The concept of transferability lies at the core of EU and Maltese financial regulation. It is this principle that distinguishes securities from bespoke or private contractual rights and determines whether a financial instrument falls within the scope of the Markets in Financial Instruments Directive (“MiFID II”), the Prospectus Regulation, and local Malta Financial Services Authority (“MFSA”) rules.
In this article, we examine the legal criteria that define transferability and the regulatory implications for company service providers (“CSPs”) operating in Malta. We also reflect on a landmark judgment by the Court of Justice of the European Union (“CJEU”) that broadens the understanding of what constitutes a transferable security, with direct relevance to CSPs advising on private placements and corporate structuring.
The Legal Foundation of Transferability
Under EU Law
Article 4(1)(44) of MiFID II defines transferable securities as “those classes of securities which are negotiable on the capital market, with the exception of instruments of payment.” This definition encompasses, shares in companies or equivalent instruments, bonds and other forms of securitised debt and derivative instruments linked to transferable securities, interest rates, commodities, or other indices. Importantly, the emphasis is not on whether the securities are listed, but whether they are negotiable, i.e., tradable between offerors and investors in a capital markets context.
MFSA’s Interpretation and Regulatory Expectations
1. Investment Services Rules for Providers
The MFSA adopts the MiFID II definition of transferable securities and expects investment firms to implement robust internal classification procedures. These determine how instruments are treated under:
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Conduct of business rules;
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Suitability and appropriateness assessments;
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Client categorisation requirements;
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Reporting obligations under MiFIR and EMIR.
Where instruments meet the threshold of transferability, full investor protection obligations apply, even if those instruments are not listed on any exchange.
2. Prospectus Regulation and Capital Markets
The Companies Act (Cap. 386) and the Prospectus Regulation (EU) 2017/1129 require a prospectus to be published for any public offer of transferable securities, unless a specific exemption applies.
MFSA guidance confirms that instruments offered via crowdfunding platforms, structured debt arrangements, or private placements may still be considered transferable where they standardized, issued to multiple investors or include a transfer mechanism, even if informal or over-the-counter. Issuers misclassifying such instruments may face regulatory sanctions for failing to meet prospectus obligations.
3. Corporate Structuring and CSP Responsibilities
CSPs frequently assist clients with company formation, capital raising, and bespoke investment instruments. The MFSA expects CSPs to have a clear understanding of when a share or debt instrument may be considered transferable. This includes:
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Assessing whether a transaction triggers licensing requirements (e.g., acting as a placement agent);
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Ensuring documentation (such as subscription agreements or term sheets) clearly discloses the nature of the securities;
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Evaluating whether the offer triggers prospectus or MiFID II obligations.
A Landmark CJEU Ruling: Transferability Under Scrutiny
In a 2025 landmark judgment, the CJEU clarified the scope of transferability in the context of prospectus requirements. The case involved a Belgian holding company owned exclusively by municipalities. In 2009, the company initiated a capital increase, offering shares that could only be held by municipalities and provinces and were subject to transfer restrictions requiring board approval.
The municipalities subscribed, but later lost their investment following the company’s liquidation. They sued, claiming a prospectus should have been published under EU law. Lower courts in Belgium had rejected the claim, arguing the shares weren’t “negotiable on the capital market.”
The CJEU disagreed and its key findings where:
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Negotiability does not require the ability to freely trade shares on a stock exchange.
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Even instruments subject to transfer restrictions, such as board approval, can still be transferable securities if such restrictions do not make trading impossible or extremely difficult.
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Municipalities are not classified as qualified investors under the Prospectus Directive, which refers only to national and regional governments. Therefore, offerings directed solely at municipalities do not benefit from exemption and may require a prospectus.
This decision broadens the scope of what can be considered a transferable security under EU law. It confirms that legal and regulatory obligations, including the need to publish a prospectus, can arise even for privately held, non-listed shares as long as some degree of market-level transferability exists.
Practical Takeaways for CSPs in Malta
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Transferability is a functional concept, not a formal one. Even if securities are issued privately or are non-listed, they may still be subject to regulatory regimes if tradable in principle.
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CSPs must ensure that corporate instruments are properly classified during structuring. Legal form alone (e.g., being “non-tradable”) is not decisive.
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When assisting clients with capital raising, CSPs must assess whether investor documentation is clear, and whether the structure might trigger licensing or prospectus obligations.
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Offerings made to municipalities or local authorities should not be assumed to fall within qualified investor exemptions.
Conclusion
This 2025 CJEU judgment marks a significant development in EU financial law, reinforcing that transferability is not negated by restrictions such as board approvals or limited investor pools. For CSPs in Malta, it serves as a timely reminder of the importance of assessing legal substance over form and of ensuring compliance with both MiFID II and the Prospectus Regulation when advising on securities, however privately they may be offered.
