By Times of Malta
Over the years, I have made several attempts to highlight the need to reduce the minimum percentage holding of shares that must be in public hands, often referred to as the ‘free float’. My last article on the subject was published in February 2024 in which I had said “the reduction in the free float requirement is one of the many reforms that need to take place across the capital market to hopefully instil greater enthusiasm among the investor community and generate added participation including additional companies seeking a listing on the MSE”. I had also mentioned this in my keynote speech at the first MSE Capital Markets Roundtable in June 2024 in the presence of the finance minister and top Malta Financial Services Authority executives. The EU Listing Act was published in the Official Journal of the European Union on November 14, 2024. One of the amendments made through the Listing Directive to MiFID II includes a revision in the minimum free float requirement for admission to trading on a regulated market. In terms of the MFSA’s Capital Markets Rule 3.26, the current minimum free float level is 25%. However, the new Listing Directive decreases the minimum free float requirement from 25% to 10%, assuming that this threshold generally ensures a sufficient level of liquidity in the market. In this respect, on June 16, 2025, the MFSA issued a consultation document to gather views on the proposed revision of the free float and the corresponding requirements being planned in Malta. It is positive that the MFSA has been proactive in this important matter and did not delay this proposal until early next year ahead of the transposition of the Listing Directive by June 5, 2026. Given the space limitations, the intention of this article is not to debate whether the MFSA’s proposed bands (essentially a free float of between 10% and 14% for a company with a minimum total market capitalisation of €100 million and at least 200 investors) are the ideal ones, or whether other minimum market cap requirements could achieve a better result, given Malta’s dynamics. Instead, this article’s focus is to reinforce my argument that the reduction in the minimum free float to 10% should instigate large companies to obtain an equity listing on the MSE, and the benefits of this for the entire investor community and the wider economy. The largest company on the MSE is currently Bank of Valletta plc with a market cap of just under €1.2 billion, followed by Malta International Airport plc at €800 million and HSBC Bank Malta plc at €490m. There are then another eight companies with a market cap between €100m and €300m, with all the rest being below €100m. The addition of other large capitalisation companies (of say, above €250 million) to the 11 large and mid-size companies currently on the MSE could be an important catalyst to hopefully instil greater enthusiasm among the investor community and generate added participation following the very challenging times for the Maltese equity market over the past few years. The clear disgruntlement among small shareholders was also very evident at most AGMs held recently. As I have advocated in the past, the attraction of other large and mid-size companies to the equity list will lead to important changes in the weighting of such companies in the MSE-computed indices tracking the performance of the local equity market. Assuming that new candidates seeking an equity listing have the right fundamentals, namely revenue growth, profit margins and return on invested capital, and the shares are issued or offered at an attractive price, leaving good upside potential for the incoming investors, then I believe a company of this nature, with a meaningful weighting, will successfully attract larger investors, institutional players and other family offices back to the market as they continually seek to participate in the ‘right’ companies around. Unless the minimum free float requirement is reduced to 10%, potential candidates of a certain size would not be able to achieve a successful listing. The current 25% limit in place invariably precludes large and mid-size companies, given the natural restrictions of the domestic capital market’s size. So, in my view, the amendments to the Listing Directive, that hopefully will shortly be transposed in Malta, are definitely a step in the right direction, since the free float will be based on the monetary value of the market capitalisation, and not as a percentage of the share capital as at present, irrespective of the total market capitalisation. Incidentally, research conducted at several small exchanges in Europe and beyond indicates that, apart from the size of the free float and the number of company shareholders, other variables are potentially also very important. These include the presence of market makers, the weighting or inclusion in an index (in many overseas markets and a company’s size and other credentials determine its inclusion in the main indices), besides coverage provided by financial analysts and the company’s investor relations efforts. This is precisely what I have been advocating for a while in the media and in various forums discussing the state of the capital market and initiatives to improve liquidity and wider investor participation. The presence of liquidity mechanisms, such as company buy-backs and issuer market-making, together with the introduction of liquidity providers, are indeed fundamental to encourage large investors to participate, with the knowledge of a potential exit route in mind. Many local companies fail to appreciate the importance of a well-devised investor relations and communications strategy. Investment in this area throughout the lifetime of a company’s public status is fundamental. Similarly, financial analysts’ coverage is also a key requirement mentioned internationally. In view of the strategy by most participants in Malta to limit investment in this area, local companies should resort to specialised international players to perform this role. This could also indirectly achieve other benefits, since the network of such international research providers could attract foreign investors who may contemplate an investment in large MSE-listed companies. But the availability of a proper analy-tical assessment is normally key to achieve participation by sophisticated investors. The local equity market needs to grow in size and depth if Malta is to adopt the recommendations of the EU’s Savings and Investments Union to have investors channelling their savings into productive investments, and in the meantime offering better financing options for companies. If these investment opportunities do not become available locally by attracting other successful Maltese companies to the equity market, then capital flight will intensify further, to the local economy’s detriment. I once again call on the authorities to devise a well-structured vision for Malta’s capital market by taking these various developments into consideration. The ingredients are there to obtain a deeper capital market. But coordinated action by various stakeholders is fundamental to bring all elements into action. Rizzo, Farrugia & Co. (Stockbrokers) Ltd, ‘Rizzo Farrugia’, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. 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