Cyprus: CSE Could Take Three Years To Become 'Proper' Stock Exchange Says Expert

by Lorys Charambolous, Tax-news.com, Cyprus

09 April 2001

In an attempt to improve the fortunes of the beleaguered Cyprus Stock Exchange (CSE), the Cyprus Finance Ministry last year drafted in a Greek team headed by stock market expert Demetris Tsimbanoulis to draw its own conclusions on the problems that have beset the exchange.

We have regularly reported on the findings of Mr Tsimbanoulis' report as he informs the House Finance Committee during the various stages of its progress. The recent conclusion that Mr Tsimbanoulis has come to is that it will take a good three years before the CSE can become a 'proper fully-fledged market based on a solid legal and institutional framework that would attract foreign investors.'

Mr Tsimbanoulis informed the House Finance Committee last week that: 'If Cyprus shows the necessary care and vigilance, it could create the necessary institutional and legal framework that would make it a reliable market within a short space of time (around three years). I believe the potential is there and with care and understanding, without involvement of small-minded party politics and interests, and I am not saying I have observed such phenomena, a reliable Stock Exchange could be created.'

Mr Tsimbanoulis said he had particular reservations over issues such as the provision of investment services, transaction settlements and the absence of any requirements for underwriters to answer to an authority for their actions. He called for a strict framework to provide effective guidance on investment services, rules of conduct and impose fines.

According to news service Xak.com, Mr Tsimbanoulis observed 'voids and weaknesses' related to the CSE's IPO procedure 'where there are no provisions to enable the administrative punishment of underwriters so that they are aware of the great responsibility they take in underwriting new issues.'

He also noted the need for legal guidelines to govern and promote the transparent operation and management of companies which would prevent large shareholders from exploiting small and medium shareholders.

The Cypriot transaction settlement system did not escape Mr Tsimbanoulis' critical eye either as he condemed the 3 days+5-system that currently applies, saying that it raised 'seismic' danger and the risk of an avalanche if anything went wrong because it would have a knock-on effect throughout the market. He recommended the creation of a Settlement Guarantee Fund that would give the settlement system more stability - all members of the stock exchange would be required to contribute to the fund and only be allowed to 'effect transactions based on the level of their participation in the Fund.'

Having heard Mr Tsimbanouis' latest criticisms, the members of the House Finance Committee recommended that the government employ his report as a foundation on which to promote legal and institutional changes.

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