SUMMARY REPORT - Benchmarking Malta’s Capital Markets

Background to the Report  Simmons and Simmons LLP have prepared a long-form report (the “Report ”) to support the Malta Financial Services Advisory Counsel (“ MFSAC ”) in their objective of further im proving Malta’s competitiveness as a financial services centre, with a focus on capital markets and, specifically, international listings. The report has been prepared on the ba sis of consultation with local stakeholders — including the Malta Stock Exchange (the “MSE”), the Malta Financial Services Authority (the “ MFSA”) and senior representatives of locally based brokers, lawyers and accountancy firms operating in the capital markets — as well as with stock exchanges, lis ting agents and practitioners in other international financial centres. By analysing and benchmarking against the key competitor interna tional listing venues, this report seeks to establish the steps necessary for enhancing the appeal of Malta’s stock exch ange offering.

Overview

 The Report describes the high level of competition among the key financial centres for market share of stock exchange listings. Competitive positioning of the various financial sectors is based on numerous factors, including regulation, taxation, valuation-related considerations, market breadth and depth, execution certainty, user-friendliness, public policy, investor requirements and market perception.

While the common assumption may be that stock exchanges serve the public good — at a basic level, being places for businesses to raise and manage capital in a fair and effi cient way, while allowing investors to invest and trade their savings in a similarly fair and efficient way — stock exchange s are in fact highly competitive businesses which must continually adapt and develop in order to compete among their peers and win market share. This is particularly the case when it comes to international listings o f securities sold to sophisticated international investors, where the location of the technical listing may not be important to either the issuers or the target investors. Here the fact of the technical listing may be very much a ‘tick the box’ exercise; e ither sought because the issuer requires the relevant securities to be ‘listed’ somewhere (for example, for tax rea sons) or because target investors require it (for example, because their investment mandates require their portfolios to be invested in ‘list ed’ securities).

Aside from their direct role in serving the specific needs of investors and issuers, stock exchanges are also viewed more generally as an integral part of any financial ecosystem and a standard bearer of the success of that system. In turn, a successful st ock ex change relies on its home jurisdiction being perceived as an attractive financial centre. 

While the scope of this report encompasses international listings in the capital markets generally — which includes equity listings - the focus of much of the report is the debt capital markets and related debt-like products. The Report explains the rationale for this in more detail; however, the key reason presented is that it will be far more difficult , and so less realistic, at least in the near- to medium-term, for Malta to compete for ‘interna tional listings’ of initial public offers (IPOs) from busine sses located outside the home jurisdiction. As set out in more detail in the Report , the factors that prospective IPO can didates and their advisers look for in choosing an IPO venue are generally less related to the stock exchange admission process and relevant rulebook itself (although there are exceptions here, while noting that the EU derived legislation — notably the Prospectus Regulation and EU Listing Act — sets common parameters in which Malta would need to compete in this respect), but more focussed on: (i) access to a wide investor base with deep capital; (ii) related to the first point, local liquidity; (iii) valuation and research cov erage; (iv) comparable companies on the same market (in terms of both sector and comparative size); and (v) ease and cost of being publicly traded going forward. 

For some or all these reasons, businesses would generally favour an IPO in their home jurisdiction. 

The debt capital markets are more “international”, in the sense of being less tied to any particular domestic investor base. Looking at how the key competitor jurisdictions have succeeded in creating and promoting successful listing venues, and considering Malta’s own strengths and limitations, the report concludes that the objective of attracting inter national listings in the n ear-term is most likely to be achieved by creating a highly competitive ‘unregulated’ (also known as exchange-regulated) market. By which we mean, a market which is not regulated by the MFSA, but simply by the MSE itself. 

The Report discusses, in some detail, the strengths and shortcomings of the competitor listing venues as against Malta’s offering, and distil s the findings into a matrix of features which would create a truly internationally competitive ‘Malta MTF’.

This matrix of features is set out in summary below, and described in more detail within the Report.

This competitive new market, taken together with Malta’s fundamental strengths in its geographic centre to Europe, Africa, Turkey and the Middle East, timezone, attractive tax regime, language, notably skilled labour force (and specifically at the advanced end of financial services and fintech), a progressive regulator (particularly in areas of crypto regulation and fintech) and enviable climate, will be a highly compelling venue. Once in place, the venue needs to be marketed. This must be done broadly acro ss international practitioners, and also in a targeted way at specific sectors and issuers. In the longer term, a wider objective will be to attract target industries to Malta and thereby curate a nexus for local listings, but that is a longer term and pot entially more costly undertaking.

Regulatory Back-Drop and Market Practice 

On the regulatory side, the European capital markets are in a time of flux. Policy makers conclude that fragmentation of the market has hampered the growth that the eurozone should have exhibited, with issuers continuing to find pricing and sizing advantag es when tapping the U.S. market.  

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