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Page last updated
February 16, 2003




Norway is Not the Largest City in Sweden

Or a mountain in Denmark


The view from the world.
Those viewing the Nordic region from hundreds or thousands of miles away tend to see the markets as very similar. They tend to thing of the region as one melting pot with roughly the same type of market structures, participants and regulations. It is true to say that culturally and socially the various countries have influenced each other profoundly, however this is as about as far as one goes in drawing comparisons.

What the outside world is looking for in the region is a harmonised single market, trading on one system, clear in one place, and settlement in one place, cheap yet efficient.

The Landscape
Norway, Sweden, Finland, Denmark and Iceland, different countries, different languages, different currencies. Some, not all, are part of the EU. Some of the countries have a common Stock Exchange trading platform, SAXESS, developed by the Norex alliance, but the operative word being 'some' not 'all'. Finland have gone their own way within HEX in this respect. So at the top of the chain, one country has fallen out of the Nordic bed.

At the bottom of the chain, things are also very different, each country has their own CSD, Norway, Sweden, Denmark, Finland and Iceland have their VPS, VPC, VP, APK and ISD respectively. The CSD in each country have very different structures, ownership and roles within the various markets. VP and VPC are privatised and run by its members, currently the VPS is a nonprofit organisation but this is due to change with the onset of privatisation, additionally the VPS will lose their monopoly status as part of privatisation.

In Norway the Government likes to see what every individual owns in terms of securities, thus the accounts are opened at a beneficial ownership level, only a nominee account is permitted for foreign residents but at the discretion of the Banking, Insurance and Securities Commission (BISC). The Danish CSD runs to a similar mandate, however the other CSD's have different account structures whereby local entities can set-up nominee account structures.

Could these CSD's ever consolidate to provide one settlement location? The Danes and the Swedes talked about it but decided against it due to differences between them. It does not take a Poirot to figure out that even if you can overcome the appetite for consolidation would the authorities in each country want to let go of the control that they currently enjoy by being the regulator for their respective CSD?

The CSDs are currently pulling in different directions, the VPC are currently looking for bank status in Sweden, and are beefing up their corporate actions, do they see their future as competing in the Custodian area, or are they looking at vertical development not horizontal consolidation? The VPS looks at the custodians as clients and for the time being do not wish to compete.

Finland, on the other hand, has gone for complete vertical streamlining with HEX offering custody, depository services and an exchange to trade it all on.

The search for a common denominator
So is there a way in which this mixed bag can be sorted out in order to give the outside world a single access point to the market? Nordea have tried with their pan-Nordic presence, bolting together banks from each sector. This has proved difficult for them as most things cross border turn out unpleasantly, this only addresses which bank processes the business for the individual, it does not address the issues of harmonisation.

One has to go deeper into the foundations in order to find a common denominator. As with many other markets, the common denominator has been the introduction of a Central Counterparty (CCP). There is no denying the benefits of a CCP, as has been the case in the derivative markets for many years, although it did not flourish in the FX markets. Look at the benefits brought about by DTCC in the United States. In the US trades are cheaper, risk is taken on by the CCP, but things were also easier in establishing it, one legislature, one currency, one language.

Let us not kill the idea of a CCP yet; there are currently initiatives in the Nordic region for a CCP, Nordiclear sponsored by the CSDs and Mallorca sponsored by the Exchanges. Two different initiatives by different participants, looking for a means of survival, maybe the fact that there are two initiatives looking at the same concept typifies the markets, different agendas, not cohesive etc.

Many people believe that this is the way forward, not least the OM group that owns most of Norex. It is no secret that they are looking at a CCP as their means of survival, to survive they need to keep the liquid stocks in the exchanges. Having numerous CSDs gets in the way of this, they recently hired the former head of the VPC to look at this issue.

It is not believed that the idea of a CCP will go the way of the S4 initiative did previously, but who will be the first to build it? Can they get around the aforementioned obstacles?

Further afield
Has the gluing of markets happened elsewhere, no! but it is in progress in Belgium, France and the Netherlands by means of a CCP. All have a common regulator in the EU, and a common currency, and the top and bottom have already consolidated through Euronext and Euroclear. Euronext and Euroclear have common ownership and are the drivers for this consolidation, the other participants are in there but have been dragged in "kicking and screaming", and the instruments traded will pretty much remain in the home market, i.e. Netherlands for equities, France for derivatives etc..

We can see that the appetite is there for consolidated markets in the Nordic regions, but the proof will be in the eating. For the time-being, at least, the Norwegian market will remain as the Norwegian market, as with any other market, separated though the same criteria that separates Germany, Switzerland, Peru and Hong Kong. Finally Norway will keep its sovereignty and will not be becoming the capital of Sweden or the highest peak in Denmark.

Information on the market:

Oslo Stock Exchange
Oslo Stock Exchange was founded in 1819, primarily for commodities. Securities were first listed in 1881. With last year's changes to the act regulating the Stock Exchange, the OSE was privatised.

Activities at OSE have increased steadily over the past ten years, with an extensive increase in 1999 when OSE implemented a fully automated trading system. With 116 listed companies and a total of 228.000 transactions in 1991 one would note that the total for 2001 was 212 companies and that the number of transactions passed 2.5 million. A total of 26 companies are foreign, with approximately a third of the market value in possession of foreign ownership.

Over the past few years the traditional pattern of saving has changed, moving at a slow pace. In comparison to the Swedish market, with a market capitalisation of Euro 250 million and where some 38 percent of the population have shares in their position, the Norwegian market is the smallest in the region.

The introduction of securities trading via the Internet has triggered interest among private individual investors. Even though this developed a notable curiosity for securities, less than 10 percent of the population have invested in equities.

With Norex and the implementation of the common trading platform, Saxess, at OSE during second quarter of 2002 the interest for cross border trades might not only trigger further interest, private investors directly but also in the form of Nordic funds.

Oslo Stock Exchange, utilising Saxess from second quarter of 2002, the participants in the Norex alliance will have the same trading platform. Norex, the alliance between the stock exchanges of Oslo, Stockholm, Copenhagen and Reykjavik, gives access to some 80 percent of the Nordic Market. The Norex members will have a common set of rules for securities trading. Common rules makes it easier for cross members to act on cash markets on the included exchanges.

VPS; The Central Securities Depository
Verdipapirsentralen (VPS), the only Central Securities Depository in the Norwegian market, established in 1985, has the sole right to be the registrar of listed securities. Registration of OSE listed securities is mandatory. For non-listed corporations and mutual funds, registration is a voluntary act; many non-listed companies do use the VPS because of its functionality. The register is kept in an electronic format. Additionally the shareholder register for non-listed companies may also be electronically updated, with access being given to perhaps a law firm or even by the corporation itself.

VPS maintain some 1.2 million securities accounts, as each investor is obliged to have a separate account. Nominee registration is permitted for non-residents only provided that the regulatory authorities, the Banking, Insurance and Securities Commission (BISC), have granted a nominee license. Nominee registration is well accepted, causing some difficulty in regard to proxy voting.

Proxy voting in Norway is not permitted from nominee accounts, set in most companies' by-law. In order to facilitate voting, it is required that shares be registered in separate accounts in each beneficial owners name and followed by a Power of Attorney prior to voting.

Several initiatives have been introduced to reduce the fail rates for settlements in the market, which are somewhere between 15 and 20 percent. Settlement routines are on the verves of change in the Norwegian market, with an expected introduction of same day, multiple settlement cycles, which will mitigate risk and reduce fail trades further.

In addition the depository will go live with ISO 15022 automating the settlement infrastructure further.

Lene Bjorneberg
Relationship Manager

Richard Quin
Manager Client Relations & Network Manager

Union Bank of Norway Custody

Company Profile Union Bank of Norway
The Union Bank of Norway is the second largest financial institution, with 7900 employees and more than two million customer relationships. The group's product areas comprise of day-to-day banking, savings and investments, security services, lending and financing, non-life insurance and estate agency.



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