New initiatives at the Malta Stock Exchange

By: Simon Zammit, Chief Executive Officer, Malta Stock Exchange Oct 2020

The Malta Stock Exchange (MSE) has been at the heart of Malta’s capital market for almost three decades, developing into the diversified market infrastructure that it is today. Over the years, we have expanded the scope and breadth of our products and we are now proud to offer a complete service across the full value chain of capital formation and the asset servicing industry. We provide our services to the local financial sector and are geared to offer these services internationally.

Like many other capital markets globally, the Covid-19 pandemic has negatively affected liquidity and settlement volumes on the Malta Stock Exchange. This situation has not however interrupted or impacted the enthusiasm of MSE to continue to move forward and introduce new business and investment opportunities for issuers and investors alike. In 2016, the MSE launched the National Capital Markets Strategic Plan and during the past four years it has continued to implement the targets set out in the plan to continue to grow its market, increasing both the investor and client base. The current circumstances in the financial services sector and in the economy as a whole has only strengthened our resolve to continue to implement new initiatives. In fact, the MSE will soon be widening its product base with the introduction of two new initiatives, real estate investment trusts (REITs) and green bonds

REITs will enable investors to earn a regular income, diversify their portfolio and take the opportunity of long-term capital appreciation. As with all regulated main market listings, issuers must first obtain the admissibility for listing from the Malta Financial Services Authority (MFSA). The MSE prides itself in establishing high standards of transparency and corporate governance for issuers on its official list and REITs issuers are no exception. In addition to the listing requirements set out in the MFSA Listing Rules, REITs issuers must also meet a number of criteria which enhance the quality of the REIT and help in fostering investor confidence in such products.

Additional conditions include the requirement of a minimum number of immovable properties that constitutes the REIT’s portfolio and the minimum aggregate value and maximum individual value of each property within the portfolio not exceeding a percentage of the aggregate value of the properties within the portfolio. Importantly, REIT owners are prohibited from occupying any property within the portfolio and therefore property must be considered as an investment property on the company’s balance sheet. A fundamental principal on which a security’s ongoing eligibility as a REIT will be based is that all the above conditions as well as the valuation of the assets must be verified by an auditor in line with the applicable International Financial Reporting Standards.

The Paris Climate Agreement 2015, highlights society’s responsibility towards encouraging more sustainable and environmentally friendly projects to helps mitigate the negative influences that economic development has inadvertently caused the global environment. The MSE recognises this responsibility, and in its capacity as Malta’s capital market leader it has taken the decision to introduce the admission of green bonds to its Official List.

A new green market

Issuers engaging in green projects can now raise finance for these specific projects through the MSE’s Green Market. The launch of these products is in line with Malta’s National Reform Programme and the government’s effort to green the Maltese economy. There is therefore a wider scope driving the MSE to launch this initiative, besides providing the necessary framework to support companies engaging in green projects. The MSE believes that such a move will help promote the concept of a circular economy principle which in the end will not only benefit issuers raising funds through the MSE’s Green Market but also foster a symbiotic relationship between Malta’s economic growth and the economy’s environmental and social well-being of the Maltese population.  

The MSE Green Market label will be awarded to those issuers who satisfy the requisite eligibility requirements and who are able to demonstrate that the proceeds being generated from the issue of the bonds will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible green projects.

Apart from being in line with the ICMA Green Bond Principles and having a clear policy on the utilisation and management of proceeds, the MSE Green Market label will only be awarded to projects which contribute towards the achievement of six environmental set out in the European Commission Taxonomy Regulations.

Additionally, green bond issuers must also, on an annual basis or upon the Exchange’s request, provide to the Exchange an Accredited External Reviewer’s report certifying or otherwise the ongoing eligibility of the green bonds admitted to the MSE’s Green List.

Both instruments will follow the normal trading and settlement cycles and will be deployed on the world class trading and post-trading infrastructure employed by the MSE for all other segments and securities in the market.