The team interviewed Mr. Paul J Spiteri and Ms. Eileen V Muscat, the Chairman and Chief Executive Officer of Malta Stock Exchange, and asked them about Malta Stock Exchange’s role in the development of the country, potential key partnerships, and their own expectations for the county’s future. Mr. Spiteri and Ms. Muscat argued that being a small country has been a benefit with regards to innovation because they are able to offer the whole value chain of services, offering a more personalized service to be able to do things in a flexible and expedited manner.
|Ms. Eileen V Muscat, CEO of Malta Stock Exchange Plc,|
When someone mentions stock exchange, most people think of the New York Stock Exchange or of the London Stock Exchange, but you don’t need to be big to be a good stock exchange; Malta Stock Exchange was set up back in 1990. The first trading day here was in January 1992. When we started there was no equity, fewer than eight government stocks, and something like 8,000 account holders of government stocks; in contrast, we now have 23 equities quoted, 44 corporate ones and over 50 government stocks. Ms. Muscat:
From the start of operations the MSE provided trading and post trading facilities; today, close to 80,000 individual investors hold listed securities, that is approximately 50% of the adult population. Within the last 20 years of the market there has not only been a huge penetration in the market, but the holdings of the Maltese people have diversified. Maltese are by nature savers, they are not risk takers, and that is another obstacle to market liquidity that we had to take on board; but what we have seen is that most of these holders also hold equity, and it is a penetration that I call “vertical and horizontal,” because it is penetrating the different instruments evenly.Was this part of the internationalization strategies?
It has been in the domestic related market, and it is now that we feel that we can move towards the international side of it. Ms. Muscat:
The current Board and the previous Board have focused on increasing the MSE’s international footprint. Malta is a small country, and there is a limited potential growth rate if we are going to remain a domestic market. To participate at the international level we have to stay connected to the international markets so we need to have the infrastructure that will help us do it; we changed our trading system in 2011 for a European system, and now we have connectivity. Next June, we will participate in Target-2 Securities. We are investing very much on technology that will take us to the next level of development and using technology as a business enabler to support the MSE’s strategic goals.
The last few years have been dedicated to preparing all the necessary groundwork to be able to take on international business. We have also developed our custody business which is something completely new; the Xetra trading platform has provided not only connectivity but visibility, and, indeed, last year the MSE approved its first international member. Another reason why international investors are attracted to doing business with us is Malta’s reputation as a highly regulated and reputable financial center, Malta’s stable economy and the banking sector. Mr. Spiteri:
Successive Boards focused on acquiring a good reputation, which is very difficult to do because it takes a very long time to build a reputation, and it goes away if you do not care for it carefully. Malta has gained reputation through the financial sector and especially the Malta Financial Services Authority; we were not looking for quantity but quality.Why have you been able to innovate while your competitors stay static?
Being small has been a benefit with regards to innovation as we can be flexible in our operations and can offer a whole value chain of services. We have been able to, in the face of certain requests, to take one step back and say, “How can we be flexible in our rules?” It is very difficult to have that flexibility in Europe with all the regulations that exist, but we want to offer a more personalized service to be able to do things that one client might want but is not of interest to another client; we have all the legal frameworks, IT systems, international connectivity, and proprietary systems that allow us to be quite flexible. An added advantage is that Malta’s business language is English, which facilitates operations. As an example of innovation and “thinking outside the box,” early this year we started to offer facilities for the reporting of applicable trades under EMIR requirements. Another important aspect for innovation is that we maintain open communication channels that are kept open with members, listed companies and other market practitioners in order to remain cognizant of market needs and develop accordingly. Competitive pricing throughout the entire financial sector also supports Malta’s bid to continue to develop as a leading financial center. What do you see as the largest threats to the continued growth of Malta Stock Exchange?
At the moment, the problem that we face is the lack of liquidity. Unfortunately, international investors and institutions do not see an exit route; we tried to introduce some market making regulation, however, this has not been taken up by the brokers. What incentives are there for SMEs?
SMEs are the backbone of many EU economies, as acknowledged by specifically addressing this market segment in the recently revamped MIFID directive. Malta is no different. The MSE is working on creating a market for such companies within the framework of MIFID II with emphasis on disclosure and supported by IT solutions that provide quick and efficient processing.What kind of timeframe can an SME expect?Mr. Spiteri:
We are hoping to launch the market within the next 12 months. We are presently drafting the necessary regulations to establish an SME marketplace. We are also contemplating the introduction of some form of tax incentives, but we need to liaise with our minister of finance first in order to present our proposals.Ms. Muscat:
We are seeing very much interest in the market from the SMEs' side; all the new regulation is a challenge, but there are huge opportunities. The idea is that by the end of this year we will have the framework ready.Mr. Spiteri:
It is possible to consider the countries around the Mediterranean rim with the intention of setting up a Regional Stock Exchange. The European Investment Bank is taking the initiative in this respect. It is in the very early stages of the process, but we wish to take an active part. One advantage that we have is that we are full members of the EU with passporting rights.Can the MSE be used as a stepping stone for African and Middle Eastern countries?
Certainly; we do meet people from these jurisdictions to which culturally we are quite close. Furthermore, as a small exchange, we can offer a very specialized and personalized service which may be less daunting for a company coming to the market for the first time. One reason why we consider the MSE as a natural home for SMEs is because, like many other small markets, our business model is not based on attracting huge trading volumes but on providing a whole range of services from which potential users may pick and choose. With regard to the SME market, at the start we will focus on the domestic market, but there are thousands of these companies and they are all looking for an opportunity to raise capital on a market. How are you working to build this trusted confidence? In Malta Stock Exchange’s case, how are you building the know-how and awareness from the international community in what you have to offer here?Mr. Spiteri:
We hope to achieve this as a result of our history. The MSE is a scandal free exchange operating to international standards and, as I mentioned earlier, we have passporting rights within the EU. How are you spreading the word of this?
For the SMEs, we hope to introduce nominated advisors and to teach them what it takes; we have to rely on these people to look for business.Ms. Muscat:
A big part of our work is researching the target markets, domestic or international, and analyzing that research. When are your soft and hard launches?
In November of this year, we will soft launch the SME market domestically and initiate a consultative process. At the beginning of next year, we will start more internationally focused marketing.Mr. Spiteri:
We have to promote our market, and once we have our regulations in place we need to create the necessary awareness. The market practitioners also have a important role to play in this for they must understand their importance in bringing customers to the market.Considering the S&P 500 joined a historic 5 year bull run, at the moment there is very much speculation in the media that it is on the midst of going off a cliff. Do you think that there is going to be a carry on of the bull market or is there a reason to be concerned?Mr. Spiteri:
There always has to be concern, it is just a question of how much concern; it's a question of risk management and the level of risk that one has to examine.Ms. Muscat:
If you were to see the markets on their own, they would continue to increase, but, unfortunately, because of all the political upheavals and whatever is happening I believe that there will be significant effects on the market. I am always skeptical about how strong the recovery is for certain economies, but it is just a personal view. Hopefully, I will be proved wrong. What does it mean to you to be Maltese?
We are Mediterranean people, and yet because of the fact that we have had close to 200 years of British rule we have benefited from their presence here and gotten accustomed to some of their culture and ways of living. In Malta, English is widely spoken in addition to our native language that goes back a very long way. We have to continue to preserve our language because it makes us unique. Ms. Muscat:
What describes us is our adaptability; throughout history we have always learned something from other cultures that have been here. It has been this adaptability that has enabled the Maltese to survive and, indeed, flourish under the different regimes. While we have been self-governing for many decades, we are not immune to the effects of globalization. Malta is small and has always had to fight to make its voice heard, which continues to strengthen it as a nation.