Introduction

The Transparency Requirements Law (Law 190(I)/2007) transposed into domestic law:

  • the EU Transparency Directive (2004/109/EC) on transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market; and
  • part of EU Directive 2007/14/EC, which sets out detailed rules for the implementation of the Transparency Directive.

This update summarises the key changes introduced by the EU Directive 2013/50/EC, which amends the Transparency Directive. This amending directive entered into force on November 26 2013.

Transparency Requirements Law

The Cyprus Securities and Exchange Commission (CySEC) is responsible for the supervision and enforcement of the Transparency Requirements Law. The law applies to:

  • issuers of transferable securities listed for trading on a regulated market that have Cyprus as their home member state; and
  • transferable securities that are traded on the stock exchange, apart from instruments of payment and money market instruments.

The law also imposes reporting and notification requirements on Cypriot issuers and their shareholders. Shareholders are required to notify a Cypriot issuer and CySEC regarding the percentage of an issuer's voting rights that they hold through acquisition or disposal where that percentage reaches, exceeds or falls below 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75%.

The law does not apply to units issued by and traded in undertakings for collective investments in transferable securities (UCITS), unless they are closed-ended funds.

Cyprus has yet to transpose the amending directive into domestic law, even though the deadline was November 26 2015. However, the relevant bill is expected to be passed in 2016.

Key changes

The key changes that the amending directive has introduced will help Cypriot issuers to streamline their reporting requirements and obligations. Additional restrictions and obligations have been imposed, but the clarifications and abolition of certain requirements are a welcome change. The key changes introduced are set out below.

Issuer

Under the Transparency Requirements Law, an 'issuer' is a natural person or legal entity governed by private or public law (including a state) whose securities are admitted to trading on a regulated market. The law does not specify whether this definition also includes an issuer of non-listed securities represented by depositary receipts admitted to trading on a regulated market. The amending directive expressly includes issuers of depositary receipts representing non-listed securities.

Home member state

The amending directive clarifies the definition of 'home member state' and sets out rules for choosing a home member state. The Transparency Directive takes precedence over the Transparency Requirements Law in any conflict regarding the definition of 'home member state'.

The key changes to the definition of 'home member state' include the fact that an issuer of debt securities worth less than €1,000 per unit or an issuer of shares incorporated in a third country (ie, an EU or EEA member state) may now choose its home member state from member states in which its securities are admitted to trading on a regulated market.

Further, apart from issuers of debt securities worth less than €1,000 per unit or issuers of shares, issuers can choose their home member state from:

  • a member state in which the issuer has its registered office, where applicable; and
  • member states in which its securities are admitted to trading on a regulated market.

The issuer may choose only one home member state.

Financial reports

The Transparency Requirements Law requires Cypriot issuers to prepare annual, half-yearly and quarterly financial reports. Annual financial reports must remain publicly available for at least five years. The amending directive has increased this period to 10 years.

The Transparency Requirements Law provides that a Cypriot issuer of shares or debt securities must publish its half-yearly report as soon as possible and within two months of the expiration of the relevant period at the latest. The amending directive has extended this deadline to three months after the end of the relevant period at the latest.

The amending directive also prohibits member states from requiring issuers to publish reports more frequently, apart from cases in which:

  • the additional periodic financial information does not constitute a disproportionate financial burden on the member state concerned, in particular for small and medium-sized issuers; or
  • the content of the additional periodic financial information required is proportionate to the factors that contribute to investment decisions by the investors in the member state concerned.

This means that due to the fact that the amending directive takes precedence over the Transparency Requirements Law, certain Cypriot issuers may no longer be required to prepare quarterly financial reports.

Interim management statements

Under the Transparency Requirements Law, a Cypriot issuer must publish interim management accounts every six months of the financial year. The amending directive abolishes this obligation and instead provides that member states can require issuers to publish additional periodic financial information under certain conditions.

Extension of notification requirements for financial instruments

The Transparency Requirements Law requires a party that directly or indirectly holds financial instruments that allow it to acquire (on the holder's initiative and under a formal agreement) shares with voting rights of an issuer admitted to trading on a regulated market to notify CySEC and the regulated market on which the securities are listed. In its existing form, the law focuses on financial instruments which give the holder voting rights in a Cypriot issuer.

The amending directive clarifies that the notification requirements apply when the financial instruments give the holder an unconditional right and discretion to acquire shares with voting rights attached.

Further, the amending directive now extends the notification requirements for major holdings of voting rights to include direct and indirect holdings of financial instruments that have the same economic effect as the holding of shares, whether or not they confer a right of physical settlement.

Under the amending directive, holdings of financial instruments will be aggregated with holdings of shares and voting rights for calculating notification requirement thresholds.

Obligations on primary forest logging industry

Under the amending directive, issuers active in the primary forest logging industry must prepare an annual report for all payments of €100,000 or more made to governments. The report must be made public six months after the end of each financial year at the latest and must remain publicly available for at least 10 years.

New loans

The Transparency Requirements Law provides that a Cypriot issuer must publish immediately details of each new loan issued (ie, general terms, guarantees and security). The amending directive abolishes this requirement.

Amendments to MAA

The Transparency Requirements Law provides that each Cypriot issuer must provide proposed amended documents of incorporation to CySEC and the regulated market on which its securities are listed as soon as possible and prior to the date of the general meeting held to approve or reject the amended documents. The amending directive abolishes this requirement.

Administrative sanctions

The amending directive provides that the relevant competent authority may impose administrative measures and sanctions for a violation of the Transparency Directive and the relevant domestic legislation of each member state, including:

  • the issue of public statements indicating the party responsible and the nature of the violation;
  • the issue of an order requiring the party responsible to cease its conduct;
  • the issue of a fine for failure to perform the required disclosures and notification requirements of up to:
    • €10 million or 5% of annual turnover, or up to twice the profits gained or losses avoided due to the violation (whichever is higher), in the case of a legal entity; or
    • €2 million or twice the profits gained or losses avoided due to the violation (whichever is higher), in the case of a natural person; and
  • the suspension of voting rights attached to shares where there is a failure to meet the notification requirements within the required timeframe for the acquisition or disposal of major holdings of voting rights – this penalty may be reserved for serious violations only.

Under the Transparency Requirements Law, the largest financial administrative penalty that CySEC can impose is €341,000, or €683,000 for a party that has provided or confirmed false or misleading information or concealed evidence or information.

Technological advances

The amending directive introduces technological advances regarding the publication and dissemination of regulated information. As of January 1 2018, a web portal will operate as a European electronic access point for regulated information. Member states will need to provide access to their central storage mechanisms via the access point. Further, as of January 1 2020, all annual financial reports will need to be prepared in a single electronic reporting format, provided that the required cost-benefit analysis is undertaken by the European Securities and Markets Authority.

Comment

The amending directive has clarified a number of issues and tweaked certain aspects of the previous regime. The clarifications regarding depositary receipts and how an issuer determines its home member state offer issuers a greater level of certainty and greater flexibility through:

  • the abolition of the requirement to disclose new loan notes;
  • the abolition of the requirement to disclose amendments to an issuer's instruments of incorporation; and
  • the abolition of the obligation to prepare interim management statements and publish financial information in addition to annual and half-yearly reports.

The amending directive has also introduced new restrictions – most notably, the extension of notification requirements to economic interests and the introduction of more stringent sanctions.

The amending directive has streamlined the operation of the Transparency Directive and issuers and shareholders now have greater clarity on their reporting requirements and obligations.

For further information on this topic please contact Margarita Hadjitofi or Elina Mantrali at Harneys Aristodemou Loizides Yiolitis LLC by telephone (+357 25 820020) or email (margarita.hadjitofi@harneys.com or elina.mantrali@harneys.com). The Harneys website can be accessed at www.harneys.com.

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