What is the Emerging Companies Market?
The Emerging Companies Market (ECM) is an innovative, simply regulated market that does not fall under the mandatory provisions applicable to regulated markets, which impose strict listing requirements and continuing obligations. It is a Multilateral Trading Facility (MTF) operating in accordance with the Regulative Decisions adopted by the Cyprus Stock Exchange (CSE). Transactions on the ECM are conducted as on regulated markets.
Launched by the CSE on 30 September 2009, the ECM operates within a simplified regulatory environment specifically designed for the needs of small and emerging companies. It is comparable to the London Stock Exchange's AIM, with the added advantage of being an MTF as defined by the EU Markets in Financial Instruments Directive (MiFID) and operated by an EU-regulated stock exchange. In contrast to AIM and other main markets, listing on the ECM is relatively straightforward, with easily met requirements — making it attractive for companies seeking a listing without excessive obligations, or as a first step towards a listing on a major market.
Advantages of an ECM Listing
The ECM offers distinct benefits to companies and to investment firms alike:
- For companies: an alternative means of securing financing at competitive cost
- For companies: enhanced recognition and reputation
- For companies: preparation to transfer to the regulated market through the gradual increase in dispersion and velocity of their shares
- For companies already listed on the regulated market: the possibility of flotation under simplified procedures, on first delisting, where they are unwilling or unable to meet the cost of the regulated market's obligations
- For investment firms: expansion of operations into new products and services
- For investment firms: increased recognition, reputation, and market confidence, including the possibility of self-regulation
The Cyprus Stock Exchange
The CSE commenced operations as a public corporate body on 29 March 1996, by virtue of the Cyprus Stock Exchange Laws and Regulations passed by the House of Representatives in 1993 and 1995. It is a regulated market on which transactions in corporate and public securities — including stocks, bonds, and warrants — are carried out. Its principal participants are the members of the exchange (stock-brokerage firms), the listed issuers, and investors. Under the Securities and Cyprus Stock Exchange Law, the exchange's objectives include developing and regulating the securities market, providing trading facilities and an official price bulletin, promoting an orderly and systematic market, combatting fraudulent practices, and protecting investors and the public.
Eligibility for Admission
A company must meet the listing requirements set out in the Regulative Decisions of the CSE. The main requirements are as follows:
- Trading records and audited financial statements for at least the two years preceding application, where applicable
- Newly established companies may be admitted provided the CSE Council is satisfied that investors have adequate information to assess the value of the securities properly
- The issuer must be a public company under the law of its jurisdiction, with a satisfactory number of investors
- No minimum market capitalisation restrictions
- No minimum shareholders' equity restrictions
- Appointment and retention of a Nominated Adviser (NOMAD) registered with the CSE
- No minimum dispersion — no minimum number of shares required to be in public hands
- Production of an admission document
The Listing Process
The issuer must prepare and submit an Admission Document to the CSE, which as a minimum must include the history of the business, an adequate business plan (short and long term, though no financial forecasts are required), information on the directors and significant shareholders, details of the placing or offer, risk factors, audited IFRS financial statements for the two years prior to listing (where applicable), and the intended use of the proceeds. Additional declarations and documents are also submitted. A listing process typically takes one to two months from the collection of the necessary documents, though the exact timetable varies with the scope and complexity of the deal.
Ways of Achieving a Listing
A listing may be achieved by one of several routes:
- By public offer — where the offer exceeds €2.5 million and is addressed to more than 100 potential investors, a Prospectus approved by CySEC is required in addition to the CSE-approved Admission Document
- By private placement — where the offer is addressed only to institutional investors, or to fewer than 100 potential investors, or raises less than €2.5 million, no Prospectus is required and the Admission Document needs no CySEC approval
- By a combination of public offer and private placement
- By listing existing shares — requiring only an Admission Document approved by the CSE
Continuing Obligations and Financial Reporting
Listed companies must observe ongoing reporting and disclosure obligations:
- Annual audited accounts must be signed and published within four months of the year end
- Half-yearly (unaudited) reports must be published within two months of the period end
- Any change in the collaboration between the issuer and the NOMAD must be announced, with reasons
- The CSE must be notified immediately — and where possible at least one hour before trading begins — of any decision on dividends or distributions, the approval of results and accounts, new bond issues, changes to the capital structure, significant changes in operations, or changes in the positions of chairman, directors, senior management, or auditors
- The dispersion of shares in the listed entity must be published and submitted to the CSE on the last working day of the calendar year
Benefits of a CSE Listing
Admission to the CSE offers a range of strategic advantages: a vehicle for raising capital at reduced reliance on conventional financing; the growth and development of the company's activities; strengthening of the company to reach the scale needed to compete globally; the opportunity to invest abroad and to attract foreign investment; an enhanced corporate image and status, often enabling finance on better terms; greater marketability, allowing investors to liquidate their holdings at any time; and a smoother path to mergers and acquisitions, aided by the transparency that a regulated market demands.
Tax Incentives for Investors
Cyprus offers several tax incentives favouring investors in listed companies. Under the prevailing law, 30% of the amount invested by a legal or natural person in an Initial Public Offering may be deducted from total income tax payable, subject to conditions: the shares issued must represent at least 80% of the issued share capital with voting rights and be listed on the CSE within three months of issue; the deduction is granted for the taxable year in which the listing is made; and it must not exceed 25% of taxable income before deductions, with any excess carried forward. The deduction is not granted where a company assumes the activities of an already-listed company, nor to an entity acquiring shares of a company for which the deduction has already been given. Redeemable shares are excluded.
For foreign investors, tax treatment depends on the regime applicable in the investor's country. Where a double taxation avoidance treaty exists between Cyprus and the investor's country, the investor's income is not taxed again when repatriated.
Issuer Requirements
An issuer seeking a listing must generally satisfy the following:
- It must have been founded and operate in compliance with the law of the country in which it is based
- Its Articles and Memorandum of Association must authorise the issue of the securities for which listing is sought
- It must have published audited accounts for at least three years preceding the application, save that recently established companies may be exempt
- Issuers whose shares are already listed on a foreign exchange must comply with that exchange's regulations
- No shareholder may control more than 70% of the general capital
- At least 25% of the issuer's share capital must be satisfactorily distributed among the public, without favouring any individual investor or group
- The issuer must give existing shareholders pre-emptive rights in subsequent share issues
- The issuer must satisfy the CSE Board that it has sufficient capital and comply with all statutory reporting and disclosure requirements; some requirements may be waived at the Board's discretion in exceptional circumstances
How ASC Can Help
ASC assists companies through every stage of an ECM listing. Before flotation, we advise on the initial steps required to prepare for listing. During the admission process we support the drafting of the Admission Document in accordance with CSE regulations, manage its submission and any follow-up queries, and take responsibility for the overall project management of the listing — coordinating the parties involved, liaising with the CSE, and advising on compliance with ECM rules throughout. Contact us to discuss a prospective listing.