Nasdaq’s president of European market services talks to Global Trading about trends in the Nordic markets, how the region gets ahead with innovation and what other markets could learn from their example.
What trends are you seeing in the Nordic markets?
We’re seeing improvement in the listing picture. Our IPO pipeline looks stronger now, for the second half of this year, and also 2025, which looks promising. Both Europe and the US have been in a bit of a dip there, we’re coming out of that. We see more M&A in the market, and more companies coming to market. At the beginning of the year, we saw strong movement in bond listings and corporate bonds. Now we’re seeing IPO coming to fruition. On the retail side, in terms of trading, retail participation continues to be really high in the Nordics. The Nordics pretty much lead Europe in retail household participation in markets. On the main market, retail trading is between 5 and 12%. On Nasdaq First North market, we see around 30% on average. It really shot up especially in Copenhagen, where it is now 55%. Nordic household participation in equity markets is about two times the size of the European average. The direct investments by Swedish, Danish and Finnish households are above 30% in public markets – the European average is about 17%.
If you look at other markets around the world, we see high retail participation. The US has about 50% of its holding in public markets, also through pension and 401k schemes. Generally, higher retail participation brings diverse liquidity to the markets. It’s all about how educated investors and retail investors are about small to medium caps. The industry has done a really good job in the Nordics about educating people about new companies, bringing new companies to market. Our retail investors understand risk capital and are ready to deploy risk capital for new ventures. You can see that in the innovation scene when you look at the number of founders and founder based startups in the Nordics.
Over the past 10 years, Nasdaq European markets have become the most active SME listing market. Nasdaq First North has about 500 companies on it, and we’re attracting some Irish listings and some German listings. What London achieved with AIM in the last decade is what’s happening in the Swedish market. That is very healthy for secondary trading, and for overall economic growth.
What makes the Nordic markets appealing to international investors? How does the region differentiate itself?
The high amount of retail participation is crucial to that. There’s liquidity, transparency, high participation and diversity. For example, Nordic pension funds actively invest in domestic equities.
So in the public market, you’ve got high retail participation, institutional, and pension funds. Then there’s investment funds and private equity coming into it. There’s a diverse liquidity pool, which attracts offshore investment because there’s a lot of people participating in price discovery and price formation.
What is Nasdaq doing to support alternative liquidity access in the Nordics?
We have the main exchanges, where you can trade on the lit pools. We also have our dark pool, Nordic@Mid, which has been steadily gaining market share in the Nordics since we launched it. There’s quite a significant proportion of trading done on dark pools. Aside from that, we offer smart order routing service and dark-lit sweep functionality. We help all our investors find liquidity, whether it’s on Nasdaq lit or dark markets, or liquidity away from us. We’re using technology in our platforms to provide as much liquidity sourcing for our customers. It’s down to customer choice and competition, providing the best liquidity formation. We have very good small and medium cap liquidity along with large cap liquidity. We’ve focused on setting up liquidity for all parts of the corporates., and we’re using things like auctions and liquidity provider programmes to generate and help increase liquidity in small caps, where there may not be the same kind of participation as in the large caps. We spend a lot helping all parts of the ecosystem and all parts of the corporates, we don’t just concentrate on the top 10 or 20 names.
How is the Nordic region dealing with liquidity fragmentation?
We focus on retail participation and diverse access to capital, bringing in those overseas investors. It’s a bit of a flywheel; you get the retail, you educate the retail, you have high participation, and overseas investors like the look of the market. Looking at institutional holdings—domestic equities, pension funds, insurance companies—creating that mix of liquidity helps. It’s really important. Unlike other markets, where there may be very little retail participation or less pension funds, all aspects of those markets are encouraged. That allows us to differentiate and create a healthy ecosystem. We spend a lot of time with our constituents, the buy side and the sell side, within Sweden, Denmark and Finland, working on how we can improve the market. There’s significant investment going in there. With the IPO pipeline that we have, bringing companies to market is like bringing more product to market. Whether it’s ETPs or corporates themselves, that’s what people get excited about: being able to participate in new companies and new names. When we look at the listings, we’re number one in biotech, MedTech, and renewable energies. In a lot of those new tech segments of the European economy, we’ve got an educated, healthy risk capital that attracts those companies. It’s a flywheel from the listing side, and it helps the trading as well.
What technology trends are you seeing in the Nordics?
Using cloud and artificial intelligence is really crucial. That can give our clients, institutions and retail traders better tools to execute and find liquidity. We’re looking to give our clients better tools to find alpha or risk manage their positions, and we believe technology is key to that. Our clients are doing that as well – there are huge investments being made in artificial intelligence across the board institutionally
Are the Nordics ahead of other regions when it comes to developing and implementing technology?
I wouldn’t say that the Nordics are ahead of everyone else in the world, but I think that there is a very healthy culture of trying new things, developing them and innovating. In terms of overall innovation, I think yes. There are several components to this. There’s a founder-led culture, a lot of innovative companies coming out. There are highly skilled universities and good graduate systems, so there’s a very well trained pool of expertise. The ability to generate innovation is very strong here. We’re also able to use a US technology base and the intellectual capital and IP that we have there in tandem with Sweden to innovate.
In a Broadridge survey earlier this year, Nordic market participants were split on whether globalisation or regionalisation would dominate over the next three years. What are your expectations here?
I think it’s going to be a mixture of both. In equities, it comes down to where companies are listed and what you’re trading. In every country, certain parts of the institutions and retail will be familiar with the local names. People will choose to trade names they’re familiar with, that they’ve done the analysis for. There’s a natural tendency for that.
In equities trading, I think there’s going to be a more pan-European trading approach, and better management of that. Nordic investors are highly educated and have a global outlook. There’s regional specialisation in terms of equities trading, but I don’t think that’s necessarily fragmentation.
What should European exchanges learn from Nordic market structure? What should they implement into their models?
There’s a debate about the Capital Markets Union in Europe. In the post-trade area, there could be more consolidation and efficiencies. Centralisation and being able to put better platforms in place technology-wise is important, and we’ve done a lot of that. Across European countries, there could be a lot more incentivisation for household investments in equity markets both on the pension side and with taxation incentives. It could be something like an Investment Savings Account (ISK) system, which simplifies retail investors’ investment taxation with special rules, Building the household share of equity markets and pension funds is also really important. A lot of authors around the Capital Markets Union have stressed that.
We believe that you’ve got to have connectivity with your local markets. Whatever country you’re in, having specialisation or strength in certain parts of the economy and certain companies, will resonate with the investor. There will be specialisation across regions or other areas. How we’ve seen liquidity develop, there has to be strong resonance between markets and there has to be support for local markets.
Where do the Nordics need to improve?
It’s a European issue, but more needs to be done around the consolidation of CSDs. The US has a single CSD, DTCC, and is moving to T+1. In Europe, you’ve got at least 27 depositories underpinning pan-European markets. There are opportunities for consolidation and scaling there, which would reduce the post-trade element of transaction costs. The industry has done a lot since the onset of MiFID and EMIR to consolidate or compress pre-trade costs and clearing costs, but in terms of settlement costs and CSD costs, they remain relatively high.
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