The strong growth in the Nordic equities markets, and Danish market in particular, is creating ample opportunities for derivatives market participants who can take advantage of the strong start to the IPO season in these markets. DerivSource’s Julia Schieffer quizzed Lauri Rosendahl, SVP, European Equities and Equity Derivatives, Global Trading and Market Services at Nasdaq OMX Group for a quick view.
Q. Why has the Danish market had resurgence in activity this year and how is this impacting the derivatives market?
A. The Nordic equities markets in general had a very strong start to the year. In the Danish market, the listing of Large Cap ISS on the Copenhagen exchange in March 2014 contributed to growth in equity trading. This resurgence in activity and growing interest in the likes of Novo Nordisk, Danske Bank and Vestas Wind Systems is now spilling over into derivatives. Single stock options in particular are gaining momentum.
Q. Just how much growth has there been?
A. Trading in Danish single stock options has grown significantly in 2014. The average number of single stock options contracts grew to 96,927 per month in Q1 2014 and remained high at 64,222.67 per month in Q2 2014. This is compared to a historical median of 25,519.50 per month.
This growth in Danish single stock options looks set to continue, as indicated by the development in end-of-month open interest. This stood at 123,569 contracts in May 2014, up from 45,829 in May 2013.
Non-Nordic members account for a large portion of this derivatives activity. Based on pure client flow, non-Nordic members accounted for 22,630 contracts in June 2014 compared to 9,416 for Nordic members.
Q. What new opportunities does this growth present the derivatives market and specifically non-Nordic derivatives traders and banks?
A. Non-Nordic members have already proved to be particularly active in this market, capitalising on the potential in single stock options. As the market now grows and liquidity improves, we expect to see growing interest also from local institutional investors. We also expect market participants to take advantage of further opportunities stemming from a strong IPO pipeline, including new futures and options contracts on the ISS share.
Q. Given the growth so far in 2014, what do you expect to happen in the second half of the year?
A. While single stock options have already started to perform well, trading of Danish index futures has not yet reached its full potential. It is surprising that portfolio managers have not taken advantage of the strong development in the Danish C20 CAP index, which has been outperforming all other leading indexes in recent months. Also, hedging with futures contracts against this index is an untapped opportunity, so we could well see members and investors increase their activity in this area in the second half of this year.
Q. What should derivatives market participants take from this growth trend in the Danish market?
A. For the Danish market, it has been a long journey for equity derivatives to begin developing good liquidity and broad participation. We are confident that the market is now on a long and positive trend that will continue and that the market will serve investors – big and small, from near and far – even better in the future.
