Cyprus — long a land for tourists looking for a beautiful island getaway on the Eastern Mediterranean — is steadily becoming a hotspot for international investment. And the Cyprus Stock Exchange, considered an exchange specialised in niche markets, is playing its part in the transformation of the Cypriot economy into an emerging financial services centre.
The exchange, known as the CSE, was founded a little more than two decades ago, when the Cypriot House of Representatives passed the Cyprus Securities and Stock Exchange Laws and Regulations, in 1993 and 1995. Its first trading session opened on March 29, 1996. Historically, trading was focused on the banking sector. Now, while the sector continues to play a large role in the exchange, the CSE has swung open its doors to small and medium sized enterprises (SMEs), emerging companies and markets, and the international community writ large.
“The tourism sector and the hotel sector are both very important sectors of the Cypriot economy. The shipping and the maritime business, as well, is another important sector of the economy, along with the R&D [research and development] and the new SMEs,” said Nicos Trypatsas, General Manager of the Cyprus Stock Exchange, “So, the exchange should not only focus on the banking sector, but also be strengthened and advanced by other sectors as well.”
The Emerging Companies Market (ECM) of the CSE, for example, provides innovative, medium-sized, local and international companies, with an avenue to list shares or bonds on the CSE, and is considered especially important for SMEs looking to expand.
“This [the ECM] has proven to be very successful in the last seven years of its operation, despite the adverse economic crisis of Cyprus five years ago, and its repercussions”, said Trypatsas, highlighting the fact that a large number of companies have undertaken listings on the ECM. However, the appeal of this market has also managed to entice companies and bonds beyond Cypriot borders, ranging from the United Kingdom to Greece to Malta, among others. Trypatsas, who has been with the CSE since its start, is recognised as an expert in the securities market.
“We are trying to be low cost and flexible, and provide a good service to our clients, and based on this, a number of companies who wanted to get a listing on an exchange found a way through the ECM Market — which we consider is a very fast and efficient way to obtain a listing on a market”, commented Trypatsas.
Part of the ECM’s success stems from the fact that, while it was formed on a multilateral trading model based on European directives, it operates under a more flexible institutional framework, and a lower pricing policy compared to the Regulated Markets, which are structured according to the MiFID I and II Directives. These directives are overseen by the European Securities and Markets Authority (ESMA), and create a legislative framework for stronger investor protection, and more stringent financial markets regulation in the EU. MiFID II went into effect in January 2018. While the rest of the CSE has complied with these regulations — meaning funds are allowed to be listed on the Cyprus exchange — the ECM is run by its own, more flexible regulations.
In the ‘normal’ market, the CSE has been making major inroads as well. It has joined forces with fund managers, the Cyprus Investment Funds Agency, and Invest Cyprus — along with other market participants — in order to strengthen the funds industry in Cyprus, which has hit record highs in recent years. The total number of assets under management rising by about 29 percent to 4.45 billion euros in March of last year, compared to the previous December, according to the Central Bank of Cyprus.
The CSE proceeded to change the regulatory framework, to enable the listing of funds on the one hand, while also categorising this facility into two segments: collective scheme uses, and alternative investment funds (AIFs). “There is transparency and daily publication of the price of the fund, [and] we have proceeded to provide a very competitive fee structure”, explained Trypatsas, adding that “such a listing provides a better market profile to fund managers”.
Beyond local partnerships, the CSE — for more than a decade now — has had a strategic cooperation with the Athens Stock Exchange (ASE). Part of that cooperation entails a highly advanced technological infrastructure that the two platforms have operated since 2006, which enables automated trading for all securities listed on both the CSE and the ASE — with all trading information being stored in a joint database.
Regarding the ASE partnership, Trypatsas noted, “We are continuously trying to adopt the new regulations, the new directives of the European Union, and the new international practices — so, we are trying continuously to find ways of having synergies, economies of scale, and also giving the opportunity to market participants in Cyprus and in Greece (…) to proceed to cross border activity [between both countries].”
And, of course, the CSE has stretched beyond its neighbourhood, as it continues to expand and enable Cyprus’ transformation into a financial centre — while acting as an entry point for international companies looking to access the EU capital markets.
A main way the CSE establishes these international relationships, is through memorandums of understanding (MoUs), which create formal partnerships, but are not legally binding. “We have already signed MoUs with Israel, with Egypt, with Jordan (…), and a number of other exchanges worldwide,” Trypatsas stated.
These MoUs are aimed at collaboration in the listing of securities, regulation of the markets, and any technological advances in the field. The MoU with the Israel Securities Authority, for example, includes cooperation on the supervision of the financial markets, including the monitoring, and surveillance, of over-the-counter transactions in securities listed on regulated markets.
All of these efforts by the Cyprus Stock Exchange — including its international expansion, and its strengthening of cooperation with local entities — are contributing to position the CSE as a niche, and highly competitive gateway to EU capital markets.
Looking ahead, and with the European Commission’s sights on the creation of a Capital Markets Union, that would boost investment flows across Europe by removing barriers, harmonising rules, and ensuring legal certainty in cross-border transactions — Trypatas is cautious, but optimistic.
“It is a plan that is ambitious”, said Trypatsas, however “if it is properly advanced and implemented in the future, yes, I would believe that it is going to help the companies and the economy to grow faster and better, through the capital markets.”