Since the summer of 2023, the Tel Aviv Stock Exchange has shown interest in the Cyprus Stock Exchange (CSE), following a delegation visit to the island. Similarly, the SIX Swiss Exchange, which operates financial infrastructure in Switzerland and Spain and is owned by 120 national and international financial institutions, has expressed comparable interest. The Athens Stock Exchange Group (ATHEXGroup) has also made exploratory inquiries.

According to sources from Brief, the Ministry of Finance and the Cyprus Stock Exchange are planning to fragment the exchange and offer it for sale in parts, effectively privatizing the CSE, the Central Depository, and the Central Registry of Securities through a structured tender process for selecting a strategic investor.

The draft legislation, currently under review by the Legal Service, includes key provisions for transferring operations, responsibilities, activities, functions, assets, and liabilities into a private Special Purpose Vehicle (SPV). Employees with indefinite-term contracts at the Ministry of Finance will also be transferred to this entity.

Legal experts explained to Brief that an SPV is a separate legal entity created by an organization with its own assets, liabilities, and legal status. Such entities are typically established to isolate financial risks.

A major obstacle to selling the CSE is its financial deficit, with total expenditures of €6,855,825 and revenues of €4,973,506. According to financial analysts, the economic downturn of the past decade has negatively impacted the CSE, leading to a chain reaction of adverse financial consequences.

Following a competitive bidding process, the Harneys Loizou Armila Shearman Consortium has been tasked with developing a business plan and handling all legal matters necessary for selecting the most suitable strategic investor for the Cyprus Stock Exchange.

The privatization aims to attract a well-established stock exchange as a strategic partner to help the CSE expand and modernize. The privatization of the CSE has been a topic of discussion for the past decade, driven by the need to make it more flexible and innovative.

As part of this process, the Council of Ministers approved the draft law titled The Law on the Privatization of the Cyprus Stock Exchange, the Central Depository, and the Central Registry of Securities and the Transfer of Staff and Positions to the Ministry of Finance 2023. This draft was opened for public consultation on December 18, 2023, with stakeholders invited to submit comments by January 15, 2024.

The privatization process will involve a competitive tendering process, inviting bids from potential strategic investors. It will officially commence following a decision or decree from the Council of Ministers, which will be published in the Republic’s Official Gazette.

One of the main concerns regarding privatization is the fate of CSE employees. According to Brief, the draft law outlines two primary options for existing staff:

• Voluntary Exit Scheme: Employees may opt for voluntary redundancy with tax-free compensation.

• Public Sector Transfer: Employees may be absorbed into the public sector while maintaining their current employment terms.

Although not explicitly stated in the legislation, there is a possibility that the new private owner may retain some existing staff under revised employment terms, in accordance with Cyprus labor law.