Read the CySEC Circular C659
Memo #44-2024
CySEC Circular No: C659
Date: 26/09/2024
Subject: Fractionalisation of Shares
Purpose: To provide guidance to CIFs on the cases where fractional exposure in shares in companies would qualify as exposure in Shares per se.
In Summary:
CySEC has issued the Circular C659 on 26/09/2024 to provide guidance to Cyprus Investment Firms (CIFs) on the cases where fractional exposure in shares in companies, within the meaning of the Investment Services and Activities and Regulated Markets Law, transposing MiFID II (‘Shares’ and ‘Law 87(I)/2017’ respectively), would qualify as exposure in Shares per se.
In accordance with Circular C659, firms operating under the national laws of Member States of the European Union (‘EU’) transposing MiFID II, including CIFs (‘MiFID II firms’), enabling their clients to undertake fractional exposure in Shares that have been issued under the laws of EU Member States and third countries in non-fractional form, is a relatively new phenomenon that has gained momentum in the context of on-line trading.
The European Securities and Markets Authority (‘ESMA’) issued a public statement on 28/03/2023 on Derivatives on Fractions of Shares (the ‘ESMA Statement’). The scope of the ESMA Statement was confined to the case of derivatives on fractions of shares.
CIFs enabling their clients to undertake fractional investments in Shares, which have been issued under the laws of EU Member States and third countries in non-fractional form through trust arrangements, fall under the scope of the Circular C659.
In accordance with Circular C659, CIFs must inter alia provide, in comprehensible form, clear accurate and non- misleading information to clients and prospective clients on the financial instruments they offer and their services. To this end, financial instruments enabling investors to undertake fractional exposure in Shares, under arrangements that do not constitute trust arrangements shall not be presented and/or treated as Shares.
The provision of investment services in Shares held under such trust arrangement entails the regulatory implications of the Share trading and holding related obligation laid down in Law 87(I)/2017 and in MiFIR, including (but not limited):
i. The share trading obligation of Article 23 of MiFIR; and
ii. Where the Systematic Internaliser (‘SI’) definition of Section 2 of Law 87(I)/20178, as further specified in Article 12 of the Commission Delegated Regulation 2017/5659 is met, the SI related obligations, of Title III of MiFIR.
iii. The obligations relating to safeguarding client assets as laid down in Law 87(I)/2017 and CySEC Directive DI87-01 for the Safeguarding of Financial Instruments and Funds belonging to Clients, transposing the Commission Delegated Directive (EU) 2017/59310.
The Circular C659 also refers about Trust arrangements for fractional Beneficial Ownership.
ESMA Statement dated 28/03/2023 can be found on the following link:
Read the CySEC Circular C659
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