Another step taken in CSE's path to privatisation

The Government has taken another step towards the privatisation of the Cyprus Stock Exchange (CSE), submitting to Parliament a bill entitled ‘The Law of 2025 on the Privatisation of the Cyprus Stock Exchange, the Central Depository, the Central Registry of Securities and the Transfer of CSE Personnel to the Ministry of Finance.’

The discussion of the bill in the House Finance Committee, to which it was referred, is set to begin on 23 June, in the presence, among others, of the Chairman of the CSE’s Council, Marinos Christodoulides, and the Acting General Manager of the Stock Exchange, Nicos Trypatsas.

According to the accompanying explanatory report, the purpose of the bill is to establish the necessary provisions for the privatisation of the Cyprus Stock Exchange (CSE), the Central Depository and the Central Registry of Securities.

The bill, among other things, regulates the following:

• The process of selling to a strategic investor the shares of a special purpose company established to function as a vehicle for the privatisation of the CSE,
• The competent bodies and stages of the privatisation of the CSE,
• The transfer and transfer of tasks, responsibilities, activities, functions, assets and liabilities of the CSE, and
• The transfer of CSE staff members to the Ministry of Finance or the provision of compensation on the basis of a relevant early voluntary retirement plan.

As stated, the privatisation of the CSE constitutes a political decision that has already been made.

Specifically, it is added, "given that the turnover of the CSE over the past decades, due to the various economic crises that erupted both locally and internationally, gradually began to decrease and the CSE to present continuous losses, the Republic sought solutions to ensure the long-term sustainability of the stock market in Cyprus."

Therefore, it is reported that the Council of Ministers, after taking into account various options analysed in a relevant study prepared by an independent consultant for the Ministry of Finance, with its decision no. ΠΧ89.303 and dated 7 May 2020, approved the privatisation of the CSE, as the most feasible and advantageous strategic option for the State.

Following the aforementioned decision of the Council of Ministers, it is also underlined in the introductory report, the CSE, following a relevant competitive procedure, hired consultants with the aim, among other things, of drafting a bill that would regulate all issues concerning the privatisation of the CSE.

After the CSE Advisors completed the drafting of the bill, it was submitted for public consultation in early 2024, while during its preparation, various contacts were made between the CSE, the Ministry of Finance, the CSE Advisors and various government agencies and other bodies on various individual issues included in the bill - e.g. Taxation Department, Cyprus Securities and Exchange Commission, Department of Public Administration and Personnel, Office of the Commissioner of Institutions for Occupational Pension Benefits, Office of the Commissioner for State Aid Control, etc.

It is also noted that finding a strategic investor is a milestone of the Recovery and Resilience Plan and falls under the seventh payment request for disbursement of resources from the Recovery and Resilience Mechanism and according to the explanatory memorandum, this payment request should be submitted to the European Commission before the end of 2025.

The factors that led the CSE to decline

Moreover, according to what is stated in the impact analysis questionnaire accompanying the bill submitted to Parliament, the CSE has faced many challenges over the last fifteen years both at the European level (e.g. increased obligations to comply with European Directives and Regulations), and at the domestic level, such as the banking crisis resulting in a loss of trust from the investment community.

The COVID-19 pandemic, as well as the war in Ukraine, were also significant factors that negatively affected the operation and profitability of businesses, including those listed on the CSE.

All these recommendations, combined with the high operating costs of the CSE, it is emphasised, have led in recent years to a significant loss of revenue, resulting in a serious problem of its sustainability.

With the privatisation of the CSE and its sale to a private strategic investor, as is the case for most stock exchanges both at the European and global levels, it is added, it is expected that its competitive profile will increase significantly and rapid development of its markets will be achieved.

More generally, it is expected that, through the privatisation of the CSE, the interest and trust of the private sector in the stock exchange sector will return, increasing the activities of the new stock exchange and bringing about a positive impact on the economy, establishing Cyprus as a regional hub for financial services.

The alternative options

In addition to the above, the questionnaire also records the other options proposed in relation to the future of the CSE:

• First option: Legislative regulation of the issue with the aim of the immediate privatisation of the CSE.
• Second option: The CSE remains under state ownership, improving and developing strategic partnerships. The state does not invest further capital in the Organisation.
• Third option: The CSE should remain under state ownership, improving and developing strategic partnerships. The state should invest further capital in the Organisation with the aim of reorganising it and expanding its operations.
• Fourth option: Privatisation of the CSE, but before that, the state invests further capital in the Organisation with the aim of reorganising it and expanding its operations.

The above four strategic options for the CSE were included in a study prepared by a consultant to the Ministry of Finance in 2019 in an effort to seek solutions for the transformation and upgrading of the CSE.

The Ministry of Finance, as reported, after consultation with the Board of Directors of the CSE, agreed with the consultant's recommendation for immediate privatisation of the CSE as the most feasible and advantageous for the state, and a relevant proposal was submitted to the Council of Ministers.

The proposed option was deemed the best possible solution for the long-term sustainability of the stock exchange sector, because, among other things:

• The state will not invest additional funds in the organisation and will be relieved of the burden of an additional legal entity under public law with high operating costs and unexpected results,
• Represents the most immediate opportunity to strengthen the role and contribution of the stock exchange to the Cypriot economy, and
• Will generate sufficient interest from suitable investors to conduct a competitive sale process of the CSE, with a view to the outcome of the
• Privatisation to be the best possible outcome for businesses and the Cypriot economy.

The privatisation process

It is noted that, according to the provisions of the bill, the sale to a strategic investor of shares of a special purpose company, to which, on the reporting date, the operations, responsibilities, activities and functions of the Stock Exchange, as well as its assets and liabilities, are transferred or transferred, will be carried out through an open and transparent tender process.

The tender process for the selection of a strategic investor will be carried out by the Ministry of Finance, on behalf of the Republic, based on the principles of transparency and equal treatment, ensures national security issues and includes the following stages:

• An open call for expressions of interest, which sets as a criterion for pre-selection that interested persons fully fall within the definition of the term "strategic investor",
• Evaluation of interested parties and invitation to submit financial offers, only from those interested parties who are strategic investors
• Selection of a strategic investor who submitted the highest price per share and announcement of the results of the competition to all interested parties
• Transfer of the shares of the special purpose company in the name of the successful bidder, following the signing of a relevant share sale agreement.

Based on the provisions of the bill, the privatisation process is completed only if the following are completed:

• Consultation and exchange of information between the Ministry, the Stock Exchange and representatives of the Stock Exchange staff members and ensuring the employment status and rights of the Stock Exchange staff members, including employment and pension rights and benefits, rights of representation, as they arise from the Constitution, the provisions of applicable legislation, the relevant regulations and the general principles of law;
• Ensuring any issue related to public interest and/or national security, including the possibility of excluding a strategic investor and/or sectors of activity from the process and/or scope of privatization for reasons of public interest and/or national security.
• Transfer of the assets and liabilities of the Fund, in accordance with the provisions of this Law
• A special purpose vehicle must take all appropriate action to apply for and obtain, no later than the reporting date, any license, authority, competence, approval, agreement and consent that may be necessary to ensure the proper conduct and performance of its operations, including, among others, for the purposes of its operation as a regulated market, a regulated market operator or a central depository and a central securities depository from any competent supervisory authority and under any applicable legislation, including, among others, the Cyprus Securities and Exchange Commission and the Commission for the Protection of Competition or any corresponding competent national or EU supervisory authority, department, body or body and taking any other required action.
• Full payment and collection by the Republic of the amount of the agreed consideration from the selected strategic investor
• The occurrence of the reporting date.

It is noted that, immediately after the reporting date, a special purpose vehicle, in compliance with the provisions of Regulation (EU) 2016/679, notifies each counterparty to the Stock Exchange or affected person of the privatisation.

Stock Exchange Dissolution

However, after the completion of the privatisation process and in accordance with the provisions of the bill, the dissolution date will be determined, amended, replaced or extended by a decree of the Council of Ministers, which is published in the Government Gazette of the Republic.

On the date of dissolution, the Stock Exchange, as a legal entity under public law, definitively ceases its operations, is dissolved and no longer exercises any power, authority, work or function, and the members of the Council are considered to have ceased to exist.

The Council, up to the date of dissolution, shall take any action, procedure, facility and step, provide any necessary information and sign and submit any document, form and agreement so as to ensure and successfully complete the privatization process and the smooth, full and immediate implementation of the provisions of the law to be passed, including transfers, transfers, reassignments, concessions, assignments and/or takeovers as provided for in its provisions.

It is noted that the Council of Ministers may issue any decree published in the Official Gazette of the Republic, which may include provisions that it deems necessary for the purposes of dissolving the Stock Exchange.

(Source: InBusinessNews)