With Malta Stock Exchange’s listings, revenues and net income after tax at record levels, it is sobering to be informed by Joseph Portelli, who has been the MSE boss for the past seven years: “Today we’re fine, but I’m not sure 10 years from now the future of the Malta Stock Exchange will be particularly rosy.”
Despite a magnificent effort to contain costs - “Our admin operating expenses are less today than they were in 2014” – the exchange’s rate of growth has slowed. So, although headcount has been strictly controlled and frivolous expenses, like business class travel, eliminated (even for the chairman), revenue is growing at an average rate of 2.5% annually.”
In Mr Portelli’s terms: “This is not particularly impressive.” On the other hand, wage costs – roughly half the exchange’s administrative expenses, and its largest cost – are increasing at 3.5% per year.
Since Malta is the EU’s smallest economy, his major concern is that he is unsure how many more corporate listings will fuel growth in the coming years. So, Mr Portelli has obtained approval from his board to continue on the road of diversification that started in 2015 when he took over.
“Prospects MTF (an exchange developed for SMEs) has worked out well. The Malta Stock Exchange Institute has worked out well. We even rent office space, and bring in advertising, which has generated additional revenue streams,” he said. “To future proof the exchange, our vision is to rebrand the Malta Stock Exchange Holdings into the Malta Stock Exchange Group and, within this Group, we’ll have four business lines.”
Two of them already exist: MSE Plc, what he referred to as “our flagship business,” and the MSE Institute, which has many other facets to it, including the positive CSR it produces through the courses it offers and the positive PR it generates notably through the MSE Business Review it publishes, and the various EU-financed Erasmus educational projects it manages.
The other two businesses that are being considered and could be launched over the next two years are: MSX Payment Solutions and MDX (Malta Digital Exchange), a blockchain-enabled, DLT exchange.
Mr Portelli is aware of the pain companies experience trying to set up bank accounts locally. “Maltese banks have become much more risk averse when it comes to corporate banking relationships. Our view is that an economy cannot be at the cutting edge, cannot grow and thrive, if there is so much friction, time delays and bureaucracy in something as rudimentary as opening a bank account. I believe we will have a comparative advantage in the payments space. Who wouldn’t want to transact with an organisation that is owned by a national stock exchange, which in turn is owned by the Maltese Government, which in turn has an A- credit rating?”
With MDX, the intention is to list securities using digital tokens. “This is really exciting because you can tokenise – convert – anything into a digital asset. With the high level of investment in local real estate, we think there is great potential for tokenising real estate, movable assets, even carbon credits, on a digital exchange,” he said.
The Malta Stock Exchange Board is studying investing up to €1.75 million, equivalent to 8% of its annual revenue, over the next two years in these two new businesses. “There is a downside to be sure – these potential businesses aren’t guaranteed to succeed, but we believe that the rewards far outweigh the risks because we are really confident that both MSX and MDX will benefit local businesses and the economy, not to mention creating additional revenue outside our core business.”
So far, industry, too, has been supportive. “I have been very impressed that every single stakeholder we’ve bounced our ideas off, over a dozen, are enthusiastic and supportive of the MSX and MDX initiatives,” Mr Portelli said.
There are over a hundred local companies listed on the MSE. That is a significant number, he claims, considering the size of Malta’s economy.
“Luxembourg is the EU’s wealthiest economy per capita, with a highly sophisticated capital market and the Luxembourg Stock Exchange lists 28 local equities. The MSE on the other hand lists 33 local equites – not bad considering Luxembourg’s economy is over five times larger than Malta’s.” In 2015, the exchange had 143 total listings, whereas today it boasts 223, a 60% increase. “We have record numbers of listings – that tells you we’re doing something right,” Mr Portelli said. He also gives credit to the entire capital markets ecosystem, which includes stockbrokers, lawyers, accountants and the local regulator, the Malta Financial Services Authority.
He believes there are two main reasons why the exchange is attracting more and more listings each year:
1. The cost of listings is unchanged and, in the history of its existence over 30 years, listing fees have never been raised. “We believe it is cost effective to list on the Malta Stock Exchange.”
2. A significant degree of prestige has been added to listing on the MSE. “Between the benefits of improved compliance and governance, which is expected of companies listing on exchanges, to effective succession planning solutions, and just being taken more seriously by suppliers, consumers and investors alike – there is a huge benefit to being listed.”
Mr Portelli is now the exchange’s longest-serving chair. At 59, his contract was recently renewed for a further three years. “I’m very pleased with where we are and what I’m really happy about is that industry has taken note and pretty much everyone in the financial services industry agrees that our capital markets and the Malta Stock Exchange, which is this year celebrating its 30th anniversary, have come a long way.”
While conceding that his predecessors did very good work, he believes the MSE has been elevated to a higher level. Among the things he pointed out were the constant renovation of almost every part of the Garrison Chapel, which he described as one of Malta’s most beautiful buildings, erecting additional screens to give it more of a New York Stock Exchange feel, bell ringing ceremonies, which companies love, and hosting lunches for companies listed for the first time in a newly set up corporate dining space.
“Prior to my chairmanship, we had CEOs of listed companies who had never stepped foot into the exchange. Today, the bell ringing and the corporate lunches are very popular – they are milestone events. We get to learn more about what these companies are doing and build relationships with the executive teams. So, I think we’ve been very successful at outreach, and we’ve been successful with corporate communications,” he said.
Apart from this publication, he listed several electronic newsletters that are issued monthly and semi-annually. He also mentioned The Executive Spotlight, in which either he or Chief Executive Officer Simon Zammit interview senior corporate executives in videos then uploaded to YouTube, Spotify and the MSE website, www.borzamalta.com.mt. In terms of internationalising the exchange, Mr Portelli said more could have been done in the 1990s when it was set up. He is concerned that Euronext Ireland and the Luxemburg Stock Exchange have been so successful in attracting international bond issues that it is pretty late in the day for the MSE to win market share.
He recalled that, when he was appointed in 2015, he had devised the MII (modernise, institutionalise and internationalise) strategy. “I think we’ve been very successful at modernising, somewhat successful at institutionalising, but we have failed at internationalising the exchange.”
To try to attract more international listings, he said they have sponsored, along with FinanceMalta, the annual Global ABS conference in Barcelona, which is attended by thousands of industry professionals. They have also organised and led trade delegations to New York, China and Israel, among others, endeavouring to attract business to Malta.
In celebrating the MSE’s achievements, Mr Portelli paid tribute to his board and executive team. “I could not have asked for a better team,” he affirmed. Two board members, Prof. Joseph Falzon and Steven Tedesco, have been on the board since 2015 and, in his words, have been instrumental in the exchange’s success.
“Now we have three new members, which I am confident will add a lot of value to the board, considering their impressive and varied backgrounds.” He also praised his CEO, and Chief HR Officer Alfred Sammut, who he believes are both indispensable, along with the entire management team at the exchange.
“I’m hoping that, over the next three years, we’ll be in a position to get more victories when it comes to building new products and continue working on enhancing our reputation, both nationally and beyond our shores. The exchange will continue to be a major pillar of the Maltese economy.
“To be sure, I’m very proud of our track record, but there is no room for complacency and celebration – there is way too much work left to be done. Besides attracting international issuers to the Malta Stock Exchange, we need to improve liquidity and increase daily trading volumes; as I said, we have lots of work and challenges ahead of us.”
The views, thoughts and opinions contained in this Focus article belong solely to the author and do not necessarily reflect the WFE’s policy position on the issue, or the WFE’s views or opinions.