ETN's - The next growth market
There is a rising interest for certificates/ETNs, Exchange Traded Notes. The latest trade statistics from Nasdaq OMX shows that 325 ETNs are listed in Copenhagen, while in Stockholm they can choose between no less than 885 products. However, a new pricing may change that picture.
“There is a growing interest in certificates/ETNs and this type of product is definitely an opportunity for the Danish market. The new pricing will have a positive impact and we look forward to be part of this increasing market,” says Martin Gros Pedersen, Head of IP Sales & Distribution DK, Nordea.
A successful issue of certificates/ETNs requires effective distribution to the market. Experience also shows that a need can rapidly arise for the issue of new certificates/ETNs. Those facts have of course been taken into consideration when VP SECURITIES modified the services related to certificates/ETNs.
"The market participants are eager to experience an increase in issuance of new ETNs in order to get the market growing. Therefore, we have created a new Certificates/ETNs service, with a comparative low life cycle cost," says Chief Commercial Officer Birger Schmidt, VP SECURITIES.
VP has designed the service, so that the creation and closure of certificates/ETNs are executed at a relatively low cost. This pricing policy will support issuers’ interest in this type of product and have a positive impact on the market for ETNs. On the other hand, transaction costs are marginally higher, however not to such an extent, that it will have a negative influence on distribution.
"The change in pricing with low overheads and a modest increment of the transaction costs is the right measure to support the market and thereby achieving greater interest in the product. And the modest increase in transactional cost will not discourage participants who want to trade this type of securities," says Martin Gros Pedersen, Nordea.
The enhanced pricing of certificates/ETNs services is only a first step in the creation of a prosperous Danish market for this type of products. Next year VP SECURITIES will perform several system changes, which will make it even easier for issuers to manage the life cycle of certificates/ETNs.
According to Nasdaq OMX an ETN is a certificate issued by a bank. An ETN mirrors the return of assets such as stocks, bonds, futures, commodities, currencies or combinations thereof. They have long maturity and symmetric return and they can be leveraged and/or inverse.
In the first six months of 2016 in Copenhagen, the total turnover excluding OTC in Exchange Traded Notes reached DKK 5.5 billion. The corresponding turnover in Sweden exceeded SEK 14 billion. The daily number of trades are also significantly higher in Sweden where the average ETN is traded three times per day. Today Denmark on average trade these products one and a half times per day.
ETN Total turnover in Copenhagen excluding OTC
- 2013 1.5 billion DKK
- 2014 5.0 billion DKK
- 2015 9.6 billion DKK