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Page last updated
February 16, 2003




Trends and developments in the Financial Markets of Northern Europe
How will the infrastructure change?


The countries in Northern Europe, in this article meaning Sweden, Finland, Norway and Denmark, are definitely facing a number of changes but also challenges in the near future. One of the crucial questions is, how fast will these changes come about?

Europe as a whole but especially countries in EU and those that are within EMU are seeing tremendous changes today and have seen for some time.

n Consolidation and mergers within the banking/financial institution industry has been on the agenda for a long time and is still continuing.

n Consolidation of Stock-exchanges like the creation of Euronext as well as establishing new entities like Virt-x

n Consolidation of CSDs

n The development of CCP solutions

The main driving force behind this development today is cost-reduction, the markets and institutions that can offer the most cost efficient solutions will be the winners.

Developments in the Nordic markets have not yet taken place at the same pace and there are also very few examples of linkages between the Nordic markets and the rest of Europe. In 2001 the OM group of Sweden made a bid for London Stock exchanges and HEX, the stock-exchange in Finland, have had linkages with Eurex and is also present in Estonia.

Besides that we find few linkages to other markets outside the Nordic region there are also limited success in creating linkages within the Nordic region. A number of questions has to be answered in the near future.

Is it a good option for the Nordic markets to continue to strive towards Nordic Regional solutions? Would that be sustainable in the long run? Is it possible for the Nordic markets to stay by themselves? Should the aim be to get closer to the rest of Europe?

Very difficult questions and this article does not look to answer the questions but to give an overview of the present development in the region.


Table 1

Banks in Europe Shareholders equity
(USD bn)
1. HSBC 52
2. Deutsche Bank 41
3. RBS 41
4. Hypovereinsbank 32
5. Credit Agricole 29
6. UBS 28
7. Santander 26
8. BNP Paribas 25
9. Barclays 24
10. Credit Suisse 23
27. Nordea 10
37. Den Danske Bank 6.7
44. Sv. Handelsbanken 5
46.SEB 4.8
47. Swedbank 4.5Source: Euromoney


The Nordic region and EMU
Sweden, Finland, Denmark are members of the EU but Norway has taken the rout of staying outside the EU.

Finland is the only country that has joined the EMU and it is still a bit unclear when Denmark and Sweden will take the big step into the EMU. Denmark had a referendum in September 2000 and the outcome was fairly close with the no side winning by 53-47.

Sweden will most likely have a referendum in 2003 and the earliest possible date to convert to Euro is 2005, that is under the condition that the referendum next year is positive.

The most likely scenario is that the conversion to EMU will take place in 2006.

This means that the Nordic region will have different currencies for quite some time and even if the Euro is introduced in Denmark and Sweden within the next the 3-4 years there will still be Norway that is outside EMU.

Different currencies in the region doesn't necessary mean that infrastructural changes in the region will not take place but it does make it more difficult.

Table 2

Market capitalisation M EUR
(in million Euro ) Jul 02
London Stock Exchange 1 927 015
Euronext 1 644 390
Stockholm Stock Exchange
(Stockholmsbörsen) 206 515
Helsinki Exchanges 129 936
Copenhagen Stock Exchange 82 148
Oslo Stock Exchange 74 351
Iceland Stock Exchange 6 003

source :FESE

What will happen to the banks in Northern Europe?
The Nordic markets are from a European perspective small, 4 % of the world market capital, and the participants of the Financial markets are far down the list when compared to its competitors in continental Europe and the rest of the world. Competition has been tough for Banks, Broker Dealers, Insurance companies and Asset-managers for a long time and the competition is increasing with the new players entering the Nordic markets every year.


This development has led to existing banks, insurance companies and other financial services providers developing their services and products, and adjusting their way of marketing and providing these services, as competition from other financial services providers increase.

In order to meet these demands, banks and other financial services players on the financial market have to increase their efficiency and competence through staff development and further development of the IT solutions.

At the same time cost cutting is on everyone's agenda and the huge investments in IT are a major part of the costs for a financial institution.

One way for the institutions in the Nordic market to meet this is by mergers and there have been a large number of mergers during the last 20 years in the Nordic region, mainly mergers between smaller domestic banks in each market.

That route seems to be difficult to pursue as EU in 2001 had extensive objections to the proposed merger between SEB and Swedbank. These objections resulted in demands on the two banks that meant that a merger would be too costly to continue with and the two banks decided to scrap the merger plans.

In reality this means that mergers between two banks in one country will not be possible and cross-border mergers is the remaining alternative. The region has seen one big merger between banks and that is the creation of Nordea, a merger of Merita Bank in Finland, Nordbanken in Sweden Unibank in Denmark and Christiania Bank in Norway. This leaves a limited number of candidates for possible mergers in the Nordic region. In Sweden there are SEB, Handelsbanken and Swedbank. In Finland Sampo, in Norway Den Norsk Bank and in Denmark Den Danske Bank.

It is hard to tell if we will see crossborder mergers in the Nordic region or if the mergers will be more of a European nature, at the moment most organisations are busy consolidating there present business and working on extensive cost reduction programs.


In the long run though it is very likely that we will see further consolidation in the banking community in Northern Europe. The banks are too small in comparison, (see table 1) and the IT-investments needed in the future will be enormous.

Table 3

Top 5 most traded per % of
market Market/Security domestic turnover
Nokia 73,22
UPM Kymmene 6,02
Stora Enso 4,44
Hartwall 3,13
AvestaPolarit 2,38
Ericsson 21,2
Nokia 8,4
Electrolux 4,6
Skandia 4,5
Nordea 4,2
Norsk Hydro 21,42
Tandberg 15,04
Statoil 11,29
DnB Holdings 7,52
Tomra System 7,32
Novo 24,37
TDC 14,96
Danske Bank 14,02
Vestas 6,75
Group 4 Falck 4,58


The future of the Stock Exchanges in the Nordic markets
The exchanges in the Nordic countries have seen a tremendous growth during the last ten years, that is the case especially for Sweden and Finland. Trading volumes have grown enormously driven to a large extent by trading in Ericsson and Nokia. There are also a large number of remote members that have contributed to the trading volumes. This is especially the case in Sweden, the first one entered Stockholmsbörsen in 1993 and the number of remote members are today 44.

In comparison with the exchanges in Europe the Nordic exchanges are still small. The combined market capitalisation is around Euro 500 bn, (see table 2). A merger of the four exchanges would establish a Stock exchange of reasonable size and would be a first step in meeting the competition but so far there has been very few signs of the Nordic Exchanges merging.

Norex, the alliance of Nordic markets that includes Sweden, Denmark and Norway was created in 1998 and is a step in the right direction but Norex has not really become the success that was anticipated. One reason behind that is that HEX, the Finnish Exchange has not become part of Norex.

The Norex alliance has resulted in cooperation on the system side which means that it is easier for members to connect to the exchanges in each market but the possibility to trade Danish securities on the exchange in Stockholm and the opposite has not been a great success.

Sweden and Denmark have been using the same trading platform, SAXESS, for quite some time and Norway implemented SAXESS earlier this year.

It is quite clear that we will see increasing competition from other exchanges like Euronext, Eurex and Virt-x but a consolidated exchange in the region building on the Norex alliance or similar would have a big chance of succeeding in the future.

The most critical issue for the future is the ability to keep the liquidity of the blue chips on the Nordic Stock Exchanges, Ericsson, Nokia and a few other securities are today dominating the trading in the region, (see table 3). At the same time these securities are heavily traded on other exchanges and foreign investors are dominating. London Stock exchange, Virt-x , Nasdaq and other exchanges will continue their ambition to attract the bulk of the trading in these securities and a consolidated exchange in the Nordic markets has a much bigger chance of maintaining a good liquidity in the blue ships and thus attract investors from all over the world.

Historically it´s been hard to achieve Nordic co-operation - even though there is rationale. National pride and "big brother" issues have to be overcome, how?

The CSD's and the possibility of creating a CCP
Another important part of the infrastructure are the CSD:s. A consolidated Nordic CSD would be a step forward in creating an efficient market for the Nordic region.

The CSDs together with the Banks are the most important participants when developing efficient transaction flows.

A couple of years ago S-4 was discussed between the Nordic CSDs. S-4 was an initiative driven by VPC in Sweden, VP in Denmark and VPS in Norway and was aiming at creating a consolidated CSD for the Nordic region. The project did not have the full support from the participants in each market and it was at that time not possible to pursue.

There have been discussions from time to time between the CSD's but the discussions have lead to nothing concrete so far. In 2001 VPC and VP were discussing a possible merger but fell on ownership questions. It is possible that different ownership structure and also different interest from the owners will continue to hinder a merger of the Nordic CSDs that would be so good for the infrastructure of the region.

VPC in Sweden is owned by the four large banks with 24,86 % each, in Denmark VP have a large number of owners as, APK in Finland is owned by the Stock exchange HEX. VPS in Norway is owned by a state controlled foundation but will be privatised early 2003. The privatisation of VPS will most likely mean that VPS will get a large number of shareholders.

The different structure in each market makes it difficult to see a consolidation within the near future. It is also notable that large investment goes into each CSD at the moment. VPC is developing a new clearing system, Newclear, that will cost the market participants and VPC huge amounts. HEX is developing its clearing system under the name of Hex clear and the costs will be substantial.

VPS is going to be privatised and there is also plan to develop the clearing system next year.

These fairly large projects within each market also means that a lot of resources are tied up and that projects like Nordiclear will have to rest for a while.

Nordiclear is a project that started during the second half of 2001 and was looking to the possible creation of a CCP in the Nordic markets. The project involved all the four CSDs and the banks in the region. Everyone agreed that there is a need for a CCP solution in the Nordic region, the questions now are more related to when and how.

One conclusion fcould be that both the issue of consolidation of the CSDs as well as the CCP issue will be difficult to move forw- ard unless one of the larger CSDs take the lead, like for example Euroclear have done in Europe.

The last but not least important parts of the infrastructure are the Custodians.

A number of banks are offering Custody and Clearing services in the region. SEB, Handelsbanken and Nordea offer regional services and Den Norske Bank, Union Bank of Norway, Swedbank and Den Danske offer services in their respective markets.

The battle between all these banks is very tough and price pressure is extremely hard, much to the pleasure of the Global institutions buying the services of the Nordic banks.

This will in the end lead to most of the banks experiencing difficulties in competing in the custody and clearing business and those that are still in business will live under very tight margins.

The Nordic region is not large enough to sustain so many providers and I believe that it will be hard for the smaller providers to keep up with the need for investments.

There is also fierce competition from the big Global Custodians for the business from domestic institutions, the needs for development in this area are huge and not many will have the recourses to spend.

It is likely that we will see only 2-3 providers left in the future. Knowledge about the markets and the clients as well as a long standing relations are very important.

Consolidation is inevitable in the long run and I strongly believe that a Nordic market place is a possibility. One European market might be the ultimate goal but that is probably far away and it is going to be very difficult to achieve. One Nordic market place is worth working for and would place the whole region in a strong position in the process of further consolidation in Europe.

The four Nordic countries do not only share the beautiful nature and wonderful summers we also have similarities in language, history, culture, legal structure etc.

There are definitely great opportunities for the countries in the Nordic region to be successful in creating a consolidated market place.

It is now important that each market and individual participants in each country look into the future with the interest of the Nordic markets in focus, otherwise the risk is that the Nordic markets will loose business and turn into insignificant markets.

Göran Fors
Head of Investor Services Global Clients Securities Services
SEB Merchant Banking



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