Annex 1: Corporate Governance in Denmark
57. A sound governance structure is crucial for capital market developments, particularly equities. Instead of following the OECD Principles of Corporate Governance,28 most recently revised in 2004, special Danish Recommendations have been developed by the so-called Nørby Committee, which were later updated.29 A similar approach has been followed by many other countries.30
58. Implementation of the revised Danish Recommendations as disclosure requirements to the listed companies of the CSE on a “comply-or-explain” basis has given Denmark a corporate governance framework that is not only largely compliant with the OECD Principles of Corporate Governance, but in some areas goes beyond these standards by being more specific and regulating areas that are not included in OECD Principles. It is commendable that the Danish capital market has invested so many resources in developing this important framework. Actually, the Danish Recommendations will guide ongoing international work to heighten corporate governance standards.
In Helsinki, the turnover in Nokia alone represented more than 53 percent of the activity in the domestic stock market. Statoil, Norsk hydro, and DNO accounted for 41.3 percent of total turnover on the Oslo Bors, and in Sweden, while the most active stock in the market, Ericcson, represented “only” 19.9 percent of total activity, the second most active stock, Nordea bank, accounted for less than 5 percent of total turnover (Source: Norex statistics, December 2005).
The review of the prudential framework was conducted by Erik Huitfeldt, external consultant for MCM (formerly MFD), during an MCM FSAP mission, November 7–18, 2005.
According to the European Commission, as of March 2006, Denmark had an overall percentage of notification (i.e., directives for which implementing measures have been notified to the Commission) of 99.43 percent, for an EU average of 98.71 percent (see “Progress in notification of national measures implementing directives,” Secretariat General, EU Commission, March 2006).
The DSC consists of 14 members divided equally between independent members and members representing commercial interests in the securities industry. In connection with the enforcement activities regarding financial information in annual and interim reports, the Danish Securities Council acts as an independent authority, while in connection with other tasks, the Council forms part of the Danish FSA.
See “Going Private-Motiver I Danmark” March 2005.
A similar market, XtraMarked, operated by the CSE, also exists for non-listed investment certificates.
This market is aimed at small companies with a market value of DKK 400–500 million. In contrast with requirements to be listed on the CSE, companies are not required to have at least three years of operations, are not required to report under IFRS, and are not subject to specific corporate governance rules.
Iceland joined in 2000, Norway in 2002, Helsinki and the Baltic states in 2003.
Saxess is developed by OMX Technology, part of the OMX Group. Saxess supports trading in a wide range of cash and derivatives instruments, from equities and fixed-income instruments to ETFs and commodities. The platform supports a variety of trading models, as well as different market structures (i.e., order-driven and a price-driven market). This trading system is designed on the principle that there is one order book for each security. For an order-driven market, bids and offers are entered into the relevant order book and automatically matched to trade when price, volume, and other order conditions are met. Any trade made outside the order book must be reported to Saxess. When the market is price-driven, a member enters its interest in the particular security in the relevant order book. The transaction is negotiated manually when a potential counterpart is identified and the transaction reported into the system upon completion.
The GICS methodology has been developed by Morgan Stanley Capital International and Standard and Poor’s. It classifies stocks in a series of sectors, industry groups, industries, and sub-industries.
Similar developments are expected to take place in the Baltic markets at a later stage.
Because they are non UCITS, investment funds such as hedge funds are outside of the scope of European Directives. They regulatory regime therefore differ, sometimes significantly, from one European country to another.
For a discussion of different measures of liquidity, see, for instance, Measuring Liquidity in Financial Markets by Abdourahmane Sarr and Tonny Lybek, IMF Working Paper No. WP/02/232 (Washington D.C.: International Monetary Fund) available on: http://www.imf.org/external/pubs/cat/longres.cfm?sk=16211.0.
For a historical overview, see “Developments in the Danish Bond Market since 1970” by Ulrik Knudsen and Michael Sand, Monetary Review 1st Quarter 2004, Danmarks Nationalbank (DNB).
For a comprehensive description of the Danish public debt policy, see the annual Danish Government Borrowing and Debt, as well as the detailed information on the Nationalbank’s website: http://www.nationalbanken.dk/.
For a discussion of Liquidity and Transparency in the Danish Government Bond Market by Jens Verner Andersen and Per Plougmand Bsrtelsen, see Monetary Review 2nd Quarter 2004 issued by DNB.
MTS Denmark is a special segment of MTS Associated Market, a Belgian company. There are 14 primary dealers for government bonds and 12 primary dealers for T-bills.
The MTS system organizes quoted prices so that the best bid and offer prices are displayed, but layered dealers for government bonds and 12 primary dealers for T-bills. Behind these are a “depth of book” (i.e., other market makers’ prices that will be used when larger trades come through). This approach has many advantages: market makers can quote price that are, in effect, conditional on the strength of demand; and traders can rapidly execute large complex trades, confident that they are getting the best price for each trade. At the same time, the system is inevitably open to a “sweep of liquidity” that swallows all the liquidity in the system should it be misused. In August 2004, Citigroup overwhelmed the system with large, simultaneous orders, rapidly leading market makers to withdraw from their market making commitments.
A full description and developed analysis of the Danish mortgage system is beyond the scope of this note, and will be made available in a forthcoming specific technical note.
In particular, loan-to-value requirements and limits differ in the Danish system (they are based on the value of the covered assets at the origination of the loan) and in the Directive (the directive requires that LTV calculations be performed, and the respect of the stated LTV limits be fulfilled, over the full life of the covered loan).
TDC is in the process of being acquired (and delisted) by the Nordic Telephone Company (NTC), a group of private equity firms. The offer is being blocked by TDC’s largest shareholder, the ATP pension fund.
They are available on: http://www.oecd.org/topic/0,2686,en_2649_37439_1_1_1_1_37439,00.html.
For a list of codes for listed companies on other countries, see, for instance, the European Corporate Governance Institute’s website:http://www.ecgi.org/codes/all codes.php.