For a modern economy, capital markets are vital – as they facilitate the movement of capital and its allocation, in the process fostering economic growth.
Such growth is important in normal times – any business needs to reinvent itself with the times to survive. To do that, businesses need to invest and strengthen their resilience. For this to happen capital markets are essential as they are a source of funding, especially in the form of equity, to provide companies with a stable financial position, more working capital, and investment flows.
Capital markets gain further importance when the economy faces challenges such as those caused by the coronavirus pandemic. In fact, the effects of COVID-19 are testament to the need of having a strong local capital market to assist businesses in accessing funds to face new challenges and ensure a rapid economic recovery.
The local capital market is a retail market, and mainly consists of companies seeking funds to grow, and investors who want a stable return at low risk. The market also includes intermediaries such as banks and stockbrokers.
The local market has room for growth – and various novel proposals may not currently fall within the parameters which are generally deemed to be acceptable to the Malta Financial Services Authority, which is the competent authority for the regulation of trading venues, market infrastructures, and the prevention of financial markets abuse. The MFSA’s Board of Governors also acts as the Listing Authority.
With the aim of broadening the local capital market’s horizons within a clear set of rules and predefined parameters, earlier on this month, the MFSA launched a Capital Markets Strategy, with the aim of closing these gaps and establishing a landscape wherein such proposals including foreign issuers and innovative businesses would be considered favourably for admissibility to listing where they would satisfy certain criteria aimed at safeguarding investors and the integrity of the markets.
The proposed Capital Markets Strategy encompasses all the players in the market and aims to create a holistic approach to the local capital markets eco-system. Although clear, modern rules are important, the strategy does not focus only on rules, but considers other aspects including risks, the role of the investors and intermediaries, such as the Sponsor to protect market integrity.
Doreen Balzan, Head of Securities and Markets at the MFSA, said that the ultimate objectives of the proposed strategy are to provide equal and fair opportunities to market players, safeguard the stability and integrity of the financial markets, and protect investors.
“We want our strategy to address all market players – from businesses to investors and intermediaries – and to offer equal and fair opportunities to all. A second objective of the strategy is to ensure integrity and stability of the market. And importantly, we want the strategy to be a tool to protect all investors.”
The document, available here, also aims to establish the MFSA’s risk appetite when considering applications for admissibility to listing; enhancing the legal framework to improve efficacy, efficiency, and effectiveness; strengthening the Sponsors regime; building supervisory capacity; and setting out a strategy for investor education; with the aim of encouraging fair, efficient and transparent capital markets.”
Transparency is also key to the new strategy – as this further strengthens supervisory efforts.
“We also want to strengthen the minimum quality standards and ensure that all market players are financially sound and adhere to corporate governance, also through the correct structures,” added Balzan.
The consultation period, which ends on 5 April, is an opportunity for the MFSA and all stakeholders to work together to create a truly fluid and robust regulatory framework for the local capital markets.
For more information visit https://www.mfsa.mt/news-item/mfsa-launches-consultation-on-a-capital-markets-strategy/.