Financial Services Regulation |  Jan 04, 2011

Malta placed on FTSE ‘Watch List’ for Frontier group inclusion

30th September, 2008 – The FTSE Group has placed the Maltese equity market on its ‘Watch List’ in the country classification of its Global Equity Index Series, meaning that next year it faces the possibility of being advanced to the index’s Frontier group.

The change in classification and the possibility of being upgraded to the Frontier classification next year enhances Malta’s potential as a financial services centre and increases the potential to attract a slice of the estimated $3tn in funds that track the index provider’s global benchmark indexes.

While Malta’s advancement from an apparent non-entity to its inclusion on the FTSE Watch List for possible inclusion in the Frontier classification next year is a positive sign, there remains ground to be covered if Malta is to be promoted further next year.

Overall, according to FTSE’s quality of markets criteria, Malta failed to meet four fundamental criteria, passed in another eight, while the market was deemed to be restricted on another seven criteria.

Inclusion in the Frontier classification, however, only requires the meeting of five criteria, three of which Malta passed, while the remaining two were classified as only being “restricted”.

The three criteria Malta passed were that formal stock market regulatory authorities regularly monitor the market; that the market has a T+3 settlement system; and that it is a transparent market with market depth information, visibility and a timely trade reporting process.

The final two hurdles to meeting the Frontier criteria are that there must be no objection to or significant restrictions or penalties applied on the repatriation of capital and income; and that there has to be only a rare incidence of non-meted trades.

Other criteria to be met for inclusion in the higher classification of “Secondary Emerging”, “Advanced Emerging” and “Developed” markets, which Malta has so far not met include are that stock lending is to be permitted; the market has to be sufficiently broad to support sizeable global investment; short sales are to be permitted; and that there must be a developed derivatives market.

The Maltese market received other passes in that there is fair and non-prejudicial treatment of minority shareholders; that there is sufficient competition to ensure high quality custodian and brokerage services; omnibus account facilities are available to international investors; and in that both implicit and explicit transaction costs are reasonable and competitive.

Malta was also found to have an efficient trading mechanism and a transparent market with market depth information, visibility and a timely trade reporting process.

Areas found to be restricted include having free and well developed equity and foreign exchange markets; a simple registration process for foreign investors; that there is no free delivery available in terms of settlement; and in the area of off-exchange trading being allowed.

As published on the Malta Business Weekly.

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