The Cyprus Securities and Exchange Commission (CySEC) has issued a circular clarifying the treatment of fractional share exposure under Cyprus’ Investment Services and Activities and Regulated Markets Law (Law 87(I)/2017), which transposes MiFID II. The circular provides important guidance for Cyprus Investment Firms (CIFs) offering fractional investments in shares and the regulatory framework they must follow.
Fractional share exposure allows investors to own a portion of a whole share, a trend that has gained popularity through online trading platforms. This circular specifically focuses on CIFs enabling fractional ownership through trust arrangements, where the CIF holds whole shares and allocates beneficial ownership fractions to multiple clients. Under these arrangements, CIFs create a fiduciary relationship with their clients, where the CIF retains legal ownership of the shares, but clients hold beneficial ownership based on their fractional exposure. These arrangements must comply with the asset safeguarding rules outlined in Law 87(I)/2017 and CySEC Directive DI87-01, which ensure the protection of client assets.
The circular stipulates that all rights associated with the shares—such as voting rights, dividends, and residual interest in the event of the issuer’s liquidation—must be proportionally granted to fractional owners based on their entitlement. CIFs are also required to document these trust arrangements clearly, ensuring transparency in ownership records. CySEC clarifies that fractional shares created due to corporate actions or those issued in fractional form by jurisdictions that allow such issuance are not covered by this circular. These shares are treated as whole shares and do not require trust arrangements to confer beneficial ownership.
CIFs offering fractional investments in shares are subject to regulatory requirements under both Law 87(I)/2017 and MiFIR. This includes the obligation to comply with MiFIR’s share trading rules and the requirement to provide clear, accurate, and non-misleading information to clients. CIFs must ensure that fractional holdings meet regulatory standards and that clients fully understand the nature of their investments.
For any needed clarifications please liaise with your usual contact person at Chrysses Demetriades & Co LLC.
