Ireland-Malta stock exchange venture gives ISE access to emerging markets
The creation of a new wholesale securities market in a joint venture between the Irish and Maltese stock exchanges satisfies the ISE's ambition to establish a market outside Ireland, writes GERARD SCULLY.

Globalisation is arguably the most dominant force in business today. Stock exchanges as the centre of capital market activity reflect this globalisation phenomenon. A wave of consolidation has been a feature of exchange markets in recent years and this has resulted in link-ups (and some proposed link -ups) leading to the creation of super-sized exchanges. Operating in this environment, the Irish Stock Exchange’s (ISE) link up with the Malta Stock Exchange (MSE) to launch the European Wholesale Securities Market (EWSM) in February may seem on the surface like two small players joining forces to fight the big boys - but for those who know the ISE’s story, they will know that the ISE is already one of the key player in Europe for listing international debt securities.
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Gerard Scully

It wasn’t always like this. Back in early 1990s, with the Investment Services Directive (the predecessor Markets in Financial Instruments Directive (MiFID)) about to introduce significant competition all across Europe, the ISE was very much a domestic exchange with a focus on trading Irish equities and Irish government securities. Predictions of doomsday for the ISE and its 200 year existence were never far away. Adopting a strategic decision to stem its over-reliance on the domestic market, the ISE sought to carve out a niche for itself by developing new products and services for international market participants. The 'go global' mentality has seen the ISE become the number one exchange in the world for the listing of hedge funds and alternatives and become the biggest player in Europe for listing structured debt, capturing 70 per cent of the asset backed securities market in Europe. As a result, 75 per cent of the ISE’s business now comes from international sources and it lists over 4,000 issuers from 45 countries around the globe.

The launch of the European Wholesale Securities Market is part of the ISE’s internationalisation strategy. For some time, the ISE had been examining opportunities to establish a market outside of its Irish base. Having listed more than 21,000 securities on the ISE’s two debt markets and noting that issuers tended to spread their concentration risk by listing in more than one jurisdiction, the delivery of an additional market, preferably in another EU jurisdiction, was an important factor. Following on from its positive experience with Deutsche Borse in relation to Xetra, the trading platform used in the Irish market, rather than go it alone, the ISE sought to establish a partnership arrangement to ensure the successful development of a new European market. Having considered a number of options - Malta emerged as the leading location. With a similar legal system and language to Ireland, Malta was fast developing as an international financial services centre. Its location in the Mediterranean basin and its connection points with new and emerging markets were key attractions. Part of the European Union and therefore subject to the same regulatory regime as the Irish market, the Malta Financial Services Authority (MFSA), responsible for all areas of financial services regulation, had also achieved recognition as a flexible, approachable and proactive regulator with a reputation for having 'a robust regulatory regime' which was nonetheless 'mindful of business needs.'

Having chosen Malta, ensuring the appropriate regulatory approval for the EWSM was granted and day-to-day operations of the market were appropriately bedded down were essential prior to launch. Given the existing authorisations of both partners, a decision was made for all market functions to be initially outsourced to either the ISE, an 80 per cent shareholder in the venture, or the MSE, with the objective being to utilise the relative strengths of both exchanges. The ISE therefore brings its expertise and experience in debt markets, acting as market promoter and provider of certain primary market and corporate services. The MSE is authorised as the 'market operator' for the EWSM under MiFID and ensures that the secondary market services are provided to the EWSM in accordance with its 'regulated market' status granted under MiFID by the competent authority, the MFSA.

To assist issuers, the EWSM has established 'Guidelines for Listing and Trading on the European Wholesale Securities Market' which encompass all regulatory requirements of the MFSA and the EWSM in one user-friendly document. From a processing perspective, a hallmark of the market is its guaranteed review times for initial submission (3 business days) and subsequent drafts of prospectus (2 business days). In addition, an automatic admission criteria for approval and admission to trading ensures timeliness to market.

This streamlined processing is designed to ensure issuers and arrangers experience an open and client-focused interaction from initial enquiry through to market admission.

While current trends in global markets might not put partnerships as the most popular choice of link-ups among exchanges, the co-operation between the ISE and MSE on the EWSM is a win-win for both exchanges.

The MSE adds a new string to its bow with the addition of a wholesale debt market to its existing domestic exchange business. The ISE can generate new revenue streams and expand its geographic reach in international debt markets. As a truly European brand, the European Wholesale Securities Market aims to attract market participants looking for additional choice in this age of globalisation.

(Article first published: April 2012).