Infrastructure in the securities area
Published: 30 March 2021
The infrastructure in the securities area includes trading venues, central counterparties and central securities depositories. These are shared functions for securities market participants and play a key role in ensuring that the market functions as a source of capital for the business sector and as a basis for investment activities and savings. The supervision of regulated markets and stock exchanges aims to ensure that the institutions act in an appropriate and proper manner in accordance with legislation.
Infrastructure in the securities market
Oslo Børs ASA is the largest Norwegian market operator and operates the trading venues Oslo Børs, Euronext Expand Oslo (formerly called Oslo Axess) and Euronext Growth Oslo (formerly called Merkur Market). Oslo Børs ASA also owns the trading venue Fish Pool ASA and has operated an Approved Publication Arrangement (APA). Other market operators are Nasdaq Oslo ASA and Norexeco ASA. Verdipapirsentralen ASA (Norwegian Central Securities Depository - VPS) runs a securities register and operates the central securities settlement system in Norway (VPO NOK).
The foreign central counterparties SIX x-clear AG, Nasdaq Clearing AB, European Commodity Clearing AG, LCH Ltd. and European Central Counterparty N.V. are also important components of the securities market infrastructure although they do not hold a Norwegian licence. Central counterparties in the EEA are entitled to operate in Norway by virtue of having permission under their home country licence pursuant to the European Market Infrastructure Regulation (EMIR). The same applies to third-country central counterparties outside the EEA that are recognised as such in the EU.
Consequences of the Covid-19 pandemic
The Covid-19 pandemic triggered a sharp fall in international stock markets in March 2020. However, the markets quickly recovered in reflection of a gradual pick-up in growth expectations and the implementation of support measures.
As a consequence of the market turmoil, Finanstilsynet intensified its supervision of the markets and infrastructure entities. Among other things, the Norwegian Central Securities Depository was required to submit daily reports, while the trading venues sent weekly reports to Finanstilsynet. Central counterparties were closely monitored through the supervisory colleges. In addition, daily reporting to the European Securities and Markets Authority (ESMA) was initiated. Due to the strong market volatility, ESMA decided to lower the threshold for reporting short positions throughout the EEA.
As the situation stabilised, Finanstilsynet’s supervision returned to normal levels. Thus far, experience indicates that the infrastructure entities in the securities area proved to be resilient enough to weather the stressed situation caused by the pandemic.
Supervision, monitoring and control
Supervision of infrastructure entities is risk-based. Supervision of infrastructure entities operating in several countries is coordinated through supervisory colleges in which the relevant countries' supervisory authorities are represented. Finanstilsynet participates in all supervisory colleges established for infrastructure entities operating in Norway. Some of the supervisory activities carried out by Finanstilsynet in 2020 took place in cooperation with these supervisory colleges.
Inspection at Fish Pool ASA
Finanstilsynet carried out one inspection at Fish Pool ASA. The inspection was initiated in 2019, and the inspection report was completed in July 2020. The themes of the inspection were the organisation of the entity, terms of membership and follow-up of members, publication of orders, market surveillance and follow-up of the position regulations for commodity derivatives. In its report, Finanstilsynet pointed to the trading venue's confusion of roles and resulting conflicts of interest, as well as its inadequate market surveillance. Since the inspection, Fish Pool ASA has taken measures such as strengthening its staff resources and outsourcing market surveillance to Oslo Børs.
Inspection at Nasdaq Oslo ASA
Finanstilsynet carried out one inspection at Nasdaq Oslo, and the inspection report was completed in November 2020. The purpose was to review the company's cybersecurity and contingency planning. The inspection also included a review of a serious incident at a provider of services to, among others, Nasdaq Oslo ASA in the spring of 2018. The incident was caused by problems related to a fire extinguishing system at the service provider’s data centre, which required the transfer of operations to a backup facility. The transfer resulted in a shutdown at the Nasdaq exchanges in the Nordic and Baltic countries. After the incident, Nasdaq Oslo has made improvements to the trading venue's systems and procedures to prevent similar incidents in the future.
Work on data quality
ESMA makes calculations and publishes important information in accordance with MiFID II and MiFIR. This includes information on the publication of orders and transactions, double volume caps and systematic internalisers. The information is based on data reported by trading venues and approved publication systems in the EEA. There have been some flaws in the quality of the data reported to ESMA.
Finanstilsynet and other national supervisory authorities have cooperated with ESMA to help to ensure that the obliged entities provide correct and complete data. Finanstilsynet has also worked to raise the quality of data reported to trade repositories in accordance with the European Markets and Infrastructure Regulation (EMIR). EMIR is implemented in Norwegian law in the Securities Trading Act, Section 17-1 subsection (1). In this connection, Finanstilsynet participated in ESMA’s annual quality test, in the control of data against other data sources and in the dialogue with individual firms. During 2020, Finanstilsynet took part in ESMA working groups, cooperating with other national supervisory authorities in Europe to improve data quality. Finanstilsynet also participated in the annual ESMA survey about the enforcement of the regulations with respect to the clearing obligation, reporting to trade repositories and risk mitigation techniques.
Changes in the ownership structure of Oslo Børs, Fish Pool and the Norwegian Central Securities Depository (VPS)
In July 2019, Euronext N.V. acquired the shares of Oslo Børs VPS Holding ASA, which owned the shares of Oslo Børs ASA, Fish Pool ASA and Verdipapirsentralen ASA.
Euronext N.V. thereafter established a subsidiary, Euronext Nordics Holding AS, which acquired all the shares of Oslo Børs VPS Holding. Finanstilsynet considered Euronext Nordics Holding to be a suitable owner of a significant holding in Oslo Børs and VPS and advised the Ministry of Finance to give its approval. On 26 August 2020, the Ministry of Finance gave Euronext Nordics Holding permission to own all shares in Oslo Børs and VPS. On 28 August 2020, Finanstilsynet took note of the notification from Euronext Nordics Holding on the indirect acquisition of shares in Fish Pool.
On 7 September 2020, Oslo Børs VPS Holding was merged with its parent company Euronext Nordics Holding.
Oslo Børs' change of trading system and central counterparty for derivatives trading
In June 2019, Oslo Børs ASA was acquired by Euronext N.V., which also owns regulated markets in Belgium, France, Ireland, the Netherlands, Portugal and the UK. In the autumn of 2020, Oslo Børs therefore migrated to Optiq, which is the shared trading system of the trading venues in the Euronext Group. Prior to this, Oslo Børs' main trading system was Millennium, which was operated by London Stock Exchange Plc.
The migration to Optiq took place on 30 November 2020 for trading in equities, equity certificates and exchange traded funds. Trading in bonds and derivatives was transferred to the new trading system on 7 December. The change of trading system to Optiq means that trading on Oslo Børs takes place on the same platform and generally in the same manner as in the other regulated markets of the Euronext Group. Parallel to this, Oslo Børs also changed central counterparty for derivatives clearing services from the Swiss SIX x-clear AG to the French LCH SA and made significant amendments to its own regulations. Oslo Connect, a multilateral trading facility for tailor-made derivatives, was closed down. However, Oslo Børs has retained some special arrangements and has, for example, other solutions for clearing equity trades than the other Euronext trading venues.
As part of the migration to Optiq, Oslo Børs announced on 1 June 2020 the outsourcing of several tasks to other entities in the Euronext Group. Some of these tasks were regarded as critical operating functions, and the outsourcing thus required permission from Finanstilsynet. Finanstilsynet granted such permission on 16 October 2020.
Finanstilsynet closely monitored Oslo Børs and the migration project. In order to ensure safe and sound operations, Finanstilsynet required Oslo Børs to make sure that necessary robust backup solutions for the trading systems and central counterparties had been established and could be used at short notice in the event of unforeseen events.
Exemption from the obligation to publish information on orders in financial instruments traded on a trading venue
Finanstilsynet is empowered in specific cases to entitle trading venues to refrain from publishing order information. Finanstilsynet can only make such a decision after informing ESMA and national supervisory authorities in the EEA about the planned exemption. ESMA shall thereafter issue a non-binding statement to Finanstilsynet giving its assessment of whether the exemption is compatible with the requirements of the Markets in Financial Instruments Regulation (MiFIR). In 2020, Finanstilsynet approved 15 applications from Oslo Børs ASA for exemption from the obligation to publish order information. The applications were related to the migration to the new trading system.
Revocation of licences to operate an approved publication arrangement
In 2017, Oslo Børs ASA was granted permission to operate an approved publication arrangement (APA) for OTC transactions (trading outside stock exchanges). The permission was extended in 2018. After the extension, Oslo Børs was licensed to offer APA services for financial instruments traded on one of Oslo Børs’ trading venues or registered on Nordic ABM or the NOTC list. After Oslo Børs changed its trading system in the autumn of 2020, it no longer wanted to offer APA services. Finanstilsynet therefore revoked the licence.
Temporary admission to trading
Oslo Børs ASA previously allowed equities admitted to trading at Oslo Børs or Euronext Expand to be admitted to trading at the multilateral trading facility Euronext Growth Oslo at the same time, for example during the period pending Finanstilsynet’s approval of the prospectus. Contrary to regulated markets, there is no requirement to prepare a registration prospectus upon admission to trading at multilateral trading facilities.
As a result of the experience gained from a case where the same share was traded at very different prices at Oslo Børs and at Euronext Growth Oslo, Finanstilsynet asked Oslo Børs to account for this arrangement and for how investor protection could be ensured. After this, the temporary admission option in such cases was abandoned.
Position limits and position reporting
Pursuant to Chapter 15 of the Securities Trading Act, which implements the position limits regime of the revised Markets in Financial Instruments Directive (MiFID II), Finanstilsynet shall set position limits for commodity derivatives. Requirements have also been set for the reporting of positions in commodity derivatives, emission allowances and derivatives thereof. The purpose of the position limits is to reduce the risk of serious disruptions to the underlying physical market. Detailed rules have been given on how to set limits. Finanstilsynet amended the regulations on position limits once during 2020.
Non-financial firms may apply to Finanstilsynet for an exemption from the position limits for risk-mitigating positions in commodity derivatives. In 2020, Finanstilsynet approved three applications for such an exemption.
Exemptions from the authorisation requirement for ancillary activity
Pursuant to the Securities Trading Act, investment services can only be provided by investment firms authorised to do so by Finanstilsynet. Several exemptions have been made from this requirement for firms trading in commodity derivatives, emission allowances or derivatives associated with the firm’s primary business. Such firms must send an annual notification to Finanstilsynet through Altinn. In 2020, Finanstilsynet received 82 such notifications.
Verdipapirsentralen ASA (VPS)
Under the new Central Securities Depository Act, central securities depositories must apply for a new licence that meets the requirements of the Central Securities Depository Regulation (CSDR). VPS sent such an application to Finanstilsynet on 30 June 2020. In addition to considering the application, Finanstilsynet will also assist in making the necessary changes to regulations to the new Central Securities Depository Act, etc.
During 2020, Finanstilsynet reviewed several of the terms and conditions set by the Ministry of Finance in connection with the permission to merge Oslo Børs Holding ASA and VPS Holding ASA in 2007. This included the processing of notifications of outsourcing and the rejection of VPS' application for payment of dividends based on the financial statements for 2019. The reason for the rejection was the ongoing Covid-19 crisis and the subsequent economic uncertainty.
Exemption for intra-group derivative contracts under EMIR
EMIR introduced a requirement to clear specific OTC derivatives. This requirement includes interest rate derivatives in Norwegian kroner, euro, British pounds, Japanese yen, US dollars, Swedish krona and Polish zloty as well as certain credit default derivatives.
In 2020, Finanstilsynet had no objections to three notifications from financial counterparties intending to avail themselves of the exemption from the clearing obligation in respect of intra-group transactions. Finanstilsynet had no objections in one case concerning exemption from the requirement to exchange satisfactory collateral and has one more case under consideration.
In Circular 6/2017 on the implementation of EMIR, Finanstilsynet stated that it expects entities under supervision and other relevant entities to abide by the EMIR framework as it applies in the EU at any time, even though the framework has yet to be incorporated into the EEA Agreement. This also applies to the revised EMIR framework, which was established by Regulation (EU) 2019/834 (EMIR Refit). Just like entities established in the EU, Norwegian entities have therefore been able to notify use of the exemption for the reporting of intra-group transactions after the entry into force of the EMIR Refit Regulation in the EU on 17 June 2019. In 2020, Finanstilsynet processed notifications from 20 groups concerning use of the exemption. In two of the cases, the exemption can no longer be used.
In December 2019, Finanstilsynet received five applications pursuant to the Benchmark Regulation (Regulation (EU) 2016/1011), which came into force in Norway on 20 December 2019. The rules aim to strengthen confidence in benchmarks used in financial instruments and financial contracts, or to measure the performance of investment funds. The application from Norske Finansielle Referanser AS for permission to be administrator of the Norwegian Interbank Offered Rate was granted on 12 October 2020. Finanstilsynet has also started the process to define Nibor as a critical benchmark in accordance with the regulation.
Four other firms applied for registration as administrators prior to 1 January 2020. Fish Pool ASA’s application for registration as an administrator was approved on 18 December 2020. The remaining applications are under consideration, and the firms can continue their operations until the process has been completed. In addition, Finanstilsynet is considering another application for registration as administrator received in the autumn of 2020.
Other supervised sectors:
- Banks and other financing activity
- Insurance and pensions
- The securities area
- Financial reporting enforcement – listed companies
- Prospectus control – transferable securities
- Mutual funds and collective investment schemes
- Investment firms
- Securities market conduct
- Infrastructure in the securities area
- ICT and payment services
- Money laundering and financing of terrorism
- Consumer protection
- International cooperation
- Current topics