On the admission of securities on a regulated market, issuers are subject to certain continuing obligations in terms of the Capital Market Rules issued by the Malta Financial Services Authority which pertain to the public nature of the company and of the securities, and are aimed at fostering transparency within the market.
Chapter 5 of the Capital Markets Rules outlines the continuing obligations of listed public companies. The continuing obligations of issuers can be broadly divided into the following:
- Company Announcements
The main objective of company announcements is to bring useful and relevant facts to the attention of the market, and it is the responsibility of the company to ensure that all company announcements are precise, clear and accurate and do not contain promotional, ambiguous, irrelevant or confusing material.
The Capital Markets Rules specifically require certain information such as price-sensitive facts which arise in virtue of the company’s activities and which are not public knowledge, any change in the board of Directors, company secretary or any other senior officers of the company and when the company is the subject of rumour and speculation, amongst others, to be disclosed by means of a company announcement.
- Financial Reporting Obligations
The Capital Markets Rules impose periodic financial reporting requirements on issuers. An issuer is required to publish a half-yearly unaudited financial report covering the first 6 months of a financial year, approved and made available to the public not later than 2 months after the end of the relevant period, and an annual financial report approved and made available to the public by not later than 4 months after the end of each financial year, prepared in European Single Electronic Format and which must remain publicly available for at least 10 years.
- The Audit Committee
In terms of the Capital Markets Rules, an issuer must establish and maintain an audit committee which is to meet at least 4 times a year. The audit committee should be composed entirely of non-executive directors and must have at least 3 members, the majority of which must be independent, including an independent chairperson, and with at least 1 member being competent in accounting and/or auditing.
- Related Party Transactions
The International Accounting Standard 24 defines a related party transaction as a transfer of resources, services or obligations between related parties, regardless of whether a price is charged. Related party transactions are usually regarded as transactions not carried out on an arm’s length basis and thus there is the possibility that such transactions are made to the detriment of the company and its shareholders. Furthermore, parties are considered to be related if one party has the ability to directly or indirectly control the other party or exercise significant influence over the other party in making financial and operating decisions. The audit committee shall be responsible for vetting and approving related party transactions and the Capital Markets Rules apply a substance-over-form principle in determining related party transactions.
- Transactions by Directors and Officers
A restricted person means: (i) the company’s directors or directors of its subsidiary or parent undertaking; and (ii) any of its officers or employees or an officer or employee of its subsidiary or parent undertaking who, because of his/her office or employment in the company or subsidiary or parent undertaking, is likely to be in possession of unpublished price-sensitive information in relation to the company. The Capital Markets Rules impose certain restrictions on direct or indirect dealings by such restricted persons in the securities of the issuer. During the period of 30 days immediately preceding any publication of the company’s annual results, or the half yearly results, a restricted person shall not purchase or sell any such securities.
- Corporate Governance
An issuer should endeavor to adopt the Code of Principles of Good Corporate Governance contained in the Capital Markets Rules (the ‘Code’). An issuer must publish a report explaining how the company has complied with the Code and the extent to which the company departs from the Code; an explanation by the company as to which parts of the Code it has departed from and the reasons for doing so shall be included in the corporate governance statement contained in its annual financial report. Accordingly, while compliance with the Code is not mandatory, companies are required to disclose the extent to which they are compliant with the Code.
Furthermore, an issuer shall not amend its memorandum and articles of association unless prior written authorisation has been sought and obtained from the Malta Financial Services Authority.
In conclusion, on the admission of securities to listing, an issuer needs to be aware of the increased regulatory obligations which it faces by virtue of the public nature of the securities and the resulting public nature of the company. Furthermore, an issuer must ensure that it is continuously compliant and up-to-date with its regulatory obligations.
VB Advocates provides guidance to companies that are looking to have securities admitted to listing, supporting them in navigating this intricate regulatory landscape and ensuring ongoing compliance with their respective obligations under the Capital Markets Rules, amongst others. Get in touch to discuss how we can assist.
