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Page last updated
February 15, 2003



IMalta Stock Exchange:


The Malta Stock Exchange [MSE] was established with the purpose of achieving three main objectives. The first was to provide the local business community with new financing possibility that could eventually assist them in widening their capital base. Secondly, to provide a means by which to broaden the base of Maltese assets and thirdly, as a result of the first two, to help nurture the Island's ambition to become a reputable international financial centre.

Since the first Council was appointed in 1991 and the bye-laws governing the day-to-day operations of the Exchange have been published, the Exchange has come a long way in its short but not uneventful history. There are at present over 60 different local tradeable instruments, including shares, corporate bonds and Government Stocks as well as over 300 investment funds listed on the Exchange and which include major players in the field such as Lloyds, Barclays, UBS, HSBC and Fidelity. Indeed, the Exchange has become a niche market for investment funds. An Exchange listing is efficient in cost and time, eliminating the need for duplicate service providers in an alternate listing jurisdiction. The Exchange rules combine clarity, flexibility and excellent levels of regulation with the most up-to date international standards imposed by its membership of international organisations such as IOSCO, WFE and FESE.

Trading on the Exchange commenced in 1992, on a manual "call-over" system , with trading sessions taking place on a weekly basis. This manual system continued until 1996 when it was deemed that investors had become used to trading and when it was considered that the market had grown sufficiently to make manual trading both lengthy and very cumbersome. In July 1996 electronic trading was introduced using an order-driven system where each Member would input all his orders for any given security onto the trading system and the opening price would be calculated according to the supply and demand in any particular security. Later on in 1998, trading started to take place on a daily basis. The trading system also offers the possibility of continuous trading and multi-instrument, multi-denomination trading and is fully integrated with the dematerialised Central Securities Depository and the Clearing and Settlement System.

Late in 2001 the trading floor was abolished by the introduction of remote trading which has changed the face of the local trading scene beyond recognition. The introduction of remote trading makes it possible for the investor to reduce the gap between the time one places the order with his broker and the time in which the deal is actually executed while retaining total transparency and strict regulation and monitoring of the trading system. This new development also paves the way for the Exchange to seek international business, particularly through the participation of foreign brokers in the market and the listing of foreign companies.

Central Securities Depository
When the Exchange was set up in 1991, a fully dematerialised Central Securities Depository [CSD] was introduced as part of its operations. The CSD maintains the registers for each security admitted to listing on the Exchange [with the exception of Collective Investment Schemes] and these registers contain all the registration details for each holder of securities. The dematerialised CSD allows investors to hold and transfer listed securities without the need for physical certificates or special transfers forms to be issued. Each listed security is represented by a computerised register of accounts which is updated following settlement to reflect the day's transactions on the markets. The CSD also provides for the settlement of off-market transactions and has also been designed to be fully compatible with the trading, clearing and settlement

systems implemented within the Exchange. In addition to securities transfers, the CSD also notes pledges, garnishees and mandates as well as effecting off-market transfers to heirs upon the death of a holder following all the necessary legal procedures. The CSD also provides other services to listed companies such as processing and printing of dividend and interest cheques, shareholder lists and the issuing of various reports to Company Secretaries in order that they have as much information about their shareholders as possible. The CSD also provides primary issue procedures such as inputting of applications, processing of refund cheques and allocation notification.

Although the CSD is dematerialised, investors are notified by the CSD of any movements in their balances either through market transactions or as a result of any other process through the issue of a Registration Advice giving details of each movement and why this was effected and at least once a year, at the end of the year, the CSD will issue a Statement of Holdings to all investors listing all the holdings of a particular investor. The Exchange is currently looking at ways of increasing and further developing the services being provided by the CSD such as the provision of such register services to unlisted securities, the provision of custodial services and the development of the CSD into a central counterparty.

Besides providing the infrastructure necessary for trading in an orderly and regulated market, the Exchange also has another important function ­ that of regulator of the local securities market. The main function of the Exchange as regulator is to ensure that there are the necessary infrastructure, procedures and regulations to secure investor protection. The Exchange carries out its function of ensuring the orderliness and transparency of the market by constant monitoring of the trading system itself and monitoring compliance by all market participants especially brokers and listed companies, with all the rules and regulations of the Exchange. It is important the Exchange is seen to be carrying out its functions as a regulator, thus guaranteeing the protection of investors' interests.

The policy making authority of the Exchange is the Council which is empowered to issue policies, guidelines and directions to the executive management officials. Two of the main functions of the Council are the issuing of licenses to stockbrokers and the admission to listing on the Malta Stock Exchange. However, the Council's main function is to promote and ensure that through it, an orderly, equitable and visible securities market place is provided for the transfer of securities.

Market participants can be divided into three main categories. Firstly, the issuers of listed securities, that is, those who are inviting the public to invest in securities or those who are inviting investors to buy shares in order to collect funds. Secondly, there are the investors who decide to invest in the securities on offer. And thirdly there are the intermediaries ­ the stockbrokers who bring these two parties together. All the aforementioned participants have responsibilities both to each other and to the market itself and its is the responsibility of the regulator to ensure that these obligations are being met. Before an issuer invites the public to participant in the initial offer of securities, the Exchange must ensure that the investing public has all the requisite information available in order to make an informed decision whether to invest or not in that particular security.

Once such securities are admitted to listing, the issuer must comply with the continuing listing obligations laid down by the Exchange so as to bring all information about the listed company to the attention of its shareholders or bondholders, as the case may be. The stockbrokers are very important as intermediaries, that is they are the link between those providing the securities and those wishing to invest. Indeed, in terms of its regulations, the Exchange insists that any stockbroker must be fit and proper, efficient and capable of providing advice on listed securities. The stockbroker has the responsibility of acting to achieve the best deal for his client without prejudicing the orderliness and transparency of the market as a whole. It is therefore expected and monitored that stockbrokers act in a fair and proper manner taking into consideration not only the needs of their clients, but also of the market in general.

The Exchange has also taken the lead in the field of Corporate Governance with the issue of a set of Principles of Good Corporate Governance for listed companies which provide a concise guide on the obligations of directors of listed companies and how these may be performed. Adherence to the Code has not been made mandatory however, listed companies are required to include a "Statement of Compliance" in their Annual Report to the extent to which these Principles have been adopted and the effective measures that they have taken to ensure compliance with the Principles Furthermore, auditors of listed companies are to include a report on the "Statement of Compliance" made by the company. Although these Principles apply to listed companies it is hoped that they will be a model that will become applicable also to other non-listed companies.

The Exchange has always deemed investor education as being an integral part of its responsibilities as regulator of the local capital market. Ever since its inception therefore, the Exchange has expended considerable time and effort in endeavouring to educate the general body of investors through various initiatives. Primary among such initiatives is an Investor Education course organised and run by the Exchange and aimed at the general public in order that they can learn more about the Exchange itself, investment opportunities and the financial sector in general. Recently, the Exchange has initiated a series of Information Meetings between listed companies and the general public. These meetings, held under the auspices of the Exchange, serve to maintain contact between listed companies and their shareholders or prospective shareholders and to discuss matters of mutual interest outside the formality of the AGM. The necessity for such meetings has also been included as a Principle in the Code of Principles of Good Corporate Governance for listed companies.

New legislation amending the Malta Stock Exchange Act provides for wide ranging changes including the removal of its regulatory powers in particular the granting of admission to listing and the licensing of stockbrokers as well as the removal of the exclusivity of trading on the Exchange for locally listed securities. These amendments, in conjunction with other financial laws, will pave the way for the possibility of multi trading platforms, cross listing and the licensing of foreign stockbrokers to trade locally.

International Affiliations
In a world of ever increasing globalisation, the Exchange has always considered collaboration with other regulators and exchanges as paramount to its continued development. Moreover, as a new exchange having to compete with larger, longer established exchanges, the Exchange has always sought to operate within internationally acceptable standards and to this end has sought acceptance and membership of global organisations which provide bench marks for capital market regulators and operations. To this end the Exchange is a full member of the International Organisation of Securities' Commissions [IOSCO]; a full member of the World Federation of Stock Exchanges [previously FIBV] and is also an Associate Member [full membership is only open to member countries of the EU] of the Federation of European Securities Markets [FESE]. The Exchange also sits on the Working Committees of both WFE and FESE. Following its initiatives in the field of Corporate Governance, the Exchange was also invited to become a founder member of the European Corporate Governance Institute [ECGI]. This is an academic cum business think tank with the main objective of encouraging the enhancement of corporate governance through independent research and related activities.

The Exchange has always endeavoured to develop close collaboration with other exchanges overseas and with other regulators. In many instances such collaboration has been formalised with the signing of a number of Memoranda of Understanding, which are not an end in themselves but provide a mechanism for long terms co-operation to facilitate the development of channels of communication and to cater for greater collaboration between the two parties for the respective benefit of the financial services in the countries concerned and to assist in the maintenance of orderly securities markets.

Membership of the EU is the largest challenge now facing the country. In this day and age of online round the clock trading one must be bold enough to face the challenges. There is also scope for the Exchange to actively pursue the formation of alliances in the Euro-Mediterranean region. Malta is ideally situated both in geographic as well as in political and economic terms to take these initiatives. What is critical however, is for these initiatives to be taken within an EU context. Given the efforts being taken by the EU to develop a Euro-Mediterranean partnership, and given too, the type of strategy that Malta should pursue as a potential EU member, placing Maltese initiatives within an EU framework would ensure continuity and support for the initiatives taken.

Eileen V Muscat
General Manager
Malta Stock Exchange


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