Investor Awareness


As regulator, the MFSA is responsible to safeguard the interests of consumers in financial services. In line with this, we have embarked on a programme with the objective to raise awareness and provide an educational platform pertaining to financial investment instruments. Here we would like to highlight the difference between Regulated and Non-Regulated Markets and their respective Trading Venues. It is important to seek and obtain all the necessary information prior to investing in any type of financial instrument.

What is a Trading Venue?

In simple terms it is the place where buyers and sellers meet to exchange i.e. buy or sell, financial instruments. There are different types of trading venues with the traditional one being the Regulated Market – whilst another type is the Multilateral Trading facility [‘MTF’].

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 (‘MSE’) providing 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. Taking the example of the MSE, it is regulated by the Malta Financial Services Authority (‘MFSA’).

What is a Multilateral Trading Facility (‘MTF’)?

An MTF is a self-regulated financial trading venue, which acts as an alternative to the Regulated Market. It typically uses computerised systems wherein buyers and sellers exchange the financial instruments in line with the rulebook of that trading platform. Unlike the Regulated Market, the company issuing the bond is not required to send an application to the Listing Authority and would apply for admitting its bonds to 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 an MTF is that financial instruments trading on the Regulated Market (example MSE) 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 MTF need to follow the market’s rules and are not required to apply with the Listing Authority. Usually, financial instruments traded on an MTF 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 and that such 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 MSE.

What are Prospects?

An example of an MTF we have in Malta is Prospects. ‘Prospects’ 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 take investment decisions in 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 the investor understands 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 him/her understand or shy away from such an investment.