Burgundy.se

How has the summer volumes been?
Olof: Coming back from holidays I was surprised to notice the low activity in Nordic equities (including OTC and the MTF’s) – down almost 50% over three months. Even though volume is seasonally  low over summer, you would think that the positive reports would have a more positive effect on the volumes.  

Why do we see this development?
Olof: There are several reasons for this according to buy- and sell-side participants I have spoken to recently:

• tick size reduction has reduced the incentive for on-exchange liquidity provisioning – the tightened spreads are useful only to retail investors.
• indexation of long-only accounts – more fund managers reduce the active part of the portfolio which leads to smaller trading volumes.
• traditional traders and market-makers are reducing risk or shutting down due to lack of profitability or funding.
• credit and margin terms for market-makers and professional traders have deteriorated .

What else is happening in the Nordics?
Olof: With the introduction of MIFID, we now have a fragmented Nordic landscape where the traditional exchanges are losing market share to new execution venues. Clients have gotten more and more educated and are now better equipped to do their execution business themselves rather than working an order through a broker. The sell-side industry in the Nordics are now struggling to adapt to the new world with multi-venue execution capability in a shrinking market. Nordic banks and securities trading firms have been busy with the exchanges technology projects the last couple of years and are now dealing with the fragmentation a bit later than European competitors.   

What do you think this will lead to?
Olof: Looking at the UK experience, smaller firms give up the in-house technology race by outsourcing to larger providers and concentrate on value-added services. If the dismal trading volumes persist, I predict that we will enter into a classic consolidation phase already during the fall where there will be winners and losers. There are at least two obvious beneficiaries here; the new automated/algorithmic trading firms who specialize in electronic trading and market-making; and the larger firms who can offer their platform to competitors – leading to increased income without incurring additional cost.  Stay tuned for the next phase of market development! 

As Burgundy now offers trading in Nordic small cap stocks, the lack of consolidated time and sales data to retail investors is more apparent than ever. Surprisingly few end investors seem to be aware that fragmentation in the Nordics is at record levels (40% of the market is now outside of the primary according to Fidessa), but traditional sources of price information such as newspapers, financial market websites and Teletext services are still pegged to the primary market. This is of course completely unacceptable and we have together with Aktietorget and the Swedish Shareholders’ Association started a working group to lobby media and information vendors to find a pragmatic solution. Although the well-publicized MIFID review is now under way, we do not see why retail investors should wait for political action. Our sophisticated and active Nordic investor community is hungry for timely and correct share trading information now – not in two years time.

I can see that you are trading in NGM-shares now – for how long have you done that?
Olof: We started to offer trading in NGM shares in February, which we informed the market of at that time. This is another step in our Nordic strategy to offer trading in Nordic listed shares. It is great to see that our attractive offer is competitive with lower prices for trading and that liquidity and prices are competitive and in most cases better spread in the NGM-shares. Here at Burgundy you can find Nasdaqomx, Oslo Börs, Aktietorget and NGM shares with one connection and the market data is for free!

How come that the trading in NGM shares came all of a sudden, as it seems?
Olof: The increased technological readiness of participants is crucial to stepping up trading another step; to trade NGM listed shares at Burgundy as well. Since the volumes in these shares are small you might see a greater effect. If you compare the trading volumes on the two Swedish exchanges the trading volume per day in Swedish Nasdaqomx listed shares is around 15-20 billion SEK and in NGM listed shares it is about 8 million SEK.

What we have seen during this year when we have been running Burgundy is that it has taken time for all the trading participants to get all technology set, in order to be able to trade at several market places at the same time. During the last months more and more participants have become ready with the technology and we have seen increasing volumes at Burgundy in Nasdaqomx listed shares.

Where can I find share prices?
Olof: You can find share prices with all trading participants and information suppliers as SIX Telekurs, Thomson Reuters, Bloomberg, Infront, Millistream. One can also see the quotes on our site as well.

How are the other Nordic markets doing?
Olof: During the last months we have seen some increasing volumes in Oslo listed shares and Finnish listed shares which is great. The volumes are not large yet, but it seems as if they are increasing. We have reached a new level in Norwegian instruments this week around 80 MNOK and well above 500 trades and nearly as much in Finland. In Norway we are strong in the ETF instruments, as in Sweden. It seems as we have got started there now.

How are you preparing in order to get ready for trading?
Olof: Presently, we are very busy setting up the platform together with our Trading Participants, this is a challenging task as multi-venue trading is new to most Nordic firms. We are in a position to take a quantum leap and put the Nordics in the forefront of equity trading technology again. The last time was back in the late eighties when Sweden was the first stock market to abolish floor trading.

Is the trading platform ready or are you still working with it?
Olof: We finalized the testing, which has been going on for over six months, in mid-April. Now we are assisting Vendors, Independent software developers and Trading Participants to certify their applications and get them ready for trading.

Is the surveillance system in place and ready?
Olof: Yes, we have a state-of-the art platform capable of detecting abnormal or suspicious trading activity in real-time, supported by a professional staff.

What are you in person focusing on during the days before pre-launch?
Olof: Mostly supporting our competent and energetic staff, who are working flat out in order to get clients connected in time for our May pre-launch. Everybody is really enthusiastic about the service and we have a big interest from Nordic and European firms.

Burgundy’s volume has kept up with the level from March but Burgundy’s market share in Swedish listed instruments decreased from 4.6 to 2.6 – why?
Olof: Burgundy set a new turnover record in March and reached above EUR 110 million and we are happy to see that this level stayed in April. At the same time the total value of the market increased by almost 50 percent in April. These volumes have gone mainly to Markit Boat and to LSE in systematic internalizing and OTC. 

How much of the trading went to new venues?
Olof: It was a new all-time-high of 52 percent for trading in Swedish equities outside the traditional venues – please see more in April’s statistic report regarding the market places’ market shares.

Many Burgundy watchers are asking about the activity on these reporting venues?
Olof: Although data on this is sketchy, we believe this is a seasonal activity in connection with the AGM and reporting season in April and May.  

What do you think that the increased volumes outside the exchange might lead to?
Olof: That is a big question but just in brief and in near term I guess that more people will react on this change and that we should soon be able to see consolidated figures in media and at news sites etc. Today the professional players are able to see this trading but private investors are not. The turnover figures in media represents only half of the turnover – one could ask if that is considered to be news?

What does it mean to Burgundy?
Olof: Now when MTF’s are increasing their trading volumes in general and we have around 10 percent in some of the largest instruments more securities firms are getting interested to trade here and you are also getting more attention from media etc. We will keep on working to spread our message to an even broader crowd and to get more firms to connect to Burgundy.

It seems as you have reached a new higher trading volume level, or is it just temporary?
Olof: No, it is correct. During March we have averaged on 5.5 percent market share in OMXS30.

What are the reasons behind that?
Olof: As I have said before customers are getting the technology projects in order but also when you are starting to get volumes around 10 percent in some instruments it attracts even more volumes, since you need to go where the best price is.

Is it that easy – why did they not do it before?
Olof: The customers have had several technology projects during the last year that have taken a lot of resources in both time and money. I respect that they cannot adapt to this new trading environment over night. If you look into other countries that have started to trade multi venue it has taken even longer time to adapt to the new environment. One also has to keep in mind that they are about two years ahead in London. 

How has the trading activity developed lately?

Olof: If you look at the development since December we have seen quite an increase in trading volumes and market shares. The market share in OMX S30 has gone from 1.39% the last week of December to 3.98% last week (the first week of March).

Is it a general increase or is it in some specific instruments?

Olof: The increase has especially been strong in the OMX S30 shares, especially in some of the largest ones; Ericsson B has gone from 0.85% last week of December to 3.55% first week of March. H&M from 1.1% to 5.39% and Boliden from 0.85% to 6.16% for the same period. You can see similar development in several other instruments as well.

What is the reason for the change?

Olof: Existing customers have increased their trading in general. Many of them are starting to get their technology in order which leads to increased volumes.

What is happening on the market?
Olof: The financial markets in the Nordic countries are changing due to increased competition between exchanges and new trading platforms such as Burgundy. The fragmentation on the market is a fact and Nordic equities are now traded outside the stock exchanges. We have seen that the fragmentation has been quite dramatic, with approximately 28 percent* of trading in Nordic equities are now taking place outside of the listing exchanges.

What becomes important then?
Olof: It is significant that market data vendors supply information from all relevant marketplaces where e.g. Burgundy is one of the new ones. This is important so that the listed companies, the media etc keep in mind that they should present numbers from all marketplaces. This can be done by requesting that your information vendor include Burgundy and other MTFs in their statistics. This is important to consider when providing share information in annual reports, quarterly reports or on websites and elsewhere.

What else can happen?
Olof: That one comes to the wrong conclusions, such that trading in a company’s share is significantly reduced, while in fact the liquidity just has moved. The turnover in a stock is an important factor when evaluating an investment. Another thing is that if you do not have the full picture from all marketplaces you risk not obtaining the best price.
When some 28 percent of trading in Nordic equities is taking place on marketplaces other than the listing exchanges, companies with a fragmented share could miss a substantial part of their trading volume.

Am I as investor affected by this?
Olof: The stock market lists that are shown in the papers today may not show correct volume, high and low price. This can lead to wrong conclusions as demonstrated in an article during the fall where one share was described as having lost significant volume, but in fact the trading had moved away from the primary exchange to other marketplaces, including Burgundy. If you are a fan of technical analysis you should be aware that you are not looking at all trading in a particular stock. We at Burgundy are regularly meeting with the editors of media to make them aware of these important issues.

Do you have any ideas of interesting web pages or similar that brings up news about the MTF industry?
Olof: Fidessa’s Steve Grob, writes really interesting articles about the fragmentation, the last one was ”MiFID hits main street”

I definitely think all of you should read this article.Any other interesting views?Olof: Talking about Fidessa – if you have not done it you should try their Fragulator-tool that show you the volumes in different indices and instruments, watch for instance Volvo or TeliaSonera.

Any news for this week?
Olof: Today we launched trading in five Norwegian shares, StatoilHydro, Yara, REC, Seadrill and Telenor.

Were there any trades?
Olof: Trading took off almost immediately and we saw action mainly in StatoilHydro which is the most frequently traded stock in Oslo.

What are the differences and similarities compared to the launches in Sweden and Denmark?
Olof: This third launch is a bit different since the Oslo community preferred to start with a some of the most traded shares, as opposed to Sweden and Denmark. We also see similar technical challenges with clients in the early stages of adopting new technology with Smart Order Routing, enabling them to offer clients the increased liquidity by  sourcing from multiple venues.

It has been really low trading volumes, are you worried?
Olof: No, it has been as I anticipated before we started, even more some days. I expect trading volumes to progress in June when trading participants have had a change to fine-tune their applications and ensure that the whole STP chain works as planned!