Nasdaq’s head of Swedish sales, European equities and derivatives and SEB’s head of quantitative execution strategy talk retail trading, technology and trends with Global Trading.
What trends are you seeing in the Nordic markets?
Daniel Wendin: One obvious trend is the big growth in retail trading. That’s been around for
quite some time, and it’s continuing to be very present. We have many new players in the retail space, and also incumbent players are expanding their scope within retail trading and functionality. That’s the most dominant trend, and perhaps the most important.
Felix von Bahr: I completely agree. There are new players coming into the retail space which has been active in the Nordics for quite a long time. We have had Avanza and Nordnet, the Robinhood of the Nordic region, for 20 years now. In the last 10 years, the larger Nordic local banks like SEB have also started to put effort into their retail offering. On top of all this, new players are entering the field. There seems to be a growing appetite to join, and for good reason. It’s an exciting thing from an international perspective.
Another trend is consolidation. Two of the more vital local investment banks in Sweden, Carnegie and parts of Erik Penser joined forces about six months ago. We also had consolidation in the asset management space from Ohman Fonder and Lannebo Fonder both well known and large local players in the Nordics. I think it’s fair to speculate that there might be more coming on this.
DW: We also see that existing players tend to be able to to cooperate more than perhaps they have historically. Be it banks and brokers or retail brokers, historically there’s been a bit of reluctance to cooperate. Everyone wants to be in control of their own platform, their own flows, and so forth. But I do see a trend of more consultation on that part as well, which makes sense. Some players are too small and could benefit from cooperating.
Why is retail investment so strong in the Nordic region?
FvB: There are a number of reasons. The Swedes especially have a long history of equity
culture. It started in the early 80s with incentives from the government to save in mutual funds. I think that opened the gates for most Swedes to start private equity savings accounts or savings in mutual funds, and also to some extent in shares. Sweden has been tech savvy for a long time, they were very quick with the Internet. The first internet brokers appeared very early in Sweden, far ahead of many others.
There’s a long culture of education with the Shareholders’ Association. The Swedish Young Shareholders Association is the second largest in the world. The largest one is India—and they have a slightly larger population. It’s a token of this culture. That’s what you see in how Swedes interact with information around equities, and what stocks to buy. On top of this, the banks and the Internet brokers really helped with all this. There has been very low commission, good information; it’s easy to trade and interact, both through apps and home pages.
Then we have the investment savings account, a special account for equity savings or investments introduced in 2012. It has a low flat tax and you don’t need to report every holding to the tax authorities. Sweden was amongst the first in the world to introduce this kind of account, and I think it was a real boost to the retail markets. Norway, Finland and Denmark have all tried to copy this concept in the last 10 years with pretty good results, but I think the Swedish version is still the most generous model. The government today is discussing making the first 300,000 Swedish kronor completely tax free in these ISK accounts. Again, they’re trying to incentivise people to have savings and investments.
DW: You also have the Swedish pension system, which invests a lot of money in equities. Everyone in Sweden is exposed to equities in a passive way, which I think creates interest because it matters for all of us how the equity markets develop.
FvB: There’s also a part of the pension system called PPM, where people can choose which mutual funds to invest in. That has also boosted interest. You get an envelope every year with a summary of your equity choices for mutual funds and how they have performed.
How does Nordic financial services culture differ from other European and international jurisdictions?
DW: There has been more interest in small and mid cap stocks from a retail perspective. Many retail investors follow really small companies, invest in them, try to analyse the market. Retail has been driving the small and mid cap markets. That’s a bit different in the Nordics when compared to other European countries.
FvB: Denmark has a more of a classic fixed income culture, where you save in bonds or a savings account.
When the pandemic hit, and everyone was talking about the huge retail participation, especially in the US –from a Swedish perspective, we were a bit surprised. For us, it was nothing new that retail is a very big factor in trading and in volumes. That’s one key reason that we have such a high number of listings and IPOs in the Nordics, and especially in Sweden: we have investors who are ready to invest in very small companies, mainly retail and smaller institutions. In Germany, for example, it is more common for larger IPOs to attract investors, but in Sweden you can be a very small company. It comes with a high risk, but it’s also a way of democratising investing. Everyone can invest in smaller, upcoming companies.
What is driving international investors to the Nordics?
DW: If you look back a few years, it was very much driven by the large number of IPOs in the Nordic markets. That attracted a lot of international interest.
FvB: Credit Suisse has done a study where they look at annualised average returns of all stock markets in the world, starting in the 1960s. The Nordic countries are all in the top of this study, with Sweden, Denmark and Finland having the highest and second highest and third highest returns between 1966 and 2023. In the long term, investing in the Nordic region has given great returns.
Another reason is the companies that we have and the way the Nordic region fosters entrepreneurship and new companies.
FvB: The Nordic region tends to have companies from many different types of business. It will be interesting to see what the next trend will be.
How is the region approaching the issue of liquidity fragmentation?
DW: To some extent, the Nordic region has not had a clear approach to regulation. It’s been more of an ‘adapt and see what happens’ tactic, to some extent. Over the years, we have learned to take a more active approach in terms of providing feedback to regulation and making sure that certain regulations don’t impact the market structure that we have. We’ll see some evidence of that in the upcoming MiFID II review, I think, where we have certain pieces of regulation that are quite specific for Nordic markets and Nordic market structure.
We’re becoming more active in terms of providing feedback to regulators and trying to steer regulation a bit more. If you go back, the reason for that is Brexit. Historically, the Nordic countries have cooperated a lot with the UK in terms of regulation – now we have to find new ways to attack that problem.
What new technology are you seeing being introduced in the Nordic region? How does implementation differ in the Nordics compared to other jurisdictions?
DW: Technology development in this region for equity trading is very much driven by financial services as a whole. Things like open banking, making transactions smoother and opening up for integration between different participants have definitely been trends. We see a lot of interest in more robotic advisors and robotic investments, which has been going on for some time.
FvB: From a trading perspective, the Nordics are perhaps not ahead of every one else, but we’re not lagging behind either. We’re amongst the first, but not the first. If we look at technology and innovation in general there is also a successful founder culture that has created many innovations and companies that are now global players.
DW: In terms of trading functionality, both on the exchanges, but also towards professional investors and retail investors, the region is pretty much in line with what we see across markets in general.
The Nordic financial markets tend to try to be more user friendly in their approach. Some entrants in the market and also existing ones are working a lot with user experience, making it easier to invest and to follow your investments. That’s very likely to continue.
FvB: The Nordic region’s ability to generate innovation is very strong. Cloud and artificial intelligence are top of everyone’s agenda, everyone’s trying to figure out exactly how to use them, what the best practices are. That is definitely at the core of all the technology discussions at the moment.
DW: It’s being discussed a lot, but do we see any clear outcomes? Both in the Nordics and more broadly in Europe, I wouldn’t say so. It’s going to be one of those things that are suddenly just there, and we don’t realise why, or how it happened.
What are the key issues in the region that need to be solved?
DW: The biggest issue is not specific to the Nordic regions, but for Europe in general: how to attract more liquidity to equity markets. Comparing Europe to the US and Asia, Europe is lagging behind. All in this industry suffer from the lack of growth within equity. We need to find out what can be done to incentivise that. We’re all fighting for a smaller pie, especially in comparison to the US.
What are your predictions for the Nordic markets over the next five years?
DW: The regulation trend is likely to continue, there’s a lot of IT security regulation coming up. This will impact the financial markets to a great extent in terms of what we need to do to be compliant.
FvB: I think Sweden will continue to perform very well from a global perspective, both in terms of listings, returns, equity markets, and retail participation. These are things that the European Union is very focused on at the moment. I see no reason for that to start declining. Nordic market participants have realised that we have something very unique here, and that we need to take care of that and make sure we develop it carefully.
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