Nordics Seek Domestic Liquidity

Terry Flanagan

The Nordic region has turned inward, reversing a trend of accessing markets globally, as it seeks to tap investment potential within its borders.

“Following a period where the major Nordic firms seemed intent on expansion into Europe, they have tended to be very ‘domestic’ in recent years,” said Rob Lane, European business manager for trading solutions at Interactive Data. “However, what is different today is that the liquidity they need to access to execute against that strategy has fragmented. For example, one major bank in the region is looking to access BATS, SWX, LSE, Xetra and NYSE Euronext because Nordic liquidity is now spread across those markets.”

Interactive Data plans to set up a point of presence (PoP) in Verizon’s datacenter in Lunda, Stockholm, where Nasdaq OMX hosts the matching engine for its Nordic market, to provide firms located at the datacenter with direct access to global markets elsewhere in Europe, the U.S. and Asia, said Lane.

”Another trend we are seeing with Nordic firms is that as well as the lit markets they are also now looking to gain access to dark pools such as ITG’s Posit, Goldman Sachs’ Sigma X, Liquidnext and others, which is also driving demand for connectivity and market data,” he said.

Oslo Børs is migrating the Nordic MTF/exchange Burgundy, which it acquired last year, to the Millennium Exchange trading platform. Together with Burgundy, Oslo Børs will offer a competitive and effective alternative in the Nordics. Burgundy offers trading in more than 1,000 listed Nordic shares, in addition to other products such as warrants, ETFs and certificates. Over the last three years, Burgundy has established a growing market share of equities trading in the Nordic.

Since the Burgundy markets will become part of the Oslo Børs, a new fixed income market will be added to the trading system which will allow trading in fixed income instruments intended for Swedish investors that are denominated in Swedish kronor.

Oslo Børs launched Oslo ABM in 2005 as an alternative marketplace for listing and trading in bonds and short-term fixed income instruments (certificate loans). The Oslo ABM marketplace quickly proved successful, and there are now more issues listed on Nordic ABM than on the Oslo Børs marketplace.

“We have seen strong growth in the Nordic fixed income market over recent years, with fixed income issues becoming an ever more important source of financing for Nordic companies. In parallel with this, fixed income instruments have become an attractive investment alternative for many investors,” said Bente Landsnes, president and CEO of Oslo Børs, in a statement.

As a result of tougher market data budgets and more intensified cost reduction, firms in the Nordic region are looking closely at the TCO of their trading operations. That is coming both from a need to access these new pools of liquidity while maintaining the current trading strategy, as well as the cost of the data they need to consume.

“In the Nordics we have seen far more aggressive use of outsourcing compared to continental Europe,” said Lane. “Firms are willing to hand over infrastructure and resourcing requirements because their view is that their expertise is trading strategies and focusing on client service as a differentiator in what is a highly competitive, low-margin market. As a result, the connectivity, hosting, DMA and data centre elements are something they would rather use a service provider for rather than manage that in house.”

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