The Norwegian stock exchange, Oslo Børs, is rapidly changing to meet the needs of its local and international clients and an increasingly competitive financial market. The exchange just announced a preliminary agreement for a strategic partnership with the London Stock Exchange Group and plans to launch a new trading system by 2010. Earlier this year, Oslo Børs’ merger with the Norwegian Central Securities Depository (VPS) became operationally complete.

New realities
The Oslo Børs has experienced tremendous growth in the last years following an unprecedented wave of initial public offerings and rising stock market values. The Norwegian government sold shares in its largest companies, oil giant Statoil, telecom group Telenor and banking group DnB, helping quadruple the total market value of all listed companies to NOK 2.2 trillion from 1998-2007.

But there are new realities ahead. Stock exchanges are faced with declining global stock markets, lower oil prices, economic slowdown, and tighter lending conditions world-wide. As of November 2008, the value of listed companies had more than halved to NOK 985 billion from last year. To counter these challenging times, Oslo Børs is working with measures to improve its efficiency and is committed more than ever to its role as the Norwegian exchange and the exchange for energy, shipping and seafood.

The exchange has a good vantage point. Norway remains an attractive place for investors with foreigners still accounting for about one-third of all equity ownership. The country has a stable government, high government ownership in stocks – a stabilizing factor for the markets these days – and an oil-fuelled current account surplus of NOK 362 billion. The IMD World Competitiveness Yearbook ranked Norway 11th out of 55 countries in 2008 based on economic performance, government efficiency, business efficiency and infrastructure.

London Stock Exchange Partnership
The exchange’s recently announced strategic partnership with London Stock Exchange Group (LSEG), Europe’s leading exchange business, should be a strong positioning point going forward. Under a letter of intent signed December 2008, Oslo Børs and LSEG will cooperate on market and product development and a deepening of ties between the two markets. LSEG also encompasses the Italian exchange, Borsa Italiana, and is active in the provision of derivatives, fixed income and post trade services. LSEG’s trading system TradElect is used by the Johannesburg Securities Exchange, as well as by LSE and Borsa Italiana.

“London is the financial centre of Europe. We are therefore very pleased that we both see opportunities through a strategic partnership,” said Bente A. Landsnes, Oslo Børs chief executive. “Recent years have seen very strong growth in investment interest in Norwegian companies by the international markets, and in particular by the UK market. The LSE has a sizeable network of member firms in this market, made up of about 240 investment firms with a broad geographical spread, and we believe that this network will play a positive role in creating greater investor interest in Norwegian companies and the Norwegian market.”

This partnership will gradually replace the current one with the Nordic exchanges (Stockholm, Copenhagen, Helsinki and Reykjavik) and the Baltic exchanges (Tallinn, Riga and Vilnius) through NASDAQ OMX, once the transfer to the new trading system with LSE is in place. The existing Nordic partnership dates back to 2001 when Oslo first joined together with the Stockholm Exchange (OM Gruppen). The agreement at that time was important in setting up a common trading system, rules, and methods to attract more broker members to Oslo Børs and getting more international participation. The new agreement will help broaden Oslo’s distribution network even further through LSE’s wider member network. Oslo Børs currently has 35 foreign members and 23 Norwegian. Foreign investors own about one-third of the market value of listed stocks, but account for around 70% of average daily trading volume. That is due to the fact that the Norwegian government, which also owns about one-third of listed companies, is a more passive investor.

Oslo Børs VPS
Another competitive advantage has been the recent merger between the Oslo Børs and the Norwegian Central Securities Depository (VPS), which became operationally complete in June 2008. The new group, Oslo Børs VPS, contributes to value creation in Norway by simplifying and developing the country’s infrastructure. It offers services and products that range from listed companies raising capital through to efficient trading, settlement and registration for various types of financial instruments, as well as Internet-based information solutions. Oslo Børs VPS includes subsidiaries Oslo Børs, VPS, Oslo Clearing (formerly VPS Clearing) and Oslo Market Solutions (formerly Manamind).

“In today’s markets, you need to be cost effective not only on trading, but also on the whole value chain, including post trading services,” said Lisbeth Lindberg, Oslo Børs sales and marketing director. “By joining forces, we can deliver more cost efficient services to participants. The clearing and settlement procedures are currently being examined and we are currently working to see how we can streamline our offer.”

Energy, shipping & seafood
Oslo Børs aims to be competitive on a broad range of sectors. The energy sector currently dominates the stock exchange with some 50% of market capitalization of listed companies on the Oslo Børs, comprising everything from integrated oil and gas to exploration and production, drilling, equipment and services, to storage and transportation companies. This is natural, given that the country is a major oil and gas producer, ranking as the world’s third largest gas exporting nation and fifth largest oil exporter. But the exchange is also heavy represented by shipping companies, which represent an important component of the industrial sector comprising 13% of all listed companies. Its other significant industry is seafood, part of the consumer staples sector (see graph).

“We have been marketing ourselves towards international companies operating within energy, shipping and seafood because we can offer a cluster that comprises industrial knowledge, financial know-how, experienced analysts, financial advisors, lawyers and investment audience, combined with a good distribution capacity,” said Lindberg. “By listing in Norway, companies attract global capital. There are 35 foreign brokerage houses here. US and UK investors are the dominant foreign investors and 49 of the 263 companies listed are domiciled outside Norway.”

Investor confidence
The exchange believes that transparent reporting, good investor relations and good corporate governance play key roles in creating shareholder value and building investor confidence, and therefore helps to ensure an optimal cost of capital. Its corporate government standard is in line with Europe. Even though Norway is not an EU member, all the European Union regulations regarding financial markets have been implemented into Norwegian law because of compliance with the European Economic Area (EEA).

Oslo Børs stipulates that companies listed must publish an annual statement on the company’s principles for corporate governance in accordance with the Norwegian Code of Conduct for Corporate Governance. A provisional version of the code was first published in December 2003 but was later revised in November 2007 by the Norwegian Corporate Governance Board. The board was established by nine organizations that support the code of practice: Norwegian Shareholders Association, Norwegian Institute of Public Accountants, Institutional Investor Forum, Norwegian Financial Services Association, Norwegian Society of Financial Analysts, Confederation of Norwegian Enterprises, Norwegian Association of Private Pension Funds, Oslo Børs, and Norwegian Mutual Fund Association.

The exchange also emphasizes market surveillance and has dedicated a large team to conducting real-time surveillance (see separate article). Oslo Børs is committed to providing investors, companies and brokerage firms with well functioning marketplaces where listing, capital raising, as well as long-term and short-term trading, take place on well-regulated and transparent conditions. Its wide distribution capacity safeguards a liquid market with access to both Norwegian and international capital. Through Oslo, investors worldwide are exposed to an investment universe ranging from the largest Norwegian enterprises to domestic and international companies operating within energy, shipping and seafood. The future partnership with the London Stock Exchange is expected to further enhance the attractiveness of the Oslo market.