Simon Zammit, the chief executive officer designate at the Malta Stock Exchange, is clearly proud of the fact that the MSE was one of the top performing indexes across the world – but he is very modest about the Exchange’s role: “We are there to make sure that the MSE is performing its duties in a regulated market, supplying investors and members with a very robust mechanism where they can trade.

“We do not have any control over whether prices go up or down, or whether the rates of interest go up or down. Borrowing from a football metaphor, we are here to supply a playing field but the players and the performance and results of the game are out of our hands. We make sure that the floodlights are switched on, the turf is cut to form a level playing field, the lines are clearly visible. But that is as far as we go,” he said.

Mr Zammit joined the Exchange in 1991, before its first day of trading, and will be taking over from Eileen Muscat as CEO in September. One of his challenges is how to grow the customer base.

“Over these 25 years the number of listed companies we could attract locally has peaked – or at least reached a plateau – given the size of the market,” he said.

The Sharia Equity Index ... is our way of trying to attract a particular niche of investors. It is our way of saying the Malta Stock Exchange has Shariacompliant investments. It is nothing more than an expression of ‘come and see what there is to invest in’

That does not mean that there are no other companies that could – or should – consider listing their equity. It must rankle that some of the largest family-owned groups, like Gasan, Mizzi, Hili and Eden went mostly for bond issues rather than equity listings.

“We hoped that things would evolve and lead the companies to equity listings, once they got used to the discipline of the market and the corporate governance. We are still hoping that this will happen.

“Family-owned businesses would benefit from testing the waters with our SME product, Prospects, for their subsidiaries, even bigger companies that need to raise smaller amounts.

“We hope that they will participate when new companies start looking at expanding. There is still hope that they will come with an equity – rather than a bond – listing. But it is quite a challenge. With equities, you need to see more of a cultural shift.”

Mr Zammit believes that the situation with regards to bonds is set for another wave of interest.

“Bonds are a cyclical market. There are years when you get a number of new companies approaching for listing and years where you see a lull. The indication seems to be that we are coming out of the lull of the past three years. We already have indications that by the end of this year at least three more corporate bonds will come to the market; some will be listing for the first time,” he said.

With such low interest rates and such high excess bank liquidity, why would companies opt for bonds rather than bank financing?

“Companies make their assessment whether to finance through banks or through bonds at boardroom level. The fact that all bond issues are heavily over-subscribed is a big incentive for companies. Pegging your interest rate for five, 10, 15 or 20 years until maturity is very attractive when you see that you might be faced with fluctuating interest rates in the long-term,” he pondered.

“We have been assuming for a number of months now that we reached the bottom when it comes to interest rates. However, the ECB’s recent [monetary policy] decision seems to have challenged that maxim and the lending rate dropped even further. There are also indications – even from the recent Bank of England statement – that again seem to indicate that interest rates have reached a minimum level.”

Another way of encouraging activity is looking beyond the ‘usual suspects’ when it comes to investors. This was behind the launch in early February of the Sharia Equity Index.

“The index is our way of trying to attract a particular niche of investors. It is our way of saying the Malta Stock Exchange has Sharia-compliant investments. It is nothing more than an expression of ‘come and see what there is to invest in’.

“We are not targeting it at either local or foreign specifically. I am sure that there are foreign investors already looking at it – and whether it is going up or down is really irrelevant at this stage.

A stock exchange like us can still contribute to the national economy. And there is also a role for small exchanges to address particular niches

“I would assume that there is interest in places like Dubai, where we have done a road show already. It is too early to say whether it has had an effect or not as it was only launched in early February. But it is a good start to attract Islamic Finance,” he said.

The size of the Malta Stock Exchange is what it is, and Mr Zammit sees ‘small as beautiful’ as it gives the Exchange agility.

“The exchanges in Italy or Spain are definitely much bigger than we are but they are also fragmented: pre-trading, post-trading, clearing and settlement are not under one roof like us. Our set-up means that we have minimal bureaucracy here, which is a key competitive advantage,” he said.

What about economies of scale though? Even enormous exchanges are seeing the benefits of being larger. The London Stock Exchange’s share-trading operation is making a third attempt to merge with the derivatives trading of Deutsche Boerse’s Eurex, and is quoting potential cost savings of €450 million per year for the combined company.

Mr Zammit smiles confidently: “That is our competitive advantage, being small. First of all, a stock exchange like us still can contribute to the national economy. And there is also a role for small exchanges to address particular niches. Our agility and quickness to market, our closeness to the regulator… Obviously we do not aspire to attract the multinationals of the world. But these things are attractive to small companies within the EU and outside.

“First of all, it would give them a foothold in the EU from other jurisdictions, which is a very attractive proposition. And it is of interest for companies in the EU which are looking for a more cost-effective and efficient market to list on, while still having passporting if they come to the regulated market.

“Closer to home, we are obviously interested as the Deutsche Bourse merger will change the globalised exchange landscape. We are a partner exchange with Deutsche Bourse, so we are following the outcome with a great deal of interest. We hope that in the medium to long term, the economies of scale that they say will be garnered through this could trickle down to our exchange as well,” he concluded.