Last October, the Nordic Growth Market (NGM) Exchange reported a turnover of around SEK7.4bn, the highest in its history. The previous monthly high was in August, 2011, when turnover was SEK6.5bn. SRP spoke to Tommy Fransson, NGM’s deputy chief executive, about the milestones at the exchange and the outlook for the Nordics’ listed products market.
What were the highlights of 2014 at NGM Exchange?
October was a record month. The market fall in the middle of the month triggered the most intensive trading ever at the exchange. When the stockmarket fell, private investors turned to the trading of exchange-traded products (ETPs) to capitalise. The trade numbers skyrocketed and trading remained at a high when the market bounced back. NGM’s segment, NDX Sweden, reported a total turnover of SEK6.4bn for October, a 38% increase on the same period in 2013. NDX Finland also posted a record high turnover of €85m, a 30% increase compared with 2013. NGM-listed equities reached a turnover of about $87m, of which NGM Equity accounted for $27m and Nordic MTF $60m. In 2014, trading in equities on the exchange increased by almost 26% against the same period in the previous year. The exchange closed 2014 with a SEK61bn turnover.
What are the reasons for NGM’s strong 2014 performance?
The main reason for the success in 2014 is the establishment of structured products as a mainstream investment in the Nordics, and also the degree of innovation which is allowing retail investors to get exposure to assets not available before. This, combined with the efforts on marketing and education from providers, has helped to grow the market so much as suggested by our results. The pool of product providers has also increased and this can only be good for the market as investors have more choice of products, counterparties, etc. The Nordics have seen banks such as Commerzbank, BNP Paribas and SG take a more visible role and this has increased competition.
How would you describe the competitive landscape in the Nordics structured products market?
We have seen new providers increasing their market share in the Nordics, but we have also seen other big names in the industry, such as RBS, leaving the market. We recently added Vontobel to our list of issuers and this shows that the interest in our market is coming from players that have been in the structured products market for many years. Providers see value in expanding to the Nordics. On balance, the market remains competitive as those withdrawing have been replaced by new arrivals.
It has taken some time to build that momentum, but we believe that structured products will play a very important role in helping investors to reach their goals. Providers have worked hard to build their product ranges and we continue to support the knowledge and education around these products while providing the infrastructure for investors to trade on a transparent and efficient platform. At the end of the day, the decision to invest in a structured product via the exchange is for the end client, but our results show that investors are increasingly using structured products. This shows they feel comfortable with the level of information available. We expect the market to continue growing in 2015.
Do you think the market has overcome the issues that put structured products in a bad light?
As in other markets. creators have addressed many of the issues that put the structured products market in a bad light after the 2008 financial crisis. We only provide a platform, which we believe is the best way to buy and sell structured products, as investors can access a transparent and independent venue with daily liquidity. The obligation we put on issuers to be accountable for the products they issue is a feature that is appreciated by investors. The infrastructure needed to be fine-tuned but once it improved the market has shown signs of steady growth.
What is the story of 2014 in the Nordics from a product perspective?
On the subscription side, we don’t have the data to assess product trends, but in the listed market we have seen that constant leverage certificates and mini futures are driving sales. Investors may have turned to these products, instead of ETFs, futures and equities, as a way to build their portfolio or execute opportunistic views of the market. These products are pretty digestible for the retail client and brokers have accepted that these products have a role to play in every investor portfolio.
We have seen regulators pushing for an on-exchange set-up for structured products, but at the same time providers are more actively in OTC to address cost. What is the situation in Sweden?
ETP providers are connected to many exchanges and they also have the ability to issue products OTC. Issuers are using both markets to address their needs. There is also a huge product supply for sophisticated retail clients in the ETP segment, and this is also playing into the hands of exchanges as the range of products offered on our platforms is very comprehensive, with close to 9000 products.
Why are ETFs not getting the same traction as other listed products? Do you have any plans around this wrapper?
ETFs have not had so much traction lately in Sweden and the Nordics in general. Initially, ETFs were listed and sold via Xact, and later others followed, but now some of the providers have retreated from the market. The foreign active issuer of listed ETFs in Sweden is Deutsche Bank. The ETF market has not developed in the Nordics at the same speed as some other European markets.
In the Nordics, ETFs have had their fair share of coverage by journalists, much more than ETNs, but far less than mutual funds. This is a bit of a contradiction because these products offer a very viable alternative to traditional funds. I think eventually those Swedish investors using mutual funds will eventually use ETFs when building their portfolios.