A new Nordic bond trading platform will let smaller companies raise capital through corporate bonds issuance, as banks face a squeeze on client facilitation as a result of impending legislation.
Nasdaq OMX, operator of the domestic markets in Sweden, Finland and Denmark, today launched the First North Bond market based on a framework used by sister equities multilateral trading facility (MTF) First North. In particular, firms wanting to list can do so without meeting IFRS accounting standards required by other venues.
The venue operator seeks to attract increased small- and medium-sized firms wishing to raise capital through corporate bonds ahead of tighter restrictions on banks for bond trading. The new venue will operate under the MTF licences used for First North.
“We have noted an interest, especially among growth companies, for this type of market as an alternative to bank loans. The fundamental role of a securities exchange is to support capital raising in order to help companies achieve organic growth and here corporate bonds represent a strong complement to shares,” said Mikael Estvall, head of fixed income at Nasdaq OMX Stockholm. “The main objective of First North Bond is to make it easier for companies that are not governed by regulated market rules to issue and list bonds in order to raise capital. The response has been very positive and supportive from the regional banks as they envisage credit restrictions for SMEs due to the Basel III and CRD IV capital requirements. This will make it more difficult for banks to provide loans while costs of loans are likely to soar.”
The Basel III rules form a global regulatory standard to ensure market participants can withstand shocks to the financial system. The rules require banks to hold capital reserves based on risk-weighted calculations for each type of asset held. The riskier and asset is perceived to be, the more expensive it will be for banks to hold.
Basel III will be introduced on a rolling basis between 2013 and 2019. Recent research has indicated that banks who cut down on fixed income execution as the Basel III rules come into effect could suffer market share losses in other parts of their business.
Corporate bonds will be traded on First North Bond Market of Nasdaq OMX’s Stockholm and Copenhagen venues on the existing Genium INET trading system for bonds.