By Peter Utterström and Per Berglöf

According to the most recent statistics 16 foreign companies with a yearend market value of SEK 63 billion (£5bn) are registered on the three different lists organized by the Stockholm Stock Exchange. Nokia, the telecommunication giant, is traded in far greater annual volumes at the exchange in Stockholm than in its home market, the Helsinki Stock Exchange in Finland. The total trading volume in 1997 of the foreign companies amounts to approximately SEK 132 billion (£10,5bn) or only 40 billion (£3,2bn) less than the total trading volume in 1992. What made this possible? Mr. Lars Bredin, the new CEO of the Stockholm Stock Exchange, made the following points:

  • The Stockholm Stock Exchange and the Swedish OM Derivative Exchange will finalise the merge and create a new powerful market combination. Stockholm Stock Exchange is the 7th largest European stock exchange by turnover, while OM is the 3rd largest equity derivatives exchange.
  • The Stockholm Stock Exchange and Copenhagen Stock Exchange will create a single stock market in 1998-99 based on the new trading platform "SAX2000". This will open ¾ of the Scandinavian markets for "one stop shopping" through the joint members. Other exchanges are invited to join and share the same electronic trading platform.
  • Systems and routines will be adapted to allow euro denominated trading of blue chip stocks from the start of the EMU by January 1999.

So, what happened and which are the general rules regarding this very active exchange on the outskirts of the European Union. Evidently, the Stockholm Stock Exchange has grown rapidly to become the largest in the region and one of the important exchanges in Europe.

Allthough its origin dates back to 1778, the exchange is anything but old. Here are some of the important years and events of modern times:

In 1992 the exchange´s monopoly was abolished; in 1993 the exchange was converted into a limited liability company, an "Aktiebolag" or AB - Stockholms Fondbörs AB – owned by the companies on its lists. In 1998 the exchange merged with the Swedish derivatives exchange group, OM, and also signed an agreement with its "sister" exchange in Copenhagen establishing a common Nordic securities market, Nordic Exchanges - NOREX. Equally important, the tools for trading at the exchange have continously been updated. Today all trading is fully computerized and is linked to all financial markets of the world. Since 1990 all stocks have been traded through the use of SAX – Stockholm Automated eXchange; and in 1991, SOX (Stockholm Bond Exchange) was introduced. Possibly most important for this rapid development has been the fact that the UK Treasury in 1995 – after the introduction of a new Registration Agreement - recognized the exchange as a Recognized Overseas Investment Exchange.

Trading wise, the development has been equally impressive – in 1992 the share trading volume reached a record high of SEK 172 billion. Only two years later, in 1994, equity trading reached a record high of SEK 659 billion, and the shares of 40 new companies were introduced for trading on the exchange, six new members were admitted as brokers of which three were foreign and traded electronically via the SAX system. In 1995 the trading reached a new high of SEK 918 billion. 1997 was staggering; while share trading volumes increased by 47 % to SEK 1,345 billion (or ECU 155 billion) the shares of 52 new companies were introduced to be traded on the lists and seven new members, including Morgan Stanley and Merrill Lynch, were admitted as brokers to the exchange.

Trading Development of the Stockholm Stock Exchange

Against this background the following slightly more technical information can be of interest to some of the IHL readers. More detailed information about the Stockholm Stock Exchange can be found on the Internet (http://www.xsse.se/) where it is also possible to get a complete copy of the Registration Agreement.

The basic listing requirements

In order to create conditions for proper trading on the Exchange, the Stockholm Stock Exchange establishes certain fundamental requirements for companies that apply for listing on the Exchange. These requirements vary depending upon which list is applied for. The Stock Exchange has three lists: the A-list, the OTC-list, and the O-list.

The A-list

The larger companies are listed on the A-list. In this context, large is a combination of actual financial size of the company, trading volume and number of shareholders.

The company must:

  • have at least three years verifiable history, i.e. the principal aspects of the present business must have been in operation for three years;
  • the company must be able to present accounting records with respect to those years;
  • possess documented profit earning capacity;
  • meet the requirements of the Stockholm Stock Exchange concerning management, composition of the board of directors, financial controls and the ability to provide information to the stock market;
  • have at least 2,000 shareholders, each of whom owns shares corresponding in value to at least one unit of trading (one-half of the statutory base amount – today appr. SEK 17.000);
  • possess an ownership structure under which at least 25% of the shares in the company and 10% of the votes are owned by the general public. Ownership by the general public means direct or indirect ownership of less than 10% of the share capital or the voting rights;
  • have a market value of not less than SEK 300 million;
  • prepare a listing prospectus. The company is exempted from this requirement if it has been listed for two years on the OTC- or O-list.

The OTC-list

The OTC-list is intended for smaller and medium-sized companies – often closely-held and where the former owner continous to hold a controlling interest voting wise.

The company must:

  • have at least three years verifiable history, i.e. the principal aspects of the present business must have been in operation for three years and the company must be able to present accounting records with respect to those years;
  • possess documented profit earning capacity;
  • meet the requirements of the Stockholm Stock Exchange concerning management, composition of the board of directors, financial controls and ability to provide information to the stock market;
  • have at least 500 shareholders, each of whom owns shares corresponding in value to not less than one unit of trading (one-quarter of the statutory base amount);
  • possess an ownership structure under which at least 25% of the shares in the company and 10% of the votes are owned by the general public. Ownership by the general public means direct or indirect ownership of less than 10% of the share capital or the voting rights;
  • have a market value of not less than SEK 50 million;
  • prepare a listing prospectus. The company is exempted from this requirement if it has been listed for two years on the O-list or has been moved from the A-list.

The O-list

The O-list is intended for other companies, e.g. companies that lack the requisite operating history for listing on the A- or OTC-list. Companies which intend to apply for listing on the A-list within a limited period of time (normally one year) and for which the Stock Exchange concludes that such application will be granted, are listed in a separate pending section of the O-list.

The company must:

  • meet the requirements of the Stockholm Stock Exchange concerning management, composition of the board of directors, financial controls and ability to provide information to the stock market;
  • have at least 300 shareholders each of whom owns shares corresponding in value to not less than one unit of trading (one-quarter of the statutory base amount);
  • possess an ownership structure under which at least 10% of the shares in the company and 10% of the votes are owned by the general public. Ownership by the general public means direct or indirect ownership of less than 10% of the share capital or the voting rights;
  • prepare a listing prospectus. The company is exempted from such requirement if the company has been moved from the A- or OTC-list.

For all these lists, it is required that the company also enter into a registration or listing agreement with the Stock Exchange. The above stated agreement specifies the requirements in respect to disclosure of information to the Stock Exchange and the stock market. As indicated above the listing agreement can be obtained by use of the Internet.

Foreign companies

The above stated requirements apply to foreign companies in conjunction with a primary listing. Foreign companies with shares registered on foreign exchanges can, however, obtain a secondary listing, which means that the Stock Exchange, in principle, accepts the listing requirements of the company's country of origin.

The listing process - applying for listing on the Exchange

At the initial meeting, representatives of the Stock Exchange and the applicant company meet in order to establish a relationship and to discuss the listing process. In this context it is, of course, advisable to work with the corporate finance department of a member of the exchange as well as a well-reputed law firm. The meeting normally results in the appointment of an examiner who carries out an examination, which forms the basis for the decision of the Stock Exchange's listing committee regarding registration/listing. The purpose of the examination is to determine the company's financial position, liquidity, profitability and circumstances related to accounting and information issues as well as the general suitability of the board of directors and the management.

The examination and the processing of the company's application by the Stock Exchange are carried out simultaneously with the company's preparation of a prospectus and its preparation for listing on the market. The establishment of early contacts with the Stock Exchange facilitates speedy processing.

The prospectus is the most important document for a market listing. Where the company is applying for the A-list, the prospectus must be formally approved by the Stock Exchange. With regard to the OTC- and O-lists, it is instead the Financial Supervisory Authority which is charged with registration and, where applicable, approving the prospectus. Comments by the Stock Exchange are, however, provided in both cases.

The Application

Documents, which are appended to the application for registration/listing, are:

  • An application signed by the board of directors or the managing director supported by an excerpt from the minutes of a meeting of the board of directors at which the resolution to apply was adopted;
  • the Exchange prospectus/listing prospectus; and
  • evidence of when and where the prospectus was made public. Where the prospectus is registered with the Financial Supervisory Authority, the decision of the authority shall be attached;
  • Articles of Association and the Certificate of registration from the Patent and Registration Office including information regarding the share capital.
  • allotment certification (which sets forth the number of shareholders with not less than one board lot and which certifies the percentage of shares and share capital which is held by the general public);
  • annual reports and audit reports for the preceding three years;
  • prospectuses issued during the past three years.
  • interim reports issued after the most recent annual report
  • any supplementary documentation
  • Dissemination of information to the Stock Market

It is in the interest of the Stockholm Stock Exchange, listed companies, and investors that the information provided regarding a company is satisfactory. The obligation to provide information is governed by the registration agreement/listing agreement and is intended to serve the following purposes.

Through such information, investors should be able to form an opinion regarding the company's financial situation and thereby obtain the necessary information for an accurate evaluation of the company's stock. This information must, therefore, be public, be provided quickly and concurrently, and must be accurate and clear. The Stock Exchange requires the same information in order to be able to supervise trading and the setting of prices and to ensure that trading takes place in accordance with the law and customary practices on securities markets. Information that is made public shall, therefore, also be provided separately to the Stock Exchange.

Apart from the obligatory provision of information to the Stock Exchange, the possibility always exists of informally and confidentially discussing a planned disclosure of information with the Stock Exchange. Information that is provided in such a context may not be disclosed by the Stock Exchange. Listed companies have an obvious interest in accurate price setting and effective exchange trading. This is achieved through complete and periodic reporting and separate information where significant events occur. On a long-term basis, accurate price setting and minimized fluctuations in prices are of great significance for investors and therefore for the company's opportunity of acquiring new equity and of achieving the lowest possible capital costs.

The registration agreement (A-list) and the listing agreement (OTC- and O-list) are private agreements between the Stock Exchange and the listed companies. The agreements have been prepared in negotiations between the Stock Exchange and Aktiemarknadsbolagens Förening (the Association of Stock Market Companies).

Conclusion

As is evidenced by the above the development of the trading both in the number of companies traded and the volume has been staggering. The recent merger with the derivates market, OM, and the joint venture with the Copenhagen Stock Exchange may result in the two to take a lead of the North European financial markets. This development is likely to attract even more companies and investors to these markets.

The clouds on the horizon are, as always, the general economic development in the world – what will the effects of the crisis in Asia ultimately be, and will the EMU and the new currency succeed? Will the decision by Sweden (and Denmark) to stay out of the EMU (at least for the next few years) affect the Scandinavian trading markets negatively? Another very local Swedish factor which may prove negative is the accepted difference in voting rights of Swedish companies – this way a single shareholder can effectively control a company on the exchange with just a very limited investment. Most recently, the Swedish investors experienced the negative effect of this regime by the raid made by Lord Moyne on Trustor. However, most important for the development of the financial markets is the economic development in Scandinavia and Europe – to some extent this will depend on the success of the EMU and the Euro. Still, as compared to the US market one does not need to be too optimistic in this regard.

These are some of the risk factors to the exchange and its possibilities to maintain a dominance in the Nordic area. However, looking back to the first six month of 1998 these negative thoughts seems marginal - the Stockholm Stock Exchange has outperformed most exchanges in the key financial markets of the world also this period.

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