The Malta Stock Exchange - past,
present and future
The Malta Stock Exchange started out just over a decade
ago with some 8,000 accounts. Today the number has surged to 150,000
and with a formidable track record, its future is even more so. DAVID
LINDSAY speaks to Exchange General Manager Eileen Muscat about the Exchanges
change in role from regulator to promoter, the enormous opportunities
the Exchange is capitalising on thanks to a change in legislation, its
role as an EU member, the promising BorzaMed project and a wide range
of other issues in this extensive interview
The Malta Stock Exchange has seen its role changing from
that of regulator to that of promoter. How has the MSE repositioned
itself in this respect and what activities are underway?
Since October the Malta Stock Exchange no longer has the role of regulator
and we are now operating purely in a competitive environment. The new
legislation put in place allows for a multiplicity of exchanges and
as such any sort of monopoly the Exchange had in the past has been or
will be removed by certain provisions of the Act coming into force.
This leaves the Exchange looking at its operations in a different way.
We were, in a way, always hampered or held back from certain activities
due to our role as regulator since there was always a certain conflict
of interest between regulating and operating.
One example that comes to mind is that because we were the listing authority,
also considering that we were responsible for their obligations once
a company has been listed, a certain conflict of interest would arise
in that you could not try and encourage companies to come on the list
and then you would be regulating them.
Now the Exchange has been freed to a certain extent, opening the way
for us to go out to companies and offer other services to companies
that we couldnt offer before.
The removal of our regulatory powers means that we are now operating
in a purely commercial sense. The Exchange, although it has never been
a private company, was always a self-financing operation - basically
we offered services that we charged for and through this charge we were
able to cover our operating costs. The only government subsidy we received
was the initial injection when we were first set up. However, that has
now been repaid many times over in the sense that the services we offer
to government are offered at a subsidised rate.
Although we were never a private company in itself, we were always run
with the mentality of bringing back our operating costs. I have to say
that we did make a certain amount of profit, but, unlike a private company,
our main aim was not to make a profit but to recuperate our operating
Now in this new scenario, although at the moment we can say that we
are the only exchange in Malta there is nothing in the new legislation
to prevent another exchange from being set up. We are now competing,
with EU accession, in a greater marketplace. So one has to look at the
services we offer and the framework in which we operate, which is a
selling point in the sense that the Maltese market is a regulated market
with a very strong infrastructure.
The time we spent before the new legislation went through had allowed
us the time to build up our infrastructure. This is a selling point
in comparison to perhaps other exchanges that could come on board locally
that we have proven systems in place. This also means that we
can now look at other options such as other services that we can offer,
perhaps even services to non-listed companies.
We provide, for example, registrar services to listed companies and
we are looking to see if we can extend these services to non-listed
companies. For example, depository is a very big service provider. We
are looking at all these things, while also looking to streamline our
operations to make them more cost effective.
So we are also looking at the setup of the Exchange within the new scenario.
There is no private shareholding, but we are an entity setup under law
so were also looking at how we can alter the set up of the Exchange
to that of an actual company, perhaps, with a view to making it more
cost effective and efficient. All these factors are being looked at
and this is how we see the Exchange developing in the future.
The new legislation and the new regulations coming on board have also
opened up the possibility of bringing different instruments into the
market. Apart from the shares, funds, bonds and government stock there
are a lot more instruments out there that would make the market more
What kind of instruments are we talking about?
There are different kinds of funds pension funds, hedge funds,
options, derivatives were not saying that we are going
to list all these, but there is a huge, wide spectrum that the new legislation
and other legislation coming on board would enable us to list. Obviously
you have to make the exercise cost effective. You have to see the costs
involved and determine their viability, but we feel the greater the
spectrum of instruments, the more attractive the market will be.
We are also looking at our IT systems and our procedures with a view
to streamlining to make them better geared toward a competitive edge,
as opposed to regulation. Regulation, of course, is still very important
having a regulated, transparent market is a huge selling point
and as such is still very important to us.
Being a regulator, you look at things very differently and now being
freed from our regulatory role allows us greater freedom to sell yourself
and your services.
However, our experience as regulators is very useful, as it prevents
us from falling into certain pitfalls that we would have fallen into
without the experience we have. In fact, one of the greatest difficulties
is to stop thinking as a regulator, to think that regulation is not
our primary concern. However, we do still maintain responsibility for
the market, so we do still have a regulatory role, but perhaps this
is more of a whistle-blowing function than a sanctioning function.
Although people are sometimes frightened of change, we consider this
new scenario as positive and that even without the change in legislation
and EU accession this change of role would have been a natural development
anyway and we have always known this would eventually happen.
Change is always difficult and these changes are significant, perhaps
more significant for the market players than for the actual investor
in the sense that investors have not been impacted at this stage since
trading has continued all the same, but I think for all the people within
the sector these changes have been quite significant. In our Annual
Report we did mention that perhaps to the outside world it appeared
that nothing much was taking place this year but in reality the biggest
changes for the Exchange took place in 2002. The fact that the investor
has not felt this change is a good sign, indicating there has been a
It is difficult to take a step back, to forget regulation and to work
within our own framework. Yet now there is the even wider regulation
of Europe, which some say opens a can of worms, but I prefer to view
it as opening a great many opportunities. With opportunity comes competition
but at the end of the day its a frame of mind and the whole ethos
of the Exchange is to look forward because we are such a young institution
and because we have been constantly changing over the last ten years
and constantly evolving.
What does EU membership mean to the MSE?
Hopefully it will bring what is available on the European markets closer
and more available to Malta.
European companies will be able to list on the Malta Stock Exchange
but obviously there would have to be certain regulations. Financial
intermediaries will also be able to act in Malta as well, obviously
within the framework legislation.
We consider this to be an expansion. The local market is what it is;
it can only expand so far because with Maltas relatively small
population you have a finite number of companies and investors. One
always considers the home market to be the prime market and while one
mustnt get lost in the bigger market, I think it would be very
short sighted if we were to look only within our shores.
We feel that over the years weve consolidated the local market,
which has expanded fairly rapidly over since we first began operations.
We started out with 8,000 accounts and today there are some 150,000
accounts. The turnover in the market might not be very big, but you
cannot judge the market by whats happening on the trading system
If you look at IPOs, at primary issues and bond issues one can see the
interest and that we have seen an incredible amount of growth. But like
any other market weve seen ups and downs and now we are seeing
a slight recovery in the market, with prices stabilising to a certain
As such, we are viewing EU accession as a window into the greater European
market, and vice-versa.
The BorzaMed Protocol was signed some 10 months ago. What are the ideas
behind the project, how would you gauge its potential and what progress
has been achieved to date?
The idea behind the BorzaMed project is to create a Mediterranean stock
exchange with Malta at the hub. When looking to enlarge our market,
even before the issue of EU accession, we always felt we could use Maltas
traditional location as a bridge between north and south. The markets
to the north are very well developed and the markets in North Africa
and the Middle East are also fairly well developed but there doesnt
seem to be much linkage between them, despite the fact that there is
this huge market in North Africa and the Middle East to be tapped.
The idea is to create an alliance between all these exchanges, even
those of southern Europe which have their particular problems, and create
that stepping stone between them, which would offer opportunities for
everyone. Malta can offer its understanding of the natures of these
markets plus many other inherent benefits such as the fact that
we are English speaking, our proven technological systems and that were
the only market within the Mediterranean region that is fully compliant
with and is a member of all the international standards setting organisation.
We also have a very well educated workforce, good telecommunications
and a good IT infrastructure.
Reactions to the project have been very positive in the sense that both
sides see it as a stepping stone to each others markets and while
they may be wary of dealing directly with each other, they are prepared
to do so through Malta.
The idea is to start as a common trading platform based on mutual recognition
rather than on trying to harmonise each others rules. Instead
we aim to accept each others rules, obviously in line with certain
minimum criteria so the investor is always aware that they are listed
or trading in a home country but that there is a common level of regulation
and that there is always a base standard.
We started a few months ago originally with just Malta, Tunisia and
Egypt. We started a feasibility study and we felt it to be very positive.
Infrastructure-wise we found no difficulties since most trading systems
talk to each other today anyway. There are always certain difficulties
in regulatory policies, but no great stumbling blocks.
For various reasons, as the months went by we felt the focus should
be wider and, rather than starting with such a small number of markets,
we felt we should get more people on board. This was catalysed by changing
situations both locally with our accession to the EU but
also due to the situation with the other participators. So at the moment
we are still going ahead with the project, we are widening the target
group and we have some activities planned along these lines over the
next few months.
I feel this is a very valid way for the Exchange to go. Our accession
to the EU is a plus in this case since we are seen as a window. Again,
we are looking at the expansion of our market both by giving
our customers opportunities to be listed and to trade on other markets
and also to have other customers on our market.
The feedback we are receiving has been very positive, we know there
have been other countries trying to do the same or similar things, which
demonstrates the degree of interest in such an idea. But our great advantage
is our regulatory framework, which has proved to be a huge plus.
Investor education has always been of paramount importance to the Exchange
and it has carried out a good deal of activities to this end. How would
you gauge the success of the investor education programmes?
Weve always placed a great emphasis on investor education because
ultimately if you dont have investors, you dont have a market.
As such, you have to attract people to the market and the way to do
that is to explain how the market works, explain the risks, the advantages
Its interesting that when we started out, the stock exchange was
something that few people thought would actually thrive in Malta. The
Maltese by nature are savers and there is a lot of money out there.
As I said, we only had 8,000 accounts at the outset and when we set
up we made a great effort, even before we started trading, to go out
there to explain whats happening and to explain the trading system.
Even when we started trading, we purposely started trading on a manual
system when we could have started on an electronic system straight away,
but we decided that we needed a system that could be easily understood
and followed by Mr Joe Public. We started going to schools, the university,
we had different groups coming in - professional groups such as lawyers
and accountants - because we needed to explain what was happening.
I think we hit home in the sense that we got a lot of investors on board.
We also had another challenge before us, which was the companies. This
was in many ways a more difficult nut to crack because other interests
are involved. Its a more difficult audience, but again because
of our previous role as regulator, there was only so much we could do
at the time.
Investor education has always been ongoing and as the investor became
more sophisticated and knowledgeable about the market and Maltese
are very knowledgeable the method changed. While today we still
speak about the overall system, we have now begun to speak more about
the different instruments available, changes to regulation and how it
helps them with their investments. As such, this is an ongoing exercise
that weve always had in the process.
Even now, although investor education is now the responsibility of the
regulator as the competent authority, we still feel we have a role in
this educational process. But rather than educating the investor on
how the system works and what services we offer, its now more
about whats available on the market and how the market reacts
or shouldnt react.
Investor confidence in the market is paramount and its always
important that the investor knows whats happening in the market.
Weve had several courses in English and Maltese for the general
public, who have been very well attended and we will be continuing these
this year. Again, while this is no longer one of our primary responsibilities,
we still think we should invest in education.
Investor confidence has suffered on a global level in the wake of the
11 September attacks, the Enron and Worldcom scandals and the Iraq War.
To what extent would you say trading on the Malta Stock Exchange has
been affected by these world events? How would you explain the fact
that the local market hasnt reacted in the same way?
I wouldnt say that the local market hasnt reacted in the
same way, in the sense that it had not reacted directly to these incidents.
The local market is, of course, very much a local market. Thereby what
happens in New York or London, for example, does not have a direct impact
on the local market per se, but it does have an impact on investor psychology.
This is really what weve seen in Malta. We have seen a decrease
and part of the decrease can be attributed to a cascading psychological
There are other reasons why the market has declined. There was a period
two to three years ago when the market was rising, but like any other
market it reached a certain level and started to level off again.
Again theres the psychology of the market and then there are other
factors that also affect the market. For example, over recent months
there have been the elections, the EU question and the perceptions of
the economy. If you take all these factors together, they have an effect
on the market, an indirect effect, but an effect.
It is true that the market does not respond as quickly as it should
to positive or negative news about listed companies. We get announcements
that a company is doing this or that and their financial statements,
but we dont see the market reacting as quickly as it should, if
it reacts at all. However, I have to say that over the past few years
we have been seeing more of a reaction, which is encouraging.
One factor at play may be that shareholders in listed companies lack
the feeling of involvement or a sense of belonging to that company,
which perhaps explains why they dont react so quickly themselves.
This is still not within our nature as a nation, whereas if you go to
New York the first thing a taxi driver speaks about is whats happening
on the NYSE. Theres this frame of mind, whereas this is still
not quite as developed here yet. But this is something that takes a
generation to change.
I also think a lot of investors go to their financial intermediaries
only when its time to buy or sell, they dont actually approach
them for advice or for an explanation over a company announcement. There
has been a lot of criticism that financial intermediaries dont
explain enough to their clients, but sometimes people need to ask the
questions and this is where investor education also helps in
teaching investors to ask the right questions. This is one area we address
through our education programmes. This is a two way thing, but investors
appear reluctant to ask questions when all they have to do is pick up
the phone and ask, perhaps at risk of feeling stupid.
So my advice is to go out there and ask the questions, this is your
investment. Dont wait until there is an issue, a trade, or you
have received a dividend cheque and youre not happy about it.
However, this reluctance is changing, even we as an exchange are receiving
more and more questions. People are becoming more aware - at the end
of the day this is your money and you have every right to keep track
What advice would you give a company toying with the idea of seeking
The most important thing when a company decides whether to list or not
is that it is purely a business decision and that should be the only
reason for seeking a listing.
What is of the utmost important is to know is that there is this opportunity
and to consider the opportunity. A lot of companies look at a listing
and think its extremely complicated, but in real terms if a company
takes a very, very good look at itself - at how it wants to operate
and why it is interested in a listing, what its plans are for the funds
raised are it should speak to its advisors and above all the
competent authorities or the Exchange itself.
Its very important to carefully consider the option before throwing
it out the window and to assess the advantages and disadvantages of
a listing. Of course there are also obligations ties into a listing
but I have to say that the legislative framework, even for unlisted
companies under the Companies Act, involves a lot of obligations with
corporate governance issues finding there way even into non-listed companies.
I think what companies really have to do is realise that there is this
alternative. Now whether this alternative applies to you is another
matter. This applies especially to family-owned companies, many of which
are now in their third and fourth generation and there is so much dilution
anyway in the shareholding. One of the biggest fears of these companies
is losing control, which is not the case because, of course, you choose
to list only a percentage of the company.
Yes, being granted a listing takes time but not as much as one
might expect - yes it might mean changes to the way you operate, there
is a certain cost involved, there are certain obligations but
from a purely business point of view what we are trying to get through
to these companies are the advantages of being listed. These include
the fact that you become much more marketable, it makes you more
visible and a wide array of other advantages.
I think what companies need to do is talk to the right people when they
are making the decision, even if you dont talk to the Exchange
or the competent authority, there are a lot of people who have a lot
of experience and who are in a position to advise - such as financial
intermediaries, lawyers and accountants. Over the last ten years in
which the Exchange has been operating they have developed a great deal
of expertise and of course the operator and the regulator are both always
available for information and advice.