Malta Stock Exchange Rolls Out Six-Point Plan to Ignite Trading Volumes
A number of large and influential stock exchanges around the world have reported slumps in trading volumes and the Malta Stock Exchange (MSE) is one of these, having experienced a decline in liquidity and trading activity over the past few years. As part of our effort to improve market liquidity and the investor experience, the exchange has announced six strategic initiatives to reverse the decline. These initiatives were formulated through discussions with stakeholders and are aimed at getting investors “pumped up” and excited for the investment opportunities that Malta’s capital markets have to offer.
Following a thorough review, it was established that trading volumes on the Malta Stock Exchange started to decline around 2019 and decreased further during the COVID pandemic. Although trading volumes for the 34 equities listed on the exchange seemed to have bottomed out in 2023, trading activity and liquidity remains subdued. In the exchange’s view, there have been two main causes for this:
Investors today are spoilt for investment options locally and internationally and the types of investments available. Local equity investment opportunities have seemed less attractive when compared to the highflying property, Magnificent Seven and crypto-currency markets. In addition, the Fintech boom, with the dozens of mobile apps available to the investing public, has made investing overseas cheap and frictionless.
Companies listed on the MSE have seen a lacklustre stock price performance, with the Malta Stock Exchange Total Return Index down by 7% since 2019. To make matters worse, many local companies, particularly the banks, had cut or suspended dividends.
Our six-point plan focuses on reducing trading costs, improving investor-focused communication and information, and promoting market activity:
1. Reducing Trading Costs:
The MSE charges a €4.50 half-turn transaction fee on all trades. Although not a significant cost for a €10,000-€20,000 trade, it can be burdensome for smaller transactions, discouraging smaller retail investors. The fee is also charged on split fills, so a limit order executed over five transactions will incur a fee of €22.50. To encourage more trading the exchange will eliminate the €4.50 transaction fee for equity trading but will continue to charge a 3 basis point CSD clearing fee. This will be a temporary measure. If it doesn’t have the desired effect, we will consider reinstating the fee or postponing it for another year.
2. Enhanced Investor Research:
A new research portal will provide investors with access to news, interactive charts, statistics, and technical analysis tools for all instruments traded on the MSE platform. The platform will be developed and fully owned by the Exchange and will enable investors to view interactive charts and analyze financial statements and trends. The platform will act as a repository for company announcements and research reports. Although the stock exchange will not issue investing recommendations, it will accept written contributions from content providers willing to comment on investment-related topics.
3. Strengthened Market Communication:
Currently, Malta does not have a news portal focused primarily on real-time financial news reporting. Unlike larger markets, which are covered by financial and business news agencies, the Maltese capital markets lack a service that reports regularly on company and market developments. The exchange will be adding a research team whose aim is to report on earning developments and pertinent business news via our soon-to-be formed investment website and social media. Investors will be able to receive news and alerts on any listed company. We anticipate this service will not only raise awareness for companies listed on the exchange but also will excite and engage investors.
4. Promote Share Buybacks:
The exchange will support companies by organising seminars and assisting them in implementing share buyback programs which encourages repurchased shares to be held as treasury stock for future resale. Buybacks are a proven method to create shareholder value, but they have not permeated the local investing culture. As a twist, we are asking companies to not retire purchased shares, but to enlist the services of a local stockbroker to offer the shares for resale thus adding liquidity to the market. We are promoting the concept of companies acting as their own market maker.
5. Promote Executive Share Compensation:
The MSE is encouraging partial share-based compensation for C-Suite executives and board members, aligning their interests with shareholders and potentially boosting investor sentiment. Although executive share compensation is widely recognised as aligning investor and management interests, this culture does not exist in Malta. Although many Maltese companies have benefited from the red-hot local economy and have reported record earnings – this has not always translated to higher stock prices. Rightly or wrongly, there is a perception that local companies are not always sensitive to investor anxieties and frustration at owning perennially undervalued stocks.
6. Promote a Liquidity Providers Program:
A new program will introduce liquidity providers who can buy and sell listed securities at no cost. Participants will be given free access to the Xetra trading platform and will be encouraged to trade equities, with no commissions or fees. In return for meeting specific monthly trading volumes, these providers will receive financial compensation from the exchange.
As a major stakeholder in the local capital markets, the Malta Stock Exchange is committed to enhancing growth and increasing participation. These six steps are the biggest initiatives ever undertaken by the MSE to foster greater liquidity among listed equities. We believe there is a lot within these six proposals and we are introducing ground-breaking initiatives that we hope will lead to more dynamic and prosperous Maltese capital markets.