Rapid Addition was in Stockholm last week for the FIX Trading Community’s Nordic Trading Briefing 2019 event. A strong turn out from local market participants and London counterparts led to some interesting discussion, particularly in regard to the Nordic equity market landscape.
In terms of fulfilling their primary purpose of facilitating capital raising, the Nordic exchanges are performing well (the Nordic markets being defined as the 3 Nasdaq venues – Stockholm, Copenhagen, Helsinki – and the Oslo Bors). PWC’s European IPO report highlighted that approximately 25% of all European IPOs were listed in the Nordics during 2018, proving particularly attractive to small and medium sized growth companies. While only 11% by value, with London and Frankfurt naturally capturing the high value deals, overall activity is impressive.
As for secondary market activity, the Nordics are more in-line with the general convergence across European lit market trading. With similar investors, market makers and algos (often white-labelled from a handful of bulge bracket firms) across Europe, there is a commonality in both the explicit and implicit costs of trading to the buy-side.
However, one structural difference is smaller average trade size compared to the rest of Europe for both lit and dark markets. Stockholm ranks 2nd smallest in terms of average trade size in European lit markets and Helsinki 3rd. Overall trade in block, dark and periodic auction liquidity is larger in the Nordics, capturing 7% of turnover compared to an average of 5% across rest of Europe. Also, spreads are marginally wider.
More generally, there are concerns regarding the rising cost of regulation and the costs of physically connecting to ever more fragmented liquidity. When coupled with the lower turnover we are seeing in European equities, sell-side firms are increasingly focused on cost management and shifting to buy versus build when it comes to trading technology. This includes white-labelling of algos from the tier-1 sell-side firms and leveraging their liquidity access, particularly for customer orders in securities traded on non-Nordic venues.
While order execution is perhaps becoming commoditised, local sell-side firms differentiate themselves through deep insight into local markets and opportunities, together with a strong understanding of their customers’ trading strategies and investment needs. High touch customer service combined with efficient, cost effective execution can be a compelling competitive differentiator in Europe’s regional markets.