Article
January 2007
Companies whose shares are listed on the Cyprus Stock Exchange may conduct a buy-back program based either on the Cyprus Company Law (Article 57) or on the Commission Regulation (EC) No 2273/2003 of 22 December 2003.
The provisions of the Commission Regulation No 2273/2003 relating to buy-backs are summarized below:
Objectives of buy-back programs
A buy-back program must have one of the following objectives:
- reduction of the capital of an issuer (in value or in number of shares) or
- meeting obligations arising from debt financial instruments exchangeable into equity instruments or from employee share option programs
Disclosure of information
Before the start of trading, the company must disclose to the public the objective of the program, the maximum consideration, the maximum number of shares to be acquired and the duration of the period for which authorization of the program has been given.
The company must record each transaction related to the buy-back and publicly disclose details of all transactions no later than the end of the seventh daily market session following the date of execution of such transactions.
Highest buy-back price
The issuer must not purchase shares at a price higher than the higher of the price of the last independent trade and the highest current independent bid.
When the issuer carries out the purchase of own shares through derivative financial instruments, the exercise price of those derivative financial instruments shall not be above the higher of the price of the last independent trade and the highest current independent bid.
Volume of trading
In any one day, the company must not purchase more than 25% of the average daily volume. The average daily volume figure must be based on the average daily volume traded in the month preceding the month of public disclosure of the buy-back program.
In cases of extreme low liquidity, the issuer may exceed the 25% limit provided that he discloses its intention in advance and provided it does not exceed 50% of the average daily volume.
Restrictions
- The issuer shall not engage in selling of own shares during the life of the program or conduct trades during a closed period.
- These restrictions do not apply if the issuer has in place a time-scheduled buy-back program or if the buy-back program is lead-managed by an investment firm or credit institution which makes its trading decisions independently of and without influence by the issuer.
According to the Cyprus Securities and Exchange Commission, it is not illegal for a Company to undertake a buy-back program based on the provisions of the Company Law (Article 57A – Company right for buy-back or acquisition of own shares). Adherence to the provisions of the Company Law, however, may not be enough to ensure that the Company does not violate the Law on market abuse.
The provisions of Regulation 2273/2003 are more restrictive on the procedure and purposes of the buy-back compared to the provisions of the Company Law. The benefit for companies that conduct buy-back programs implementing all of the provisions of Regulation 2273/2003, is that they become exempt from the provisions of the Directive on market abuse as regards the buy-back program. Therefore, according to a circular of the Cyprus Securities and Exchange Commission dated 30 August 2006, the Regulation No 2273/2003 provides a safe harbor from the provisions of the Law on market abuse when all of the provisions of the Regulation are implemented.
