The Investment Services Act provides that Investment Firms can choose from a wide variety of different activities to offer clients. In this respect, not every Investment Firm is authorised to offer the same licensable activities. An Investment Firm can be authorised based on the type of services offered to the potential clients.
Hereunder, please find an explanation of the different activities an investment firm can apply for, and what each activity provides.
1. Reception and transmission of orders in relation to one or more financial instruments.
The reception from a person, the end client, to buy, sell or subscribe for instruments and the subsequent transmission of that order to a third party for execution. In this respect, the Investment firm would not be the entity executing the trade.
2. Execution of orders on behalf of clients.
Acting to conclude agreements to buy or sell one or more instruments on behalf of clients and includes the conclusion of agreements to sell instruments issued by an investment services licence holder or a credit institution at the moment of their issuance. The trade is executed by the Investment firm.
3. Dealing on own account.
The Investment firm would be trading against its own proprietary capital, resulting in conclusion of transactions in one or more instruments. The Investment firm is therefore required to properly monitor its open positions, in order to ensure that the capital can cover such exposures.
4. Management of Investments / Portfolio management.
The Investment firm will manage assets belonging to another person, based on criteria that are suitable to the end client. The investment firm will have discretion to invest in one or more instruments on behalf of the client.
If those assets consist of or include one or more instruments or the arrangements for their management are such that the person managing or agreeing to manage those assets has a discretion to invest any of those assets in one or more instruments.
5. Investment advice.
The investment firm would be giving, offering, or agreeing to give, to persons in their capacity as investors or potential investors or as agent for an investor or potential investor, a personal recommendation in respect of one or more transactions relating to one or more instruments, based on the underlying type of client.
6. Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis.
The underwriting or placing of instruments would mean that the Investment firm assumes the risk of bringing a new securities issue to the market by buying the issue from the issuer, thereby guaranteeing the sale of a certain number of shares to investors.
7. Placing of financial instruments without a firm commitment basis.
The marketing of newly-issued securities or of securities which are already in issue but not listed, to specified persons and which does not involve an offer to the public or to existing holders of the issuer’s securities’ – without assuming the risk of guaranteeing the sale of a certain number of shares by buying the relative securities from the issuer.
8. Trustee, Custodian or Nominee Services
The investment firm is authorised to act as trustee, custodian or nominee holder of an instrument as part of providing the services 1 to 5 as highlighted above. Additional information on nominee services is provided in an ad-hoc section further down this webpage.
Once an Investment Firms has been licensed by the MFSA, for the safeguard of its clients, there are different prudential requirements which, according to the size, complexity and range of services offered, the Firm will have to satisfy. According to such requirements, deriving from the EU Investment Firms Regulation (EU 2019/2033) and EU Investment Firms Directive (EU 2019/2034), an Investment Firm is classified under one of the following four Classes:
- Class 1
- Class 1 minus
- Class 2
- Class 3
