Cyprus Stock Exchange Brings Standards Up To EU Levels

by Lorys Charalambous, Tax-news.com, Cyprus

03 August 2001

The Cyprus Stock Exchange announced yesterday that in future it would require due diligence reports on a prospective listing by an independent auditor and an independent lawyer - and these firms cannot have been involved in the preparation of the prospectus and listing particulars.

Previously, the Exchange's rules required published audited accounts for at least the three years preceding the application, and Listing Particulars which would: 'assist potential investors to make an assessment, in the best possible manner of the asset value, the financial state, the track record and the prospects of the company that seeks a listing, as well the rights associated with the ownership of the securities concerned.'

In practice, the contents of Listing Particulars and the depth of information required in each case have been a matter for negotiation between the Council and the sponsoring brokerage. 'In the case of Initial Public Offerings (IPOs)' say the rules, 'the depth and detail of information required for the preparation of the Listing Particulars can be quite substantial whereas these information requirements are less onerous for subsequent issues (Regulation 69). Furthermore, the Council has the discretion to exempt, either partially or totally, an issuer from the obligation to prepare Listing Particulars, under the conditions outlined in Regulation 70.'

Now the independent reporting accountants and lawyers will have to pay attention to EU standards of care, with the threat of liability suits if they are negligent. The new measures bring Cyprus into line with recognised stock exchanges in the EU.

The announcement from the CSE ran as follows:

'The CSE Council and the Securities & Exchange Commission announced that following a meeting of the 24 July 2001, exercising its authorities in accordance with article 26(ie) of the law which regulates the formation, structure, authorities, powers, organisation of the SEC and other related matters (N64/2001), and taking into consideration all provisions of article 38(1) of the same law and the need to ensure the smooth running and normal operation of the stockmarket, issued the following decision:

'With reference to additional requirements for the examination of prospectuses:

'A) The SEC will not proceed with examination of prospectuses unless the companies submit a due diligence report by an independent auditing firm and an independent lawyer.

'In particular,

'1. The SEC expects that the said auditors and lawyers who will be appointed will have the necessary infrastructure, experience, professionalism and knowledge necessary to carry out the independent due diligence and to act in a fit and proper manner during its processing.
2. The term "independent auditing firm and independent lawyer" does not include auditors or lawyers who contributed to the preparation of the prospectus.
3. The appointment/selection of an independent auditing firm and independent lawyer to be made by the sponsor who is responsible for the choice of the appropriate persons and relevant control procedures.
4. The independent auditors and lawyers must submit together with their reports, relevant confirmation as to their independence from the firm for which they have prepared the due diligence report. In the confirmation it must be stated that in the past they had no connection with the company and do not intend to do so. The said auditors and lawyers will be bound to announce any such involvement with operations of the company for which they carried out the due diligence, for a period of two years after it has taken place.

'B) This decision will be in force from the date of its publication in the Official Gazette.'

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