Our turn: Copenhagen Stock Exchange - alliance without merger

By SIMON COLLINS

After a long period of stagnation, suddenly membership of the Copenhagen Stock Exchange has almost doubled in the past two years, from 28 to 48.

Share trading jumped by 78 per cent last year, and share prices rose by 17 per cent, making Copenhagen one of the world's star performers in the year of Nasdaq's slump.

The reason? A common computerised trading system with other Scandinavian exchanges, which is helping new companies in each country to raise capital from the whole Nordic region.

The alliance appears to have brought to its members all the advantages that were sought in the proposed merger of the New Zealand and Australian exchanges a few months ago, without requiring an actual merger.

"That [merger] was not really on the agenda, because you should concentrate on where you create value for the customers," says the Copenhagen exchange's senior vice-president, Peter Belling.

"You create value by having the same trading system and the same rules and regulations.

"That's where the customer has the benefits - not from who owns the shares."

Denmark, with just 5.2 million people, has often been the first to adopt new European Union regulations, on the basis that a small country can't afford to maintain separate laws.

"We are used to adopting international standards to survive," Belling says. Adopting the same rules for the stock exchanges means that if a deal is approved by the authorities in any Nordic country, it is automatically approved in the others.

The alliance kicked off in 1998 when the Copenhagen exchange adopted the computerised trading system used in Stockholm. Norway and Iceland joined last year, and Estonia, Latvia and Lithuania have applied to join.

Thirty of Copenhagen's 48 member broking firms are now also members of the Stockholm exchange, and a growing number are members of the other exchanges, allowing them to buy and sell shares on any of the exchanges through the same computer system.

Deals can be done in any currency, with trades in Danish shares normally carried out in Danish kroner, trades in Swedish companies in Swedish kroner, and so on.

Physical trading floors disappeared as long ago as 1988, and all trading is now done over the internet, so it no longer matters where the broker is.

"The purpose was to get more international investors. Danish companies have been under-valued," Belling says.

"It was also a defensive move - the big companies were going to larger markets to create more liquidity [volume of trading in their shares]. So we said, if we could create a larger market, we could keep them here."

New Zealand Stock Exchange managing director Bill Foster says the NZSE is still keen to facilitate international trading, but was not prepared to adopt the Australian Stock Exchange's preferred model for a transtasman merger that would have simply abolished a separate New Zealand sharemarket.

He says standard interfaces are being developed and will soon provide the technology for brokers in Australia or elsewhere to buy New Zealand shares through computerised links.

The two countries have different securities laws, but Foster says: "The major difference has been the takeover code, and arguably that is not now a point of difference."

However, there are still regulatory differences. Although Australian brokers can register easily in New Zealand without needing to have offices here, New Zealand brokers cannot do the same in Australia.

In its recent paper on economic integration, the New Zealand Treasury says New Zealand needs to look at whether it would be more efficient to adopt other countries' regulations in some areas rather than to keep separate rules.

"Standards are costly to develop; there are economies of scale if we piggyback on larger units," it says. "There may be some decisions that, rather than being made by the State, could be 'borrowed' from other countries or made at an international level."

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