After having placed Malta on its ‘Watch List’ for possible inclusion in its Global Equity Index Series’ Frontier Group in September 2008, the FTSE Group announced on Thursday it is to promote Malta to the coveted equity grouping in September 2010.
The upgrading of Malta’s equity market from a virtual non-entity in the FTSE index to a Frontier Group classification next year is expected to enhance Malta’s potential as a financial services centre, while also serving as a valuable marketing tool.
The Maltese equity market will also seek to attract a slice of the estimated US$3 trillion in funds that track the index provider’s global benchmark indexes.
FTSE’s annual country classification review categorises countries’ equity markets – in descending order of development – as Developed, Advanced Emerging, Secondary Emerging or Frontier within the FTSE Global Equity Index Series (FTSE GEIS).
Overall, the Maltese market has now met all the FTSE’s five criteria for inclusion in the Frontier Group. Three market criteria had already been fulfilled last year: those of having formal stock market regulatory authorities regularly monitoring the market; having a T+3 settlement system; and a transparent market with market depth information, visibility and a timely trade reporting process.
The remaining two hurdles – that there must be no objection to or significant restrictions or penalties applied on the repatriation of capital and income, and that there is only a rare incidence of non-meted trades – were both met this year, effectively clearing the path for Malta’s inclusion in the first tier of the index.
The Maltese market received other passes in that there is fair and non-prejudicial treatment of minority shareholders; that there is no incidence of foreign ownership restrictions; omnibus account facilities available to international investors; sufficient competition to ensure high quality custodian and brokerage services; and 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 still restricted include having free and well-developed equity and foreign exchange markets; a simple registration process for foreign investors; free delivery available in terms of settlement; and in the area of off-exchange trading being allowed.
Other FTSE criteria for higher categories that have still not been met were in the areas of allowing for stock lending and short sales; having a market that is sufficiently broad to support sizeable global investment; and that there must be a developed derivatives market.
Global equity market structures evolve on an ongoing basis, and to keep pace, FTSE works closely with stock exchanges and regulators throughout the year to ensure its benchmarks remain an up-to-date and accurate reflection of the investment opportunity in global markets.
In addition to Malta’s inclusion, other highlights from the yearly exercise are that: the United Arab Emirates will have Secondary Emerging status in September 2010; Iceland was immediately removed from the Watch List and is no longer included in the FTSE GEIS; and Argentina was brought down a notch and reclassified from Secondary Emerging to Frontier status.
FTSE’s Policy Group also added three new markets to the Watch List for inclusion in the Frontier Group for review in September 2010: the Czech Republic, Malaysia and Turkey.