Cyprus Stock Exchange Will Go Private According To New Report's Advice

Lorys Charambolous, Tax-news.com, Cyprus

05 March 2001

Cyprus Finance Minister, Takis Clerides, has announced plans to establish a committee to work on amendments recommended by a comprehensive new report about to be released on the Cyprus Stock Exchange (CSE). The committee will comprise officials from the finance ministry, the CSE council and the Securities and Exchange Commission (SEC), and its biggest task will be to oversee the privatisation of the CSE.

For months now the beleaguered CSE has spiralled down, out of control, resulting in an ever-growing number of disillusioned and angry investors, and the market is clearly in need of a major overhaul. The report is seen as an important step by the government to revitalise the CSE to make it more modern and competitive and to bring the exchange in line with European stock market standards, thereby making it more attractive to foreign investors. 'What matters is the implementation of the suggestions of the study, so we will set up a special team made up of SEC, CSE and Finance Ministry representatives to implement these suggestions,' said Mr Clerides.

Author of the report, Greek financial markets expert Demetris Tsimbanoulis, examined the way in which the Cyprus Stock Exchange carried out its operations within the current legal framework by conducting a comparison of the exchange's practices with those of other international exchanges. In the report Mr Tsimbanoulis highlighted the dire need for new measures and institutional reforms.

The report covers five main issues concerning the CSE: the provision of investment services, the primary capital market, the stock market, mutual funds and the trading and settlement rules of the Stock Exchange. Mr Tsimbanoulis has advised that the CSE be incrementally transformed into a private company initially with the government as main shareholder and watchdog, and be managed by the organisations with a vested interest in the institution such as banks, investment companies and private investors. He said last week: 'The CSE must, step-by-step, become a company - so it can compete internationally. The aim is to improve competitiveness so that the CSE becomes a company that can compete with other markets; a company with multi-part management including the Central Bank, the CSE board, investment companies, institutional investors and small investors. It would be up to parliament to decide who was involved.'

According to the report, transparency is also a key to the more efficient running of the CSE. Transactions should be carried out with less secrecy to ensure that no problems emerge from the settlement process. To assist the development of transparency, Mr Tsimbanoulis recommends the introduction of a 'payments against counter payments' measure and the creation of a fund to enhance liquidity. He says that a 'strict regulatory framework' must be implemented in order to 'enhance existing transaction methods.'

Another recommendation that has emerged from the report is the creation of a new section on the market to attract more foreign capital - trading foreign stocks: 'It is a challenge for Cyprus to make the most of its geopolitical position and the competence of its people to create a basket of securities that they could offer to investors internationally,' said Mr Tsimbanoulis.

Mr. Tsimbanoulis has also noted discrepancies in the investment companies Bill. He recommends that initial public offerings (IPOs) should be more efficiently regulated by the publication of a Prospectus and IPO underwriters should also be legally obliged to bear responsibility for any 'defects' in the Prospectus. To support this he called for the SEC to be awarded more power so it can enforce these changes and impose penalties when necessary. Mr Tsimbanoulis said: 'it is not conceivable that banks and CSE members, which constitute the backbone of the CSE, be excluded from the provision of investment services.'

Finance Minister Clerides confirmed that the report's recommendations have his full support and the implementing the amendments is 'what mattered.' Any urgent amendments will be brought before parliament before the end of this month and he expects that all amendments will be decided in the summer period with full implementation likely to take place over the next two years.

Ending on a positive note, Mr Tsimbanoulis said he felt optimistic over the future of the market, saying 'the market has problems but is not on its death bed.'

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