The Global SME Finance Centre

The Malta Stock Exchange is targeting international small cap companies with growth potential to drive its expansion plans.

The Malta Stock Exchange (MSE) has developed a detailed road map to take its operations to the next level. Celebrating its 25th anniversary since the beginning of trading, the Exchange is seeking to position itself as the preferred international market of choice for smaller, growing companies as well as for well-established, mature businesses seeking to expand. Internationally recognised technologies have been adopted in order to improve the MSE’s appeal as a listing venue. In addition, a new SME and start-up oriented market, as well as a Sharia equity index, are set to increase international market access and help the MSE compete with other European exchanges, including those of Luxembourg and Ireland. Exchange-traded funds (ETFs), real estate investment funds (REITs) and Islamic finance have been identified as future growth areas. Like other exchanges around the world, the MSE is also exploring applications for blockchain technology, which, it has been estimated, could save the global financial industry over $100 billion annually in back office costs. The overarching goal is that by the end of 2018 Malta’s capital markets maximise their potential and visibility – locally and internationally.


A Highly Networked Bourse

While critics may say this is too ambitious a plan to realise in less than two years, the Exchange points to its proven track record of achievements. Despite being a relatively young bourse, the Malta Stock Exchange has grown swiftly to secure its place in the island’s financial sector. The Exchange has undergone many changes in its short history and has come a long way from its modest beginnings, when trading took place only in government stocks, to the fully-fledged regulated market it offers today. Traditionally, the Exchange mainly serves the Maltese market: local companies tap the market for equity, and investors tend to be domestic institutions or the general public. Many of Malta’s largest corporations are third- or fourth-generation family businesses, and they have come to appreciate the possibilities that a listing opens up for them, such as providing an exit route for dormant family shareholders.

However, significant investments in infrastructure over the past years have paved the way for the MSE to realise its international ambitions. The Exchange now uses Deutsche Börse’s Xetra trading platform, currently connecting over 4,000 traders in 16 different countries. On the settlement and custodial side, linking up with Clearstream, Deutsche Börse’s liquidity provider, has removed barriers between Malta and the world’s trading centres. The Central Securities Depository (CSD) has also continued to expand its range of services that are on offer for listed and unlisted companies across Europe.

 

 

Recent Performance

Although the MSE is small by global comparisons, the last 25 years have witnessed a very successful growth phase that has seen the listing of over 40 companies, and the issuance of over €15 billion in equity, corporate and government bonds and treasury bills. In 2016, the MSE index finished at 4,631, an increase of 4% compared to the previous year. Bond trading volumes improved by 14%, while the number of trades in equities decreased by 9% and the number of trades in government stocks decreased by 4% when compared to 2015. Overall, a 3% decline in the total number of trades was registered; this was also accompanied by a 25% loss in the value of these trades. However, total market capitalisation increased from €11.6 in 2015 to €12.1 billion in 2016. While there were no new additional equities admitted to listing on the MSE in 2016, 13 corporate bonds, nine government stocks and 90 treasury bills were admitted during the year.


A Recognised Exchange

The investment in technology has continued over the past year as the MSE was among the first group of exchanges that moved towards integration with Target 2-Securities, the pan-European Security Settlement System developed by the European Central Bank, to which the Exchange migrated in June 2015. Once all the migration waves are rolled out, Target 2 will encompass all euro settlement volumes in a seamless and cost-effective manner, and will be fundamental in creating a truly single capital market in Europe. The Exchange’s credible track record has enabled it to obtain recognition from other leading stock exchanges, and since 2010 Malta’s equity market has been included in the FTSE’s Global Equity Index Series (GEIS). The MSE has also achieved recognition from the UK tax authorities and recently was granted recognised exchange status by the Securities and Exchange Commission in the US.

 

Listing Solution

The MSE presents itself as an ideal place to accommodate specialist services and small and medium-cap companies, and is aiming to become one of the top three European stock exchanges catering for SMEs by the end of the decade. The MSE currently operates three markets; the Main List consists of equities, corporate bonds, government bonds and treasury bills. Companies with a trading history of three years and over are admitted to the MSE’s Main List, while a secondary Alternative Companies List offers firms with little or no trading history the opportunity to access capital markets. These firms can benefit from EU passporting rights and besides the MSE’s trading platform, they also have the option to have their instruments traded on another EU market of their choice.

To expand its services, the MSE has created a new SME-oriented market called Prospects that provides an opportunity for SMEs from Malta and elsewhere to raise capital. Prospects’ rules have been designed to offer a lighter regulatory regime compared to the Exchange’s other markets, while providing robust investor protection and transparency through the requirement to appoint a corporate advisor. The MSE is convinced that this new market has the potential to become a major pillar in the provision of capital financing to SMEs and will help Malta attract international business from countries such as China, Turkey, Italy, Spain, Eastern Europe and the Middle East.  

The ambitions of the MSE also go beyond small cap companies, and the Exchange is marketing itself to larger cap companies as a gateway to European investors. These companies can look to Malta as a first step towards an eventual listing on the main European exchanges.



A Professional Environment

What differentiates the Malta Stock Exchange is its very high standard of personal service, which provides a lot more support in the preparation for an initial public offering (IPO) than on a larger exchange. In addition, costs and fees remain competitive while those making primary and secondary applications can expect a swift, well-organised process. Both local and foreign companies can also benefit from ancillary services ranging from admission and trading to depository and custodial services. Furthermore, the MSE highlights that support services provided by accountants, audit firms and lawyers are priced at up to 40% less in Malta than in other EU countries, while offering the same high level of service that market participants expect.


A Market for Debt Securities

Following its vision of becoming an international player, the MSE has also created a market for debt securities in cooperation with the Irish Stock Exchange. The European Wholesale Securities Market (EWSM) is aimed at a global client base, targeting issuers who desire a European listing for distribution to European investors. While primary market infrastructure, listing, promotion and other corporate services are provided by the Irish Stock Exchange, the MSE functions as the market operator and offers secondary market services. In 2013, the market welcomed its first listing when Grand Harbour, an issuer registered in the Netherlands, listed seven classes of securities, while in July 2014 Argentarius ETI Management issued the first Exchange Traded Instrument (ETI) under the Malta Securitisation Act on the EWSM. Up till April 2016, there have been 15 issues on the EWSM.

 

Joseph Portelli"We are looking outside our shores to identify companies within the emerging markets to list in Malta. The island offers a listing solution that appeals to cost conscious companies, and I see no reason why the Malta Stock Exchange should not flourish in the same way as other segments of Malta’s finance centre do."


Joseph Portelli, Chairman of the Malta Stock Exchange

 

Tapping into Islamic Finance

Another strategic move by the Exchange was the introduction of a Sharia Equity Index in January 2016. This new index has been certified Sharia compliant by Dubai’s Islamic finance consultancy firm Dar Al Sharia. Every quarter, Dar Al Sharia screens the equities traded on the MSE for possible inclusion with the index, while ensuring that the equities listed continuously comply with Sharia principles. This new MSE Sharia Equity Index is seen as the first step towards establishing Malta as a centre for Islamic finance products, with a view to attracting the Sharia-compliant equities and Sukuk instruments that could be listed and traded on the MSE. The MSE hopes that the index will generate interest from Sharia-compliant fund managers in addition to Muslim investor communities all over the world and increase business for the Exchange, as well as raise awareness amongst Muslim companies interested in accessing the European capital markets through the MSE.


Reaching Out

The Exchange has always been at the forefront of initiatives to help develop Malta into an international financial centre. Despite its size, the MSE offers all the benefits of a well-regulated, transparent marketplace, with the added advantage of providing a personalised and swift service. Malta’s stable economic and political climate provides potential issuers and investors with peace of mind when conducting business with the MSE.

Despite its international ambition, the MSE stays committed to the continued development of the domestic market. In 2016, the Exchange established the Malta Stock Exchange Institute (MSEI), which is focused on enhancing financial education aimed at a broad-spectrum target audience, ranging from individual investors to industry practitioners.


Future

The coming two years will be defined by the Exchange’s ambition to implement its strategic plan consisting of some 20 initiatives aimed at strengthening the MSE. By June 2017, the MSE aims to change the listing rules to include exchange-traded funds and real estate investment funds. The Exchange is also exploring options for the creation of a wholesale market for securities in addition to the EWSM, as well as for the possible privatisation of the Exchange. The Malta Stock Exchange (MSE) has also set up a blockchain Think Tank to ascertain how this emerging technology could work in the capital markets infrastructure.

Going forward, co-opetition will also be a major theme for the Exchange, which is looking to develop its relationships with major global stock exchanges outside of Europe. The aim is to provide foreign exchanges with a white label solution, which they could offer to companies within their home markets who wish to have a listing in the European Union.

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