This content is from: Local Insights

Cyprus

The Cyprus Stock Exchange (CSE) has embarked on its most ambitious project yet, the creation of an electronic exchange. With a view to improving its connectivity, speeding up securities transactions and cutting costs, the CSE has signed a contract with an Australian computer firm to develop and install the required equipment and software.

Full computerization of trading as well as back office procedures, ie clearing and settlement, is scheduled to be operational by mid-1999. The customization and testing of the electronic dealing system is under way. The same system architecture is already used by the Geneva, Moscow and Oslo stock exchanges. Even though the exchange is to go on-line, the trading floor will continue to exist for some time. Remote-terminal-based trading will follow at a later stage. The provision of central clearing facilities for stock exchange transactions under the electronic system was put out to tender and won by a major Cypriot banking institution.

The Cypriot legislator has already taken definitive steps to dematerialize on-exchange and over-the-counter share trading by passing the Central Depository and Central Securities Register Law (Law No. 27(I)/96). This legislation provides for the establishment and operation of a central depository and central register for all securities listed on the Cyprus Stock Exchange, the dematerialization of these securities, the settlement of transactions in respect of dematerialized securities and related matters. When operations begin, the CSE's computerized central register of listed securities will replace the share registers held by companies quoted on the CSE. Further, the coming into effect of the Cyprus Central Depository and Central Securities Register Law will entail that the share certificate will be replaced by an electronic computer record. Hence, the share certificate becomes dematerialized and securities uncertificated.

From there, the transfer of ownership of dematerialized securities following the settlement of a stock exchange transaction will be effected from the moment the transaction is entered in the Central Depository and Central Securities Register. It normally takes nine working days from the day of the transaction for the buyer to receive the new certificate of ownership. With the introduction of the electronic system, the CSE is determined to reduce the settlement cycle to three working days. Moreover, settlement on a delivery versus payment basis should become the rule. This will reduce settlement risk and as a consequence is expected to boost investors' confidence and the volume of trading.

In the interests of connectivity, the Cyprus Stock Exchange also joined the Association of National Numbering Agencies (ANNA). Following the acceptance of its membership in ANNA, the CSE has assigned its own International Securities Identification Number (ISIN) and Classification of Financial Instruments (CFI) codes, easing worldwide transactions and dealings in CSE listed securities.

Through the implementation of these measures, the Cyprus Stock Exchange is not merely keeping abreast of technological change, but mindful of the ever-growing internationalization and interpenetration of securities markets, aspires to become the most significant exchange in the eastern Mediterranean region.

Markus Zalewski

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