Capital Markets

From Stocks to Tokens: the Stock Exchange of the Future

The Malta Stock Exchange plans to build a regulated exchange for tokenised securities, thereby creating a new digital asset ecosystem that will take the Maltese capital market to the next level and transform the investment landscape.

The Malta Stock Exchange (MSE) is one of the newest additions to Malta’s International Finance Centre. Traditionally serving the Maltese market, the MSE is seeking to position itself as the preferred market of choice for international small cap companies with growth potential and asset-backed securities. The Exchange is also turning its attention to digital assets and is currently developing two new platforms for listing and trading of security tokens, with the defined goal of becoming one of the first traditional stock exchanges to offer support for such products. 

 

Building New Revenue Streams 

With a market capitalisation of €12.1 billion, the MSE is small by international standards, but the introduction of internationally recognised technologies has significantly enhanced its appeal as a listing venue. The Exchange uses Deutsche Börse’s Xetra trading platform, connecting over 4,000 traders in 16 different countries, and has linked up with Clearstream, Deutsche Börse’s liquidity provider, on the settlement and custodial site. 

To date, the MSE’s growth has been largely driven by local companies tapping the market for equity, with investors tending to be domestic institutions or the general public. While the Maltese mentality of ‘buy to hold’ has meant trading activity has traditionally been low, total market turnover dropped by over 30% to €392.7 million in 2018 compared to the previous year. To ensure the exchange remains profitable and less dependent on its core business segment, the MSE has launched a string of initiatives to widen its income streams and internationalise its offering. 

 

New Markets 

The MSE has long sought to emulate the success of exchanges in Luxembourg and Dublin by looking to attract mid-tier corporates in need of a very cost-effective venue for their first listing, as well as non-EU entities aiming for a secondary listing in order to tap into the European money market. While this objective is still being pursued, the MSE is tapping into other market segments to differentiate itself from its competitors. A big opportunity for the MSE to raise its international profile is in securitisation. The MSE’s market for debt securities, the Institutional Financial Securities Market (IFSM), serves issuers targeting institutional investors. It offers the ability to create securitised instruments tailored to issuers’ own corporate requirements as well as to investor groups’ specifications. By the end of 2018, 12 wholesale debt securities were listed on the IFSM. 

In addition to providing conventional listing products, the MSE has developed a start-up market called Prospect, which is aimed at European and international SMEs who want to enjoy the ability to attract capital and investors from across the European Union. In 2018, seven corporate bonds were admitted, and the Exchange hopes that by the end of 2019, some 20 local SMEs will have joined the market. Malta is also working at putting in place a whole suite of alternative products such as Exchange-traded funds (ETFs) and real estate investment funds (REITs). 

 

Digital Exchange Platform 

In 2018, the MSX PLC, the fintech and digital asset subsidiary of the Malta Stock Exchange, teamed up with some of the world’s leading digital asset trading firms, Binance and OKEx, to create two new security token exchanges. The MSE hopes that both joint ventures will be operational by the end of 2019. This move is significant, as the MSE would become one of the first exchanges to offer a regulated platform for the trading of Security Token Offerings (STOs), thereby providing legal certainty to this nascent sector. Security tokens are hailed as the next big trend in the blockchain world. Unlike Initial Coin Offerings (ICOs), security tokens are an investment into underlying assets, such as digital currencies and securities, and perhaps even assets such as paintings and real estate.  

 

The Malta Stock Exchange aims to become one of the top three European stock exchanges catering for SMEs

 

Service Offering 

The other aspect that sets the Malta Stock Exchange apart from its competitors is its very high level of personal service. The small size of the MSE means it is able to provide a more intimate, tailored and fast service at very competitive prices, which goes a long way towards ensuring a successful listing. Both local and foreign companies can also benefit from ancillary services ranging from admission and trading to depository and custodial services. These services have attracted new business, mostly from overseas, and are an area where the MSE is very competitive.  

 

Future Outlook 

The MSE has always been at the forefront of initiatives to help develop Malta into an international financial centre, although so far it has remained largely a domestic exchange. 

With its decision to venture into the digital securities market, the MSE has the opportunity to become a frontrunner in what will most likely be an integral part of the financial services sector in a few years’ time. This step has the potential to truly transform the exchange into an important player with significant international exposure. In addition, the new markets that the MSE has developed, the IFSM and Prospects, still have a lot of growth potential, which means that the MSE now has the unparalleled opportunity to realise its international ambition. 

 

The Malta Stock Exchange is located in Valletta

 

 

Milestones of the Malta Stock Exchange


 

 

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