Approval of Stockbroking Firm

4.01 The business of members shall be wholly conducted through an approved stockbroking firm. The Council will give approval to such a firm provided that :

(i) at least one shareholder is a licensed stockbroker; all shareholders, other than licensed stockbrokers and accredited representatives shall only hold shares with non-voting rights;

(ii) at least one stockbroker must be a director of the firm and vis-a-vis the Exchange, he is solely responsible for the administration of the firm;

(iii) it shall have qualifying capital as per bye-law 4.05;

(iv) it undertakes to deposit a minimum of Lm10,000 per stockbroker associated with it, by way of cash, Maltese Government securities or a recognised bank guarantee; such minimum deposit will be adjusted at the end of each calendar year in relation to the firm's turnover during that calendar year in such amount as the Council may prescribe provided that such minimum deposit shall not be less than Lm10,000. The Council reserves the right to review such amount at any time it deems fit;

provided that any Government security to be used as all or part of the minimum deposit referred to above will be valued for this purpose at 90% of the last quoted middle market value or such other market value as the Council may from time to time determine;

(v) it is adequately insured to the satisfaction of the Council against any breach of any fiduciary duty or misappropriation of funds or property or other acts of dishonesty on the part of its member or employees.

Permitted Business

4.02 The permitted business of a stockbroking firm shall be restricted to :

(i) brokerage, i.e. the acceptance of clients' orders relating to listed securities and/or the execution of such orders on the Exchange on an agency basis against payment of a commission;

(ii) arranging/supporting the listing of stocks and shares and assisting the applicant company in all aspects such as coordinating the activities of the professional advisers involved, ensuring that the company is properly presented to the investing public and giving competent advice in confidence to the senior management. Such advice should include the composition of the prospectus, the presentation of the company to prospective investors, the timing and pricing of an issue and arranging for the underwriting of an issue and arranging for the underwriting of an issue;

(iii) acting as an adviser to clients in relation to any instruments which are quoted on the Exchange;

(iv) acting as manager of a portfolio in relation to any instruments which are quoted on the Exchange;

(v) undertaking research into companies traded on the Exchange as well as companies seeking a listing;

(vi) providing advice on corporate finance requirements.

Provided that the permitted business of a stockbroking firm whose accredited representative falls subject to the provisions of bye-law 3.15, shall in the case of securities of :-

(a) the issuer of a listed security as set out in bye-law 3.10;

(b) other issuers of listed securities belonging to the same business sector or industry as the issuer referred to in sub-paragraph (a) of this proviso; and

(c) other issuers of listed securities having a close business relationship with the issuer referred to in sub-paragraph (a) of this proviso

be further restricted, to executing deals on the basis of clear execution-only instructions of the client and there is no direct or indirect managing, arranging or advice given by the firm or any of its employees in respect of such deals.

Misuse of the Media

4.03 A stockbroking firm shall not advertise, publish or broadcast any material, including recruitment of staff, in such a way as may be detrimental to the interest of the Exchange or any of its members.

Capital Requirements

4.04 Every stockbroking firm shall have a minimum issued and fully paid up share capital of Lm10,000.

4.05 The minimum share capital shall be matched by cash or Maltese Government securities subject to a ten per cent discount on valuation, or such other assets as may be acceptable to the Council from time to time.

Date of Financial Year End

4.06 The financial year of each stockbroking firm shall end on 31 December.

Members to Appoint Auditors

4.07 A stockbroking firm shall appoint an auditor to audit its accounts, including all clients' accounts required to be kept by the stockbroking firm under bye-law 4.17, and, where for any reason the auditor ceases to act for the stockbroking firm, the stockbroking firm shall, as soon as practicable thereafter, appoint another auditor to replace him. The auditor shall be a Certified Public Accountant and Auditor within the meaning of the Accountancy Profession Act, 1979.

4.08 Failure of the stockbroking firm to make available to the auditors all necessary information required for the purposes of the audit, shall be reported by the auditors to the Council of the Exchange direct.

Accounts to be kept by Members

4.09 Without prejudice to the requirements of Sections 133, 134 and 135 of the Commercial Partnerships Ordinance Cap. 168, every stockbroking firm shall cause to be prepared:

(i) a balance sheet showing in accordance with the provisions of these Bye-laws, the assets, liabilities and capital of the stockbroking firm. The assets and liabilities shall be brought into account in the balance sheet at such amounts and shall be classified and described in such manner as to give a true and fair view of the state of affairs of the stockbroking firm as at the balance sheet date. The balance sheet shall at least contain the information as prescribed by the Council from time to time;

(ii) a profit and loss account complying with the provisions of these Bye-laws and prepared in such a manner as to give a true and fair view of the profit and loss of the stockbroking firm for the period from the date on which the stockbroking firm began to trade or as the case may be, from the date of the previous balance sheet to the date at which the balance sheet is drawn up under paragraph 4.09(i) above;

(iii) the balance sheet and profit and loss account as required in paragraphs 4.09(i) and (ii) above must be audited by an auditor appointed under bye-law 4.07 by the stockbroking firm and such auditor is required to provide the stockbroking firm with a report addressed to the Exchange. The auditor's report shall at least contain the information prescribed by regulations made pursuant to the Commercial Partnerships Ordinance Cap. 168, and any other matters prescribed by these Bye-laws.

Members to supply List of Outstanding Transactions to the Firm's Auditor

4.10 In addition to bye-law 4.12, a stockbroking firm shall apply to its auditor a list of all outstanding transactions, of whatever nature (including monetary values) which it has entered into with other stockbroking firms as at a date designated by the auditor.

Auditor to send report to the Council of the Exchange in certain cases

4.11 If, during the performance of his duties as an auditor for a stockbroking firm, an auditor:

(i) becomes aware of any matter which in his opinion adversely affects the financial position of the stockbroking firm to a material extent;; or

(ii) discovers evidence of a contravention by the stockbroking firm of the Act, the Statute and these Bye-laws'

he shall, as soon as practicable thereafter, send to the Chairman of the Exchange and to the stockbroking firm a report in writing on the matter or, as the case maybe, of the contravention.

Keeping of Records

4.12 For the purposes of complying with the provisions of these Bye-laws, every stockbroking firm shall keep records in sufficient detail to show particulars of its trading activities including:

(i) all monies received and paid by the stockbroking firm, including money paid to and disbursed from, a client' s account;

(ii) all purchases and sales of securities transacted by the stockbroking firm on behalf of clients, the charges and credits arising from such transactions, and the names of the buying and selling clients;

(iii) all income received from commissions, and other sources, and all expenses and commissions paid by the stockbroking firm;

(iv) all the assets and liabilities, including contingent liabilities of the stockbroking firm;

(v) all transactions by the stockbroking firm, with or for the account of a client; and

(vi) all securities which are the property of the stockbroking firm showing by whom they are held and whether, if held otherwise than by the member himself, they are so held as collateral against loans or advances.

4.13 A stockbroking firm shall retain for a period of not less than ten years all books of accounts and other records required to be kept in pursuance of the foregoing provisions of these Bye-laws.

4.14 Where any matter that is intended to be used in connection wit the keeping of records, referred to in these Bye-laws recorded or stored by means of a mechanical device, an electronic device or any other means in an illegible form, a stockbroking firm who willfully:

(i) records or stores in that device matter that he knows to be false or misleading in a material particular;

(ii) destroys, removes or falsifies matter that is recorded or stored in that device; or

(iii) fails to record or store matter in that device with intent to falsify any entry made or intended to be complied, wholly or in part, from that matter

shall be subject to disciplinary action as the Exchange shall think fit. A stockbroking firm which procures any person to act in any of the abovementioned manner shall be deemed to have violated the bye-law itself and shall be subject to such disciplinary action as the Exchange shall think fit.

4.15 Every stockbroking firm shall make all books of accounts and other records required to be kept in pursuance of the foregoing provisions available to the Exchange for inspection or audit by any auditor appointed by the Exchange, when required by the Exchange to do so.

4.16 Every stockbroking firm shall maintain a progressive record of all purchases and sales effected daily as a memoranda record and it shall indicate clearly those purchases paid for by the stockbroking firm on behalf of a client.

Stockbroking Firms' Clients' Accounts

4.17 A stockbroking firm shall maintain and keep one or more clients' accounts at one or more licensed banks designated or evidenced as such into which it shall pay only such amounts which have been received from, or on behalf of, clients for the settlement of purchases of securities.

4.18 A stockbroking firm shall retain in a bank's client account those amounts due to clients until the amounts are either paid to the clients or in accordance with the client's instructions; or until the funds are required to settle the purchase of securities on behalf of clients.

4.19 A stockbroking firm having received monies which must be paid into a bank's client account in accordance with by-laws 4.17 and 4.18 shall do so immediately, or at the latest the following working day.

4.20 Every stockbroking firm shall keep records of :

(i) all amounts paid into a client account kept by it, specifying the persons on whose behalf the amounts are held and the dates on which they were paid into the account;

(ii) all withdrawals from the client account, the dates of those withdrawals, the names of the persons on whose behalf the withdrawals are made and to whom paid.

4.21 Except as legally allowed, money held in a client account shall not be available for payment of the debts of a stockbroking firm or be liable to be paid following a Court's order.

4.22 Any payment made in contravention of bye-law 4.21 shall be void and any person who knowingly receives such money shall obtain no legal title to it.

Stockbroking firms are to keep a separate account (ledger) for every client in respect of dealing in securities

4.23 A stockbroking firm shall maintain separate accounts (ledger) for every client in respect of its business of dealing in securities transacted on the Exchange.

Members not to make false or misleading reports

4.24 A stockbroking firm shall not intentionally record or provide the Exchange with any account, return, submission or other information that is false or misleading.

Submission of Returns and Annual Accounts

4.25 Every stockbroking firm shall submit to the Exchange quarterly returns i.e. March, June September and December, in the forms as prescribed by the Exchange within the limits specified by the Exchange.

4.26 In submitting the returns under bye-law 4.25 the stockbroking firm shall also provide a declaration stating that it has at all time complied with the financial requirements specified under these Bye-laws.

4.27 Apart from submitting quarterly returns as required in bye-law 4.26 a stockbroking firm shall submit a true and fair profit and loss account and a balance sheet made up to the last day of the financial year to the Exchange not later than four months after the end of the financial year, together with an auditor's report as required in bye-law 4.09(iii).

4.28 Without prejudice to the Commercial Partnerships Ordinance Cap. 168, the Exchange may, upon written application by the stockbroking firm for an extension of the period which the documents referred to in bye-laws 4.25, 4.26 and 4.27 are required to be lodged and being satisfied that there are special reasons for requiring the extension, extend the period for a term not exceeding one month, under such conditions as it may deem fit and proper.

4.29 Bye-laws 4.25, 4.26, 4.27 and 4.28 to the extent that they require submissions to the Exchange, shall not apply to a stockbroking firm which has notified the Exchange in writing and the Exchange has so registered, that it has suspended business voluntarily or ceased business.

4.30 Notwithstanding bye-law 4.29 a stockbroking firm which has suspended business voluntarily or ceased business shall submit to the Exchange a true and fair profit and loss account and a balance sheet made up to the date of suspension or cessation of business not later than two months after such date together with an auditor's report as required in bye-law 4.09.

4.31 A stockbroking firm which gives notice of its intention to recommence business shall demonstrate to the satisfaction of the Exchange that it is able to comply with all the necessary requirements established under those Bye-laws for carrying on its business

Exchange right to demand Documents

4.32 Every stockbroking firm shall within fourteen days or such period as the Exchange may specify in writing, submit to it such statements, books, records, accounts and other documents as the Exchange may demand. The Exchange may at the request of the Chairman of the Tribunal make such documents available to the Chairman for inspection. When the Exchange complies, the authority is deemed to have been given by the stockbroking firm concerned.

Power of the Exchange to make surprise checks

4.33 Officers, employees and such other persons, appointed in writing by the Exchange, may from time to time inspect the books and records maintained by the stockbroking firm relating to its business and financial position. Every stockbroking firm shall provide or allow such officers or employees or appointed persons access to its premises, accounts, books, documents, papers and records necessary for the discharging of his or their duty, with or without prior notice.

4.34 Any extraordinary expenses incidental to or consequential upon an inspection ordered under bye-law 4.33 by the Exchange shall be borne by the stockbroking firm concerned, unless the Exchange otherwise determines.

4.35 A stockbroking firm shall not be entitled to claim against the Exchange, the Council, officers or employees of the Exchange or any appointed person for any loss or damages whatsoever related to the inspection ordered under bye-law 4.33.

Power and Obligation of the person authorised by the Exchange to make surprise checks

4.36 Any person appointed in writing under bye-law 4.33 shall be deemed to have been authorised by the stockbroking firm concerned to obtain direct from such stockbroking firm's auditor any information or explanation which he may consider necessary for the purpose of carrying out his duties.

4.37 In any case where the information obtained under bye-law 4.33 above or any other matte arising out of his inquiries leads the person appointed under bye-law 4.33 to consider that further information should be obtained by the Exchange regarding the stockbroking firm's state of affairs, he shall report accordingly to the Exchange.

4.38 All accounts and other information obtained by the person appointed under bye-law 4.33 under these Bye-laws shall be retained by the Exchange and shall be regarded as confidential and disclosure of information contained or derived therefrom shall not be made to any body or persons. The Exchange may however at the request of the Council furnish a copy of the report of the facts, if any, to the Tribunal and the authority for doing so is deemed to have been given by the stockbroking firm concerned. The stockbroking firm concerned shall have the right to request a copy of such report.

4.39 Bye-laws 4.08, 4.09 and 4.11 shall also be applicable to the person appointed under bye-law 4.33.