the "prospectus".

In the event of non equity securities (including warrants) a short basic prospectus may be issued not necessarily as full as the prospectus for the offer of equities.

The preparation of the prospectus is the work of the company's sponsor, who may also be the underwriter of the issue. The sponsor is a person or entity licensed to offer investment services by the Cyprus Securities and Exchange Commission.

Registration, filing process and timing.

Before any security may be traded in the Cyprus Stock Market, the prospectus of the company must be approved and a day for an IPO or direct date of trading must be set by the Cyprus Securities and Exchange Commission. The Commission scrutinises the prospectus and, taking into account the need to enhance investors' protection and the smooth operation of the capital market, it may require the offeror and the sponsor responsible for the drawing up of the prospectus to make whichever reasonable adjustments or corrections it considers necessary to secure transparency in the capital market.

The decision of the Cyprus Securities and Exchange Commission regarding the approval or rejection of the prospectus is notified to the issuer, the offeror, or the person asking for admission of securities to trading on a regulated market, as the case may be, within 10 working days of the submission of the draft prospectus. It is provided that if the Cyprus Securities and Exchange Commission fails to give a decision on the prospectus within the time limits abovementioned, this shall not be deemed to constitute approval of the application. This time limit shall be extended to 20 working days if the public offer involves securities issued by an issuer which does not have any securities admitted to trading on a regulated market and who has not previously offered securities to the public.

The Company may accept funds under irrevocable applications of intended investors which must be maintained in a separate escrow account pending approval of the application. In the past there was no requirement for escrow accounts and companies expecting listing were receiving investor funds and issuing shares in return without waiting for approval. As a result there were thousands of criminal cases filed in the Cypriot Courts for failure to refund the money to investors and a major social problem arose. Now the rules do not allow the use of investor funds until the application is approved.

It is quite customary to alert the financial market about the intended offering by circulating a version of the prospectus to the financial institutions, possible underwriters, large investment managers, etc in advance of any approval. However this is made under the clear warning that it is not an offer to the public at large. Under this procedure private placement of shares may sometimes take place and the terms thereof must be fully disclosed to the Securities and Exchange Commission as part of the final draft of the prospectus. As this is on a very limited scale it does not constitute a public offering.

Publicity restrictions

Subject to the provisions of section 34 of EU Regulation 809/2004 any types of advertisements relating to an offer of securities to the public or to an admission to trading on the Cyprus Stock Exchange or on other regulated market that takes place in the Republic of Cyprus shall observe the following principles contained in section 30 of Law 114(I) of 2005 that apply only when there is an obligation to draw up a prospectus:

they shall state that a prospectus has been or will be published and indicate the places where investors will be able to

obtain it, or how investors will be able to have access to its full text;

they shall be clearly recognisable as such;

the information contained shall not be inaccurate or misleading but consistent and without any conflict or discrepancy with the information contained in the prospectus if already published, or with the information required to be in the prospectus, if the prospectus is published afterwards;

  • all information, announcements or advertisements concerning the offer to the public, shall be consistent with that contained in the prospectus;
  • any type of announcements and advertisements announcing the offer or the admission to trading on the Cyprus Stock Exchange or other regulated market, shall be previously filed with the Cyprus Securities and Exchange Commission that examines whether the advertising activity and the announcements regarding the offer of securities to the public on the Cyprus Stock Exchange comply with section 30 of Law 114 (I) 2005.

There are no particular restrictions on the ability of underwriters to issue research reports and it is quite common to do so in order to attract institutional investors.

Under the Public Offer and Prospectus Law the prospectus itself may not be published prior to it being approved. There is however no restriction on release of general information about the issuer through the use of underwriters' research reports.

Primary and secondary offerings

There are no special rules differentiating between primary and secondary offerings in the Public Offer and Prospectus Law. The issue of secondary offerings also requires a prospectus unless another prospectus by the company has been issued and approved, in which case a mini-information memorandum will be required.

However, there is a requirement that all secondary offerings are first offered to the existing shareholders of the company on a pro rata basis unless the general meeting of the company authorises by special resolution the offer of the securities directly to a third party or parties. This right of pre-emption may not be nullified by any relevant reference in the company's articles of association. Indeed, the Commission has requested companies with articles not containing the pre-emption clause to make appropriate amendments to include it.

The settlement process

The securities in Cyprus are in uncertified form and are managed by the central registry operated by the Cyprus Stock Market. This became necessary after the market boom of 1999, when such a great volume of transactions were made daily that the private companies could not keep up.

The issuer is obliged to issue statements to any shareholder or other security holder evidencing the investors holding of the shares or other securities. The Companies Law Cap 113, provides that such document must be provided to the shareholder at the latest within two months from the allotment or transfer of the securities onto the name of the investor.

Private placings

There are no provisions in the law requiring special procedures for private placements.

Law 114 (I) of 2005 section 4(3), provides the types of offer that do not require the publication of a prospectus and which offers can be considered as non-public offers. These provisions include any offer of shares:

  • to professional investors (financial institutions, the government, large companies etc);
  • to a limited number of investors;
  • in packets or as a singular share requiring a consideration of at least €50,000 per investor, (provided that any unit or package may not be co-owned by more than one investor)

Information that must be made available to potential investors

If an offer is exempt from the obligation to publish a prospectus according to the Prospectus Directive and to Law 114(I) 2005 and qualifies as a private placement, the relevant law (section 30 subsection 7) provides that where no publication and approval of a prospectus is required, material information provided by an issuer or an offeror and addressed to qualified investors or special categories of investors, including information disclosed in the context of meetings relating to offer of securities, shall be disclosed to all qualified investors or special categories of investors to whom the offer is exclusively addressed.

Requirements for transferring securities acquired in private placings

There are no legislative requirements regarding the transferability of securities acquired in a private placement. However there is a practice of requiring lock-up deeds to be entered into as a prerequisite for the acceptance of applications for private placements. These vary in context and application depending on the company and the percentage of its shares offered by private placement.

The Cyprus Stock Exchange and the Cyprus Securities and Exchange Commission have viewed such arrangements sceptically as they are in effect a hindrance to the free availability of shares in the market. Generally, lock-up deeds must be disclosed and are only allowed if they constitute such a small fraction of the total freely available shares as to be of insignificant weight in the determination of the share prises through the market mechanisms.

Offshore offerings

Domestic rules on offshore offerings

The Cyprus Securities and Exchange Commission shall, at the request of the issuer or the offeror provide the competent authority of the host member state, within three working days following that request or, if the request is submitted together with the draft prospectus, within one working day after the approval of the prospectus:

a certificate of approval, attesting that a prospectus has been drawn up in accordance with the Cyprus Law 114 (I) of 2005;

a copy of the approved prospectus by the Cyprus Securities and Exchange Commission.

These documents may be accompanied by a translation of the summary note which is drawn by and under the responsibility of the issuer or the person responsible for drawing up the prospectus.

Particular financings

The Public Offer and Prospectus Law and the Directive do not apply to non-equity securities issued in a continuous or repeated manner by credit institutions provided that these securities are not subordinated convertible or exchangeable (Section 3(2)(s t)(i)). The directive in preamble paragraph (12) defines convertible notes as falling within the definition of non-equity securities.

There are no special considerations that apply to offerings of exchangeable or convertible securities, warrants or depositary shares.

Underwriting arrangements

Types of underwriting arrangements

Book building and fixed price underwriting arrangements are common in the CSE under the usual terms thereof.

Indemnity provisions

The underwriters will certainly require the issuer to provide them with an indemnity against all claims or losses arising out of the breach of the representations and warranties and any untrue statements or omissions contained in the prospectus. If the underwriter is also the sponsor then typically he will require representations and warranties concerning the information given to him to include in the prospectus. Typically the underwriter will require also an indemnity against all claims against him for his services as underwriter, save for gross negligence or fraud.

Section 53 of the Companies Law Cap 113 prohibits a company from giving financial assistance, whether directly or indirectly, to a person acquiring or proposing to acquire shares in the company including financial assistance given by way of an indemnity. Therefore there can be no general indemnity in any underwriting agreement for any losses to the underwriter if the latter is called upon to purchase shares in the company. If there is such an indemnity it will be considered void on the grounds of illegality.

There is of course no limitation to an indemnity or undertaking to pay damages for any breach of representation or warranty made by the issuer to the underwriter.

Force majeure clauses

Force majeure clauses are quite common and include not only the usual war and act of God provisions but also events related to the financial markets, change of taxation, problems with the smooth operation of the stock market in which the shares will be offered, etc.

Success fees

Success fees depend on the underwriting agreement itself and are negotiated between the underwriter and the issuer.

Over-allotment provisions

Where the underwriter is also to undertake price stabilisation (for example in the context of an IPO) overllotment provisions are often included in the underwriting agreement.

Additional regulations which apply to underwriting arrangements

With regard to the commission payable to the Underwriter the same must be authorised by the articles of the issuer and cannot exceed 10 per cent of the price at which the shares are offered. Any specific arrangements made in the underwriting agreements, including the commission payable with respect to the underwriting services to be provided to the issuer, must be disclosed to the public.

Ongoing reporting obligations

At the time when the issuer becomes listed on the Cyprus Stock Exchange it also becomes subject to ongoing reporting obligations. During the period of the examination of the issuers' application for listing the issuer must keep the Commission informed of all facts relevant to the application.

Required information to be made available to the public

All sensitive or 'inside' information must be disclosed. This is any information that a reasonable investor would use in order to reach his investment decision either in terms of holding onto the securities or selling them in the market as well as any information which is important for the due operation of the market mechanisms in the determination of the price of the shares of the issuer.

The CSE law 14(I)/1993, specifically provides that all contracts with related persons or entities must be disclosed if their value is above C£100,000 (approximately Ä172,500) per year per person or group of related persons.

Anti-manipulation rules

The Market Abuse Directive of the European Union (2003/6/EC), implemented by the Law on Insider Dealing and Market Manipulation (Market Abuse), No. 116(I) of 2005, applies in Cyprus, an EU member state, with all types of market abuse stated therein being prohibited practices for the Cyprus Stock Market.

As mentioned elsewhere, an issuer is prohibited from making misleading statements either within the context of a prospectus or in breach of the issuer's obligation to disclose important and/or sensitive information. Similarly, the withholding of such information is also prohibited. Failure to announce sensitive information or making a misleading statement amounts to a criminal offence and also creates civil liability for damages in favour of any proper recipient who suffers loss as a result of the issuer's breach of his obligations.

Under Law 116(I) of 2005, the offence of market manipulation is committed if a person takes any action or engages in any course of conduct which creates a false or misleading impression as to the market in, or the price of, any investments for the purpose of creating that impression of inducing another person to deal or not to deal in those investments.

The offences of making misleading statements and market manipulation are not mutually exclusive; liability can arise under both offences simultaneously.

Lastly, a person fraudulently using confidential information or passing on to another person confidential information regarding any security listed in the Stock Exchange, which is not generally available to the public through the announcements of the issuer or contained in the prospectus or otherwise, is guilty of a criminal offence.

Price Stabilisation

"Pursuant to s.3(3)(b) of the Insider Dealing and Market Manipulation (Market Abuse) Law, No. 116(I) of 2005, and the Announcement of Cyprus Securities and Exchange Commission, dated 13th January 2005, measures taken for the stabilisation of financial instruments are deemed to be permitted, provided that they are carried out in accordance with implementing measures adopted in accordance with the provisions of Commission Regulation 2273/2003/EC.

As such, the Law permits stabilization of price of securities in connection with an offering on the following conditions – that the stabilisation occurs for a limited period of time, in any case no longer than 30 days from the date of commencement of trading, that an appropriate disclosure regarding the intended stabilisation has been performed and that the stabilisation is not performed above the offering price. If the stabilisation fails to comply with these requirements, it would not be deemed an exception from the general provisions of the Insider Dealing and Market Manipulation (Market Abuse) Law."

Liabilities and enforcement

The most common basis of liability for Securities transactions is breach of the regulations concerning abuse of the market and misleading announcements by the issuers that induce investors to acquire the shares.

Such liability in certain cases can amount to criminal responsibility as well as a civil obligation to refund the investment or pay damages (or both) for misrepresentation or breach of contract.

The main mechanisms for seeking remedies and sanctions for improper securities activities

Civil actions seeking remedies are usually based on misleading announcements that induced investors to acquire the shares or have otherwise affected their investment decisions. It is doubtful whether purely administrative breaches give rise to civil claims and in most cases they will not be held to do so.

The CSE Law as well as the Public Offers and Prospectus Law provide that whoever violates the mandatory provisions thereof is guilty of a criminal offence and can be prosecuted before a Criminal Court with possible imprisonment and/or fines being imposed depending on the type of the offence involved.

The Cyprus Securities and Exchange Commission can impose administrative sanctions, either ex officio or upon submission of any relevant complaint. The Cyprus Securities and Exchange Commission has the power to impose administrative fines under section 30 of the Cyprus Securities an Exchange Commission (Establishment and Responsibilities) Law. Subject to the provisions of the section, the Cyprus Securities and Exchange Commission's power to impose administrative fines is limited to:

  • legal persons;
  • directors, managers or officials, if it is proved that the violation was their own fault, wilful omission or negligence; or
  • legal persons and their directors, managers or officials, if it is proved that the violation was their own fault, wilful, omission or negligence.

Where an administrative fine has been imposed, the offender is additionally liable for any damages, including loss of profits, caused to any person who responded to the public offer and purchased securities. This can be done through a civil action.

This article was first published in Getting the Deal Through - Securities Finance 2009, (published in March 2009, contributing editor Mark Greene).

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions