Earlier this year, we discussed how understanding data and insights can help financial institutions capitalize on and address changing investor behaviour and market trends. In this article, we look at a very specific trend, namely the marked increase in Danish private investing during the pandemic, and how VP Securities Data Services business area can help shed light on what’s driving this trend.

A counter-intuitive market reaction

The financial markets don’t always react as we think they should. During the past six months, the world has faced a global pandemic, which has closed businesses, borders and countries on practically every continent. Daily news has been filled with images of empty airports, financial districts and shopping malls. Countries’ GDPs have fallen and many economies are on the edge of a recession, the likes of which hasn’t been seen in over a decade. And yet, in the midst of all of this economic gloom, the stock market has enjoyed a period of absolute prosperity. In March, the month that many countries shutdown in order to stop the spread of COVID-19, there was a 163% increase in Danish private investor trading[1] in comparison with 2019 levels. From March to August, the monthly average trading activity has increased by 89%, when compared to the 2019 full-year average.



VP’s Data Services decided to take a closer look at the data behind this trend. They wanted to find out:

• What’s the nature of the increased trading activity, i.e. are Danish private investors buying more, selling more or both?
• Which industries are driving this trend for private investors, i.e. what are Danish private investors buying and selling?
• How does the increased trading activity break down across gender?

Increased activity driven by buying … and selling

“If we look at the period from March to August 2020, we can see that there has been a shift in overall market activity amongst Danish private investors. In the months of March and April, trading activity was driven primarily by share purchases, whereas from May to July, it was driven by share sales,” comments Nino Ziino, Data Scientist, Issuer Products at VP.

Utilities a sought-after portfolio addition

“The most popular industries during the period from March to August have been Utilities, such as Ørsted, Finance, which includes banks and insurance companies, and Consumer Staples,” Nino Ziino observes. “Utilities is the only industry with a monthly net buying activity during the entire six-month period, whereas Finance had a net buy in every month except July.”



Utilities also accounts for the largest increase amongst female investors, who have increased their holdings by 9%. For male investors, the financial sector constituted the largest increase, with investors purchasing what corresponds to 6% of their holdings, where the percentage refers to the average monthly market value held by investors in the specific industry.

Energy and Health Care popular divestments

“The industries with the most shares sold during this period include Energy, Consumer Discretionary, which includes companies like Matas and Tivoli, and Health Care,” Nino Ziino says. For all Danish private investors, the largest selling activity has been in the Energy sector, where female investors have sold for what corresponds to 6% of their holdings, and male investors have sold 11%. Again, the percentages refer to the average monthly market value held by the investors in the specific industry.



“In Health Care, the percentage-wise decrease (0.5% for female and 1.5% for male) is lower compared to Energy, for example. However, this is mainly due to the large volume investors hold, which is on average between 50-60% of the total equity holdings,” Nino Ziino explains. "Yet when you look at it in terms of absolute net selling, the Health Care sector has been the main net selling contributor from March to June, for both male and female investors.”



A more detailed breakdown of the trading activity can be seen in the graphs below:

Giving financial institutions insight into market trends

According to Bjørn Crepaz, Head of Issuer Products at VP, it’s these types of insights that make data such an interesting commodity for financial institutions. “Financial institutions typically only have their own picture of which industries and sectors interest private investors. At VP, however, we have a more complete overview of the Danish market distribution across a wide range of demographics, such as age and geography. This enables us to, for example, create customised benchmarks for these institutions, which might shed light on their market position and performance in relation to the overall investor landscape.”



To find out more about this and similar trend reports available to VP customers, contact Bjørn Crepaz.

Read also “Meeting our customers’ needs for trustworthy data” published earlier this year.

 

Notes:

1. The terms “trade/trading” have been used in this article for simplicity. VP processes trade settlements, which correspond to the underlying trades. However, several trades might be “bundled” before VP receives them and hence some degree of detail might be lost. However, in the case of Danish private investors, this loss of detail is expected to play a rather insignificant role.
   
   The term “trading activity” is defined as the average between the number of buying and selling settlement instructions processed at VP.
2. This analysis is based solely on Danish private investors, and only includes investments in shares registered within VP Securities. The primary focus of the analysis is shares traded on NASDAQ, as their categorisation forms the basis for the sector categories used in the analysis.

Sparinvest partners with Euronext Securities Copenhagen to launch retail investment solution.

Investeringskonto FRI, Sparinvest’s retail investment platform, enables financial institutions of all sizes to offer their customers an easy, flexible investment solution.

Based on Euronext Securities FundHub platform, Investeringskonto FRI offers private investors a new type of investment account, where they can deposit and withdraw money in the same way as they would with a regular investment account.

Meeting demands for a retail investment platform

According to Jacob Snedker, Head of Sparinvest Services, there was a real appetite in the market for a simple, transparent way for retail customers to invest in the capital markets. “We launched a pension investment platform in the spring of 2016. And already by the fall, we were bombarded with requests for a similar solution for retail investments.”



Sparinvest spent the next three years trying to identify the right solution for meeting this market demand. “Building this type of system from the ground up is incredibly complicated,” says Lars Højberg, who was project manager and the platform’s co-inventor. “By the time we contacted Euronext Securities Copenhagen, we knew how we wanted to handle the retail investment side, but we needed a CSD to handle the order routing, issuance and payment settlement part of the process.”

Using the existing market infrastructure reduces costs and risk

In January 2020, Sparinvest met with Euronext Securities Copenhagen to see if they could provide the platform Sparinvest was looking for. “The main question Sparinvest needed to answer was whether to use the existing infrastructure for routing and payment settlement, or to build a process that ran independent of the existing infrastructure,” says Bjørn Crepaz, Head of Issuance & Issuer Services at Euronext Securities. “Reusing the existing infrastructure provides two concrete advantages. First, you reduce marginal costs, and second, you take a considerable amount of risk out of the project, because you’re integrated with the existing infrastructure.”

Creating a process to support retail transactions

Through a series of workshops, Sparinvest and Euronext Securities Copenhagen identified ways they could adapt the existing FundHub platform to match Sparinvest’s specific needs. Together, they designed a model where Sparinvest places a daily bulk order encompassing each financial institutions’ orders for that day in the system, thus minimising transaction costs. And as FundHub supports six decimal places instead of the usual five common in normal clearing systems, the system can be used for investment orders in cash amounts instead of only full units and still accurately give the investor the number of units corresponding to the invested amount with no cash remainders.



Both parties name flexibility and thinking outside the box as key success factors. “Sparinvest was really good at thinking creatively and in that way, they were able to find a model that works well,” Bjørn Crepaz says. Lars Højberg adds, “Even though some of the changes might have seemed infeasible at the outset, Euronext Securities Copenhagen was really responsive and willing to adjust their processes, so they could make the changes we needed quickly and securely.”

Empowering local financial institutions to offer a retail investment solution

After several hectic months of building up processes and onboarding financial institutions, Investeringskonto FRI went live with the first transaction on 8 June 2021. One of the first local banks to offer the Investeringskonto FRI solution to its customers was Andelskassen. “It’s been a good, exciting process to be one of the first to participate in the development of an entirely new way of investing – one which our customers have really embraced,” says Robert Krogh Lauridsen, Director of Wealth and Investment.



And it’s not just customers who’ve benefitted from the retail investment solution. The platform has given Andelkassen’s financial advisors confidence as well. “It’s been a bit of a gamechanger for us in the investment arena. Before, investment banking could be a bit intimidating for advisors because the advising aspect covers so many areas, and it can be challenging to convey those to customers. Investeringskonto FRI gives our advisors peace of mind, and the solution is built in a way that it’s easy and flexible for both our customers and advisors via the data centre infrastructure we have in place.”



Creating a solution like Investeringskonto FRI means that local and regional banks can offer their customers a retail investment solution, despite their relatively small size. “We would never have been able to develop this type of product on our own, which is why we’re happy that Sparinvest has an innovative approach and wants to be the preferred partner for financial institutions like us,” Robert Krogh Lauridsen says.



Jacob Snedker also highlights how this platform benefits the parties involved, and the market. “Clearly, this underpins our ambition to deliver top-notch, scalable investment solutions to our partners in Denmark. Investeringskonto FRI enables them to stay at the forefront by offering an easily understandable and easily accessible investment concept to their clients. In that respect, it’s significant that we can deliver a solution to local banks, which enables them to activate capital that was previously dormant.”

A platform with tremendous potential

Fast forward one year and Investeringskonto FRI has been quite a success, and Jacob Snedker sees ample evidence that the trend will continue. “We currently have 10,500 accounts, and we haven’t even on-boarded the largest banks yet. So, we’re only just beginning to realise this platform’s potential.” He believes that the potential will be unlocked, even though the current investment climate is not the same as it was a year ago. “When we first launched the platform, most financial institutions had instituted negative interest rates to the detriment of their clients. But even now, despite rising interest rates, we continue to see retail investors depositing substantial funds as the solution is transparent for them and free of transaction costs,” comments Jacob Snedker.



Sparinvest also plans to do their part to ensure the platform’s continued success. “In the future, we’d like to expand the service to other types of capital, for example company funds. And we’d like to digitise the solution to a greater extent, so it can be even more attractive for retail customers,” Jacob Snedker says. Robert Krogh Lauridsen is also optimistic about the platform’s prospects. “Thanks to the determination and cooperation of everyone involved, we’ve developed a platform that I believe will be one of the future winners within the investment universe.”

The issuance of Structured Investment Products from Swiss family-controlled Bank Vontobel on the Danish market also marks the introduction of Handelsbanken as Issuer & Paying Agent in Denmark for its custody business. Handelsbanken uses the VP Securities solution for automated issuance of these SIPs and the partnership’s multi-currency potential has Nordic perspectives.

Just recently, Vontobel, one of Europe’s leading issuers of structured products, introduced a series of Structured Investment Products (SIPs) in DKK on the Danish market. Vontobel specialises in wealth management, active asset management and investment solutions on a global scale, and the SIPs in Denmark were issued by Handelsbanken through its Nordic Custody Solution.

Vontobel’s initial product offering will be extended continuously, according to market development and client demand – enabling private and institutional investors in Denmark to execute individual trading strategies in accordance with their individual risk profiles. Leverage products are suitable for rising or falling markets and can also be used for portfolio hedging. These financial instruments enable investors to trade actively in a wide range of markets, in both bull and bear scenarios.

Developing and selling structured products is at the heart of Vontobel’s DNA. We have 30 years’ experience in this sector. Investors can rely on our strong know-how, successful platform strategy and market-making experience within structured retail products, as well as our well-known agility and fast-growing expansion in various European markets. The integrated trading environment, as well as cost-efficient processes and innovative platforms, are key factors behind our European success,

says Head of Vontobel Investment Banking Roger Studer, who also serves as a Vice President of the European Structured Investment Products Association (EUSIPA).

Handelsbanken offers a variety of account operator models and, with its Nordic approach, is experiencing a surge in interest from clients wanting to go directly to the Nordics. Handelsbanken’s introduction as Issuer & Paying Agent in Denmark is part of a Nordic strategy, and Handelsbanken, as custodian bank, uses automation and multi-currency solutions to cover all Nordic markets.

“We’re proud to support the truly Nordic business model from Handelsbanken, which keeps all processes within the Nordic region. The partnership between Handelsbanken and VP Securities concerning the Danish market holds promising perspectives, in terms of both automation and pan-Nordic solutions. VP will offer issuance as one process and one CSD relation, reaching out to all Norwegians, Danes, Swedes and Finns. This will naturally appeal to international clients, as they will no longer require individual processes for each Nordic country.”

says Henrik Ohlsen, Customers & Communications Director at VP.

Issuance of SIPs in Denmark by Handelsbanken is handled by VP as a solution designed to meet the requirements of customers issuing Nordic SIP instruments such as warrants, certificates and mini-futures.

From my dialogue with Handelsbanken it is obvious that the bank is a strong advocate of harmonisation and standardised solutions in the Nordics – we are basically travelling that same route. By aiming for an automated pan-Nordic solution and combining it with support for a range of account operator models, Handelsbanken has an interesting Nordic offering. Clients are looking for reduced complexity, greater transparency and lower costs. We support these objectives for all the Nordic markets.

says Product Manager Morten Skanning from VP.

For 20 years, Handelsbanken has offered pan-Nordic custody services, and the aim is to be the strongest partner in terms of generating value and customer satisfaction.

For more information please contact VP or Jonas Modigh, Vice President Head of Sales, Securities Services, Handelsbanken.

What are the most traded types of Warrants & Certificates, why are leverage products with knock-out the most traded type, how can I invest in Warrants & Certificates, and should I start trading them?

Alexandre Atlani, Head of Warrants & Certificates at Euronext answers these questions.

Listen to the full interview, watch the video:

And check out part 1

What are the most traded types of Warrants & Certificates?

By far leverage products are the most traded product types, with about 95% of the volumes in 2022.

Within leverage products, products with knock-out, also known as turbos, represent about three quarters of the volumes. And leverage products without knock-out, mostly warrants, represent about 20% of the volumes.

Why are leverage products with knock-out the most traded product type?

We can think of a few reasons for that.

• There is a wider range of turbos available for investors to choose from.
• Turbos cover a wider range of underlyings and they are usually easier to understand.
• Although they can be considered riskier than other products because of the knock-out barriers, turbos are usually only sensitive to the price of the underlying while for the other product types, there can be many factors influencing their price.

How can I invest in Warrants & Certificates?

Warrants and certificates are listed and traded on an exchange like Euronext, regardless of their underlying.

For example, to trade on warrants and certificates whose underlying is a US stock, there is no need to invest on a US market. This product is listed on Euronext and can be traded the same way the share of a company listed on Euronext can be traded.

In general, warrants and certificates trade on Euronext in euros, regardless of the currency of their underlying.

Investors can send their orders via their online banks or brokerage accounts who usually charge relatively modest fees and commissions on these instruments, in opposition to trading securities on foreign markets.

To help keep fees as low as possible, Euronext does not charge any client fees to its trading members for all orders on warrants and certificates below €6,000.

Finally, the warrants and certificates of some issuers can trade between 08:00am and 10:00pm CET.

Investors are invited to check with their financial intermediary if they offer access to these extended trading hours. 

So should I start trading Warrants & Certificates?

The world of warrants and certificates can be fascinating because of the diversity of product types, strategies, underlyings and geographical regions covered.



But investing in these instruments can be risky. Yes, you can make some good or very good returns on investment, but as well you can lose some or all the money invested. Therefore, it is essential to understand the products you are interested in investing in. To that goal, issuers are a fantastic source of knowledge and support.

They offer a lot of educational content, websites and call centres where specialists are available to answer all questions about warrants and certificates.

So make sure you feel confident in your understanding of warrants and certificates before investing!