Is there scope for a derivatives exchange in Malta? : an evaluation

Abstract

This thesis attempts to evaluate whether Malta should have a derivatives exchange. It studies whether it is possible to have a derivatives exchange to trade derivatives on local equities, bonds and other financial instruments. Currently exchanges are merging to acquire economies of scale. However, there are also exchanges which have been recently set up. This study refers to predictions about the future of Malta’s Stock Exchange (MSE) such as that of Chi and Young. I think that it is the right time to investigate whether our exchange should follow suit in the recent trend of amalgamations in order to be able to diversify into the derivatives market. Previous studies show that large volumes tend to attract even more transactions. A merger with a larger exchange may shift volume towards the larger market with MSE lowering its trading volume even more. Alternatively MSE could build links with foreign exchanges and trade derivatives products which are already in demand in the global market. Competitive strategies have to be sought to attract clients. Strategies may consist of offering more convenient hours, lower costs, and incentives to increase trading volume to make the market more liquid.