Norway is not a mountain in Denmark. Finland is not the capital city of Sweden, and Helsinki is not an Ikea double bed – at least not yet. Such gaffes are easy to smile at, but many of the misconceptions some overseas investors have about Scandinavian countries has thrown up a concrete set of challenges, a situation compounded by the use of several different languages.
The lack of a common Scandinavian trading system and rules makes it harder for companies to promote themselves and for investors to gain access to them quickly. But the national identity murk cloaking much of Scandinavia’s capital markets began to lift at the beginning of 2002 when Norex, a strategic alliance between bourses in Norway, Sweden, Denmark and Iceland plus some of the Baltic states, came into force.
Three years on, has the creation of Norex helped put distinct national bourses firmly and squarely on the map? Per Anders Brodin, executive vice president of Norway’s Oslo BØrs, certainly thinks so. ‘Absolutely – our daily turnover in 2002 when we joined was an average Nkr1.8 bn ($284.4 mn),’ he points out. ‘In the year to date it is Nkr5.6 bn. Not all of this is down to Norex, but it is part of the explanation. We’re very strong on oil and gas, and that has also been in demand recently.’
For most Scandinavian countries, the advantages of Norex boil down to a common trading system, membership of the Morgan Stanley global industry classification standard (GICS) system, and the ability to list on just one exchange and yet be open to cross-border trading. It’s also easy for traders to sit in London or New York, for example, and trade on the Norex platform with few technical demands. However, the settlement side is not as straightforward because, like many European countries, separate settlement arrangements remain. Nevertheless, the potential for much increased liquidity is welcome. Brodin notes that transparency issues have remained the same since Norex’s inception, though the cost of trading Norwegian equities has fallen significantly.
Enthusiasm for the benefits of Norex membership is not by any means universal, however. Iqbal Jumabhoy, group financial officer at Danish nutritional firm East Asiatic Company, listed in Copenhagen, is ambivalent about club benefits. ‘I don’t think Norex is positive or negative for us at this point,’ he says. ‘Clearly there are advantages, but what they really mean, particularly for the investor, is less certain.’
Mogens Jensen, an IRO at Danish healthcare company Novo Nordisk, which has been listed on the NYSE since 1981, is similarly lukewarm. ‘We haven’t felt any difference as a consequence of Norex,’ he says. ‘We’ve been helped considerably by the Copenhagen Stock Exchange, but you have to distinguish the difference between well-known traded, highly liquid companies and others.’ Those ‘others’ are the smaller and mid-cap firms where broker research is thin on the ground and an IR profile often slender.
Jacob Nyberg from Stockholm IR communications consultancy Taurus Kommunikation agrees with this less-than-enthusiastic sentiment, and says Norex has made little impact on many Swedish companies. ‘The Norex cooperation has been very loosely profiled and, to all working purposes, has had very little visible impact on the stock market,’ he points out. ‘I think it is generally seen that the Nordic development is largely driven by OMX [owner of the Stockholm, Helsinki, Tallinn, Riga and Vilnius exchanges] and that Norex plays a totally marginal role. For listed Swedish companies and for most others on the Swedish stock market Norex has no independent profile. Any initiative to develop the marketplace is expected to come from the Stockholm Stock Exchange.’
The upside
However, Norex has helped raise standards and awareness of trading issues, particularly for the smaller Scandinavian countries. Helga Björk Eiriksdóttir, head of communications at the Iceland Stock Exchange (Icex), says Norex membership has helped Icex improve the quality of its practice. ‘We’re a very small market and we didn’t want to isolate ourselves, so integrating with Norex has been very positive in terms of harmonizing standards,’ she explains. ‘We have an electronic surveillance system – which all Norex exchanges have – and have harmonized work procedures around it. Communication with other exchanges also helps us coordinate and gain better knowledge, such as being able to respond faster to issues.’
But Eir?ksdóttir also says interest and participation from foreign investment banks and traders has yet to materialize in the quantities Icex hoped for. ‘We had hoped to get more foreign members that would trade directly on the Icelandic market, but so far most foreign participation has increased through our existing [domestic] members,’ she notes.
Overall, Norex appears to have been good news for the smaller bourses, but less significant for bigger operators. Or is this too cut and dried? Scandinavian countries, particularly Sweden, have experienced significant growth recently, and cash-rich investors are looking for other investment opportunities, some within the Norex framework.
Europe’s comparatively low interest rates do little to entice. And the coming together of the Oslo and Helsinki bourses in 2003 – when many had said such a union would be derailed by national pride, historic rivalries and the Helsinki exchange’s previous relationship with the Frankfurt bourse – has also strengthened the alliance. Norex may be bigger than the sum of its individual parts,even if you can’t fly there just yet.
What is Norex?
Norex is an alliance between the Nordic and Baltic exchanges. Basically, it enables companies to be accessed through one central liquidity point and, importantly, companies need only apply to their local exchange to gain access. Members have to abide by joint trading member rules. The Norex trading system, Saxess, is widely admired for being reliable and efficient.
Norex membership includes Iceland, Norway, Finland, Denmark, Sweden, Estonia and Latvia. The eastern Baltic operators have particularly benefited from the alliance. Estonia’s Tallinn Stock Exchange saw an all-time record in share trading in March 2005 of €1 bn ($1.3 bn); in August 1997 this figure was €244 mn ($315 mn).
