"This change in the rules, which permits ETFs to be admitted to trading, has created the possibility for units in ETFs to be traded on the secondary market."

For the first time, a licensed alternative investment fund has been admitted to trading on the Malta Stock Exchange. As Dr Andrew Caruana Scicluna of Camilleri Preziosi explains, this has created a secondary market, enabling shareholders to trade whenever they wish, subject to a liquid market developing.

The process to enable licensed alternative investment funds to not simply be listed on the Malta Stock Exchange but to be actively traded thereon, started a few years back with a change to the Capital Markets Rules. "At the moment, there are quite a few funds admitted to listing on the Malta Stock Exchange, but none have so far been admitted to trading," Dr Andrew Caruana Scicluna said.

"So, this change in the rules, which permits ETFs to be admitted to trading, has created the possibility for units in ETFs to be traded on the secondary market. It remains to be seen whether an active secondary market for ETFs will develop. However, currently, the Capital Markets Rules provide a framework which permits this.

"The Metatron Long-Term Equity Fund, a sub-fund of Metatron Capital SICAV plc, was the first ETF to be admitted to trading in mid-2021. Prior to admission to trading, units could only be subscribed and redeemed directly from the fund on a monthly basis. Following admission to trading, investors in the Metatron Long-Term Equity Fund can now buy and sell units on a daily basis, subject, of course, to a liquid market developing."

Admission to trading permits investors in funds with infrequent dealing opportunities to trade in the interim period between dealing days. "This is a very attractive proposition – a first for Malta," Dr Caruana Scicluna said. "It allows investors in exchange traded funds, which offer limited redemption opportunities under the terms of their offering documents, to get instant liquidity by selling units on exchange."

Investors would go to their stockbrokers, the licensed members of the Malta Stock Exchange, to execute their trades as they would do with their other investment decisions.

Dr Caruana Scicluna explained that "one major drawback of the regime is that it is currently restricted to ETFs. If this product is to attract more interest from the local investment fund community, the Capital Markets Rules need to be broadened to open up the possibility for all types of regulated funds to be admitted to trading."

Dr Caruana Scicluna continued by stating that "from a policy perspective, I see no reason why ETFs ought to be permitted to be admitted to trading, while other types of regulated funds, pursuing different strategies, do not have this possibility. Hopefully this will change in the near future. Regulatory innovation is direly needed to revive the local fund market."

Originally published by Malta Stock Exchange Business Review.

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