Since the establishment of the official Cyprus Stock Exchange in March 1996, large financial institutions have launched investment funds whose public offerings were oversubscribed almost by a factor of eight.
The investment funds are in the form of closed-end companies. They therefore only accept subscriptions on an initial closing date and are thereafter closed to further subscription. No redemption is permitted and investors maintain their interest until a specified liquidation or redemption date. Cyprus company law does not now allow for the setting-up of open-ended investment companies, but draft legislation to provide for the creation of such vehicles is in the process of being prepared.
The Cyprus Stock Exchange Council accepts applications for the quotation of closed-end investment companies where all company law requirements and relevant Stock Exchange regulations are satisfied. In particular, a closed-end investment company will be allowed to trade its shares on the Cyprus Stock Exchange provided it meets the following conditions in Regulation 63 of the Stock Exchange Regulations:
- the directors and investment managers of the investment company are considered to be fit and proper persons and qualified to conduct investment business activities;
- the investment company does not control or actively participate in the management of companies in which it invests;
- it does not frequently deal in movable assets;
- it provides a diversified portfolio of investments;
- it guarantees that its investment policy as set out in the information report will remain unaltered for a period of three years from its effective entry on the stock exchange;
- it only declares dividends to its shareholders out of the proceeds of its portfolio investments: exceptionally, the investment company may distribute dividends up to 30% of any surplus deriving from capital gains;
- no liquidation of any investments exceeding 50% of the investment company's portfolio can be carried out without the prior approval of its shareholders; and
- the investment company's directors and investment managers are independent of each other.
Investment companies are moreover under an obligation to file with the Stock Exchange Council detailed reports which must contain statements of all investments held, their respective acquisition and current value, any dividends received and depreciation forecasts.