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...