An investor is an individual who has a sum of money to invest in a particular financial product with the aim of receiving additional income.

Yet for any investor, financial education is key. The Malta Financial Services Authority has launched an Investor Awareness Campaign aimed at educating the general public. The purpose of this campaign is to educate consumers regarding the different types of trading venues. Usually, more importance is given to the type of financial instruments or products available. However, in order for consumers to be able to make an informed decision, they also need to be knowledgeable about the trading venues where these financial instruments are being bought and sold, which are generally referred to as ‘trading venues’. 

Consumers are often unaware or not fully aware of how trading venues operate and the difference between regulated and unregulated ones. Often, consumers who are not conversant and familiar with financial instruments and trading venues end up investing in the wrong type of product.

It is important to seek and obtain all the necessary information prior to investing in any type of financial instrument.

As a starting point, we have spoken to the MFSA’s Front End Relationship Manager, Anthony Tomaselli Chetcuti, and asked him to demystify certain investment terms.

What is a trading venue? 

In simple terms, a trading venue is a place where buyers and sellers meet to buy or sell financial instruments. There are different types of trading venues with the traditional one being the regulated market. Another type is the Multilateral Trading Facility. 

What is a regulated market?

The most known type of trading venue is what we call the regulated market. In Malta, there is only one regulated market which is the Malta Stock Exchange – this provides the structure for buyers and sellers to trade financial instruments. As the name implies, a regulated market is licensed and authorised by a financial services authority. In the case of the MSE, this is regulated by the Malta Financial Services Authority.

What is a Multilateral Trading Facility?

A Multilateral Trading Facility is a self-regulated financial trading venue. This acts as an alternative to the traditional stock exchange and typically uses computerised system wherein buyers and sellers exchange the financial instruments in line with the rules of that trading platform. Unlike the regulated market, for example a company issuing the bond in this case is not required to send an application to the Listing Authority and would apply to admitting its bonds for trading directly with the MTF. 

What is the difference between a regulated and a non-regulated market?

The main difference between a regulated market and a Multilateral Trading Facility is that financial instruments trading on the regulated market (such as the Malta Stock Exchange) go through a vetting process by the Listing Authority before these instruments are admitted to trading. Also, such entities need to comply with what we call ongoing obligations. 

On the other hand, instruments admitted to trading on a Multilateral Trading Facility need to follow the market’s rules and are not required to apply with the Listing Authority. Usually, financial instruments traded on a Multilateral Trading Facility are considered riskier than those traded on a regulated market. 

What is the role of the Listing Authority?

In terms of the Prospectus Regulation, no prospectus may be published prior to it being approved by the relevant competent authority. Locally the Listing Authority is responsible to review and approve a prospectus to ensure that this document is in line with the relative regulatory requirements and contains all disclosures necessary. The Listing Authority is also responsible for granting approval of admissibility to listing on a regulated market in Malta, such as the Malta Stock Exchange. The fact that a prospectus is approved by the MFSA should not lead an investor to believe that the MFSA is granting its stamp of approval as to the Issuer of the securities and the securities themselves. Moreover, this approval does not guarantee the performance of the securities in question are risk free.

What is a prospectus? 

A prospectus is a formal document prepared by the company issuing the bond and/or share that provides details about the company; how will the proceeds be used (in case of a bond issue); information on the bond or share per se; the risks attached to that financial instrument etc. A prospectus is filed for offerings such as stocks and bonds. The prospectus needs to be prepared before the bond or share is admitted to trading on the Malta Stock Exchange. 

What are Prospects?

An example of an MTF we have in Malta is Prospects, which is operated by the MSE and issues admitted to trading on this market are not approved by the Listing Authority. In this case, the conditions for admission to trading are managed by the MSE and not vetted by the Listing Authority. 

Where can one find the risks in the prospectus, and what do they mean? 

The aim of including risk factors in a prospectus is to ensure that investors can make an informed assessment of the risks associated with their investment decision and thus base investment decisions on full knowledge of the facts. The risks pertaining to an investment in a particular security can be found in the risk factor section(s) of a Prospectus. These will be material and specific to the issuer/securities and are backed up by relevant information in the remaining sections of a prospectus. 

It is important that investors understand the risks attached to the issuer and the securities in question. In the case that the risk factors are too complex to be understood, investors should seek assistance from an investment firm to help them understand such risks and determine whether to invest or move away from such an investment.

Consider risks. Compare offers. Check fees. For more information visit www.mfsa.mt/investorawareness or call the MFSA on Freephone 8007 4924