As the Nordics shake off the last remnants of the financial crisis and embrace new European trading regulations, the time for market expansion has never looked better.
In early May, Switzerland based SIX x-clear completed the acquisition of Oslo Clearing. With trading venues in Germany, the UK and Switzerland, the Oslo Clearing take-over gave SIX x-clear the opportunity to open the door to expansion in the Nordic market.
“The Nordics is a region we have been committed to for a while but it has been a wide spot on our map,” explains Tomas Kindler, head of clearing at SIX x-clear, “We clear for Burgundy the regional Multilateral Trading Facility, but not for any Nordic clients.”
Oslo Clearing deals with the clearing of equities, financial derivatives and security lending products in Norway. According to Kindler, Oslo is “roughly a quarter” of the Nordic market and the acquisition of Oslo Clearing allows SIX x-clear access into Norway’s trading venue, Oslo Børs.
“We wanted to make an acquisition in the clearing space and we looked at a niche player that [would] gives us complimentary assets. With Oslo Clearing, in addition to the Nordic customer, they give us access into derivatives clearing capabilities that we currently [do not] have so we can further diversify on the products side.”
The move into Norway and into Oslo Clearing sets up SIX x-clear for future expansion of their derivatives clearing products, with the view to “internationalise [them], not only in the [Nordic] region, but on a pan-European basis.”
Trading regulations from European Securities and Markets Authority (ESMA), such as the European Market Infrastructure Regulation (EMIR), have become an “additional force” to trading, when “in the past, the time to market versus trading venues and the clients has been important.” Part of the appeal of Oslo Clearing is Norway’s “nimble clearing system”.
The EMIR regulations came into force in February 2013 to fulfil the European Union’s G20 commitment to reform over the counter derivatives and to significantly reduce risk in the markets. Through the trading already completed in Oslo, Kindler expects Norway’s “nimble market” will “continue one way or another” despite additions to EMIR and local regulations on the cards.
The majority of Nordic countries will be looking towards July 2015 and the launch of the first wave of TARGET2-Securities (T2S). When the application for T2S first opened the markets were gripped by the financial crisis and many Nordic countries, where the main currency is not the Euro, were reluctant to invest.
Birger Schmidt, chief commercial officer of VP Securities at the Copenhagen office, explains that: “At the beginning of talks for T2S it was assumed to be a mainly Euro project, not a common European structure.”
So far Denmark and Finland are preparing for T2S, with Denmark pegged to start in the third wave in 2016 and Finland in the fourth wave in 2017.
Operating in two currencies, Denmark is going to be the first non-Euro currency incorporated into T2S. To integrate both currencies into the system, the Danes will be joining it two stages: the first in 2016 with in order to deal with the Euro settlement, and then in 2018 with the Danish Krone.
“Sweden and Norway seem to have taken a ‘wait and see’ approach to T2S,” says Schmidt, “The financial crisis is not that bad anymore and banks are now gaining momentum again. I do feel that there will be pressure from the rest of the market, once integrated into T2S, for Sweden and Norway to join.”
“There is a risk,” he added, “that local settlement will move to T2S,” that will make trading in the local currency far more difficult.
While Sweden and Norway watch as the T2S builds strength, Schmidt believes Denmark has an advantage in being the first Nordic country to join: “Denmark has a large issuer market in mortgage and investment funds. They see a large benefit in T2S, from a capital market point of view, which will streamline business and make European wide distribution more efficient.”
He added that Denmark’s motivation to sign on to T2S stemmed from political views, where “Denmark would like to act as integrated as possible with Europe.”
Although not all of the Nordics have made their decisions on T2S, Göran Fors, senior vice president of asset servicing and transaction banking at SEB in Stockholm, thinks that there is “every chance that by 2020, the whole of the Nordics will be part of T2S.”