Infrastructure in the securities area
Published: 31 March 2022
The infrastructure in the securities area encompasses trading venues, central counterparties, central securities depositories and benchmark administrators. 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 the market players aims to ensure that the institutions act in an appropriate and proper manner in accordance with legislation.
Facts about the securities market infrastructure
In Norway, five regulated markets and one multilateral trading facility have been established. Oslo Børs ASA is owned by the Dutch company Euronext N.V. and uses the brand name Euronext Oslo. Oslo Børs ASA operates the two regulated markets Oslo Børs and Euronext Expand. Euronext N.V. also owns the multilateral trading facility Euronext Growth Oslo and is the majority owner of the regulated market Fish Pool. Other regulated markets are Nasdaq Oslo and Norexeco, where the former belongs to the stock exchange sub-category, just like Oslo Børs.
Verdipapirsentralen ASA (VPS) is the Norwegian central securities depository and runs a securities register and operates the central securities settlement system in Norway (VPO NOK). Verdipapirsentralen ASA is also owned by Euronext N.V. and uses the brand name Euronext Securities Oslo.
Central counterparties offer clearing of various financial instruments. At Euronext Oslo, SIX x-clear AG, LCH Ltd and European Central Counterparty N.V. offer clearing of shares and equity certificates, while LCH Clearnet S.A. offers derivatives clearing. Nasdaq Clearing AB offers clearing at Nasdaq Oslo, while European Commodity Clearing AG is the central counterparty for Norexeco. Fish Pool ASA is cleared by Nasdaq Clearing. In addition, LCH Ltd plays an important role in clearing interest rate and FX derivatives denominated in Norwegian kroner.
Supervision, monitoring and control
The Covid-19 pandemic triggered a sharp fall in international stock markets in March 2020. Extensive fiscal and monetary policy measures to mitigate the effects of the pandemic helped ensure a quick market recovery. At the start of 2022, stock market indices in most markets were significantly higher than prior to the pandemic.
As a consequence of the market turmoil, Finanstilsynet intensified its supervision of the markets and infrastructure entities. 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.
Inspection at Euronext Growth Oslo
During 2021, Finanstilsynet carried out a thematic inspection of the admission processes and securities transactions related to selected issuers admitted to trading on the multilateral trading facility Euronext Growth Oslo (formerly called Merkur Market) in 2021–2020.
The inspection at Euronext Growth Oslo addressed the trading venue’s admission process, focusing on its regulations, admission procedures and practices and the Euronext Growth Advisor scheme. Euronext Growth Advisors are generally investment firms and assist issuers in connection with admission to trading on Euronext Growth. The role can be compared with the manager’s role in traditional listing processes.
In its report, Finanstilsynet questioned the soundness of the current admission application processing, with reference to the large increase in the number of new listings in 2020 and 2021, the few employees involved and the very quick admission processes, as well as conflicts of interest that had not been identified or handled in a satisfactory manner. Furthermore, the follow-up of Euronext Growth Advisors and their role were highlighted, as well as ambiguities in Euronext Oslo's regulations for information from issuers. Oslo Børs has decided to comply with all of Finanstilsynet’s findings.
Inspection at Norexeco ASA
In 2021, Finanstilsynet conducted an IT inspection at Norexeco ASA. The purpose of the inspection was to check the regulated market's ability to fend off digital attacks and to ensure that the company was in control of its outsourced IT services. The inspection report is expected to be finalised during the first half of 2022.
Work on data quality
ESMA obtains, calculates and publishes important information in accordance with MiFID II and MiFIR, including information on reference data, order data and transaction data, use of the exemptions for delayed and non-disclosure, double volume caps and systematic internalisers. The information is based on data reported by trading venues and approved publication systems in the EEA. In 2021, Finanstilsynet took part in ESMA working groups, cooperating with other national supervisory authorities in Europe to improve data through, among other things, quarterly reviews of reference data reporting and semi-annual surveys of transaction data exchanged between the supervisory authorities. In addition, Finanstilsynet follows up and controls data quality and engages in dialogue with the various entities.
Participation in supervisory colleges and crisis resolution teams
As part of its supervisory activity, Finanstilsynet participates in supervisory colleges. This is a formalised supervisory cooperation between supervisory authorities in relevant countries. With respect to infrastructure entities, such colleges have been established for Euronext (primarily the trading venue) and Nasdaq. In addition, Finanstilsynet is represented on the crisis resolution team for Nasdaq Clearing and SIX x-clear.
Admission to trading of ‘blank cheque companies’ (SPACs) on Oslo Børs
In March 2021, Finanstilsynet received an enquiry from Euronext Oslo concerning admission to trading of so-called blank cheque companies (Special Purpose Acquistion Companies – SPACs). This is a new type of company in the Norwegian market that raises special issues.
At the time of admission, blank cheque companies will be newly established companies with no commercial business and no past history. In connection with admission to trading, capital is raised through a private placement. Within a limited period, normally 12–24 months, the companies will seek to acquire, and thereafter merge with, one or more unlisted target companies. After the acquisitions and subsequent merger, the company will develop its business and operate on a commercial basis.
In its response dated 3 June, Finanstilsynet pointed to certain special issues that need to be addressed by the trading venue before admission can take place. Assessments of whether this falls within the scope of the Alternative Investment Fund Managers Regulation and whether the company conducts licensable activity must be made prior to admitting the company to trading. Finanstilsynet also pointed out that Euronext Oslo should carefully consider investor protection issues, the need for good and supplementary information to the market, equal treatment of investors and whether such companies in themselves are suitable investment objects for retail investors.
Fit and proper assessment of new owners of Euronext N.V.
In spring 2021, Euronext N.V., the owner of Oslo Børs ASA and Verdipapirsentralen ASA, acquired Borsa Italiana. This entailed changes requiring a fit and proper assessment. Finanstilsynet recommended giving CDP Equity and Intesa Sanpaolo, the new shareholders in the group of Reference Shareholders, permission to become (indirect) owners of Oslo Børs ASA and Verdipapirsentralen ASA. The Ministry of Finance granted permission on 24 March 2021 in accordance with Finanstilsynet’s advice. Finanstilsynet granted a similar permission for indirect ownership of the regulated market Fishpool on 25 March.
Clearing at Euronext Growth
In June 2021, Finanstilsynet announced that it had no objection to Euronext Oslo introducing clearing of trades executed at the multilateral trading facility Euronext Growth. The introduction of clearing was assessed in light of the requirements for non-discriminatory access to central counterparties. In addition, factors that are considered to threaten the smooth and orderly functioning of the markets or have a negative impact on systemic risk were taken into account. The clearing is undertaken by the central counterparties SIX x-clear AG, EuroCCP N.V. and LCH Ltd, which have an interoperability agreement. These central counterparties were already clearing trades executed on the regulated markets Oslo Stock Exchange and Euronext Expand.
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 2021, Finanstilsynet approved one application from Oslo Børs ASA for exemption from the obligation to publish order information. The exemption concerned information about orders for equity derivatives held in the marketplace’s order management system until publication.
Position limits and position reporting at Nasdaq
Finanstilsynet sets 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 monitors, on a daily basis, that reported positions in commodity derivative contracts do not exceed the set position limits.
Exemptions from the authorisation requirement for entities trading commodity derivatives as an ancillary activity
As a rule, investment services can only be provided by investment firms authorised to do so by Finanstilsynet. Exemptions from this requirement have been granted for trading in commodity derivatives, emission allowances or derivatives thereof if these activities are deemed to be ancillary to the firm’s primary business. Such firms must send an annual notification to Finanstilsynet through Altinn. In 2021, Finanstilsynet received 81 such notifications.
Central securities depository and nominee scheme
Verdipapirsentralen ASA (Euronext Securities Oslo)
In June 2020, Euronext Securities Oslo applied for a licence that meets the requirements of the Central Securities Depository Regulation (CSDR). The CSDR aims to promote a pan-European market for securities settlement and registration services as well as to enhance the safety and efficiency of securities settlements, with an emphasis on cross-border settlement. The application was under consideration by Finanstilsynet at the end of 2021 and is expected to be finalised in the first quarter of 2022.
Nominee registration in Norwegian owner registers
Nominee registration, which means that a nominee is registered in an owner register in lieu of the beneficial owner, requires Finanstilsynet’s approval. This mainly applies to foreign banks that are registered on behalf of foreign shareholders but also to Norwegian banks, investment firms and fund management companies registered on behalf of Norwegian mutual fund clients.
In 2021, Finanstilsynet approved six nominees and recorded that 18 nominees chose to no longer act as nominee.
Approvals in 2021
Approved nominees (Norwegian nominees in parentheses)
Per financial instrument
Shares entered in the securities register
Mutual funds – holdings in Norwegian and foreign mutual funds entered in securities registers
Other – bonds, derivatives etc. entered in securities registers
Clearing and central counterparties
Exemption for intra-group derivative contracts under EMIR
The European Market Infrastructure Regulation (EMIR) sets requirements for the exchange of satisfactory collateral for specified OTC derivatives not cleared by a central counterparty. A central counterparty interposes itself between the two parties to a contract entered into either bilaterally or in a marketplace, becoming the buyer to the seller and the seller to the buyer. The obligation applies to both financial and non-financial counterparties but for the latter only in cases where the threshold for the clearing obligation has been exceeded. However, there are exemptions for certain intra-group transactions. Finanstilsynet considered one case concerning use of the exemption in 2021.
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 established in 2019, the so-called EMIR Refit and EMIR 2.2. 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 in summer 2019. In 2021, Finanstilsynet considered notifications from 18 groups on use of the exemption.
CCP Tier 2
As part of efforts to strengthen the supervision of central counterparties, the EU has introduced stricter rules for the recognition of systemically important central counterparties from third countries. Following its withdrawal from the EEA, the UK is now formally a third country. UK central counterparties therefore only have a temporary recognition that expires in June 2022. In the Norwegian market, LCH Ltd is particularly relevant due to its role on Oslo Børs and as a clearer of interest rate derivatives in Norwegian kroner.
ESMA has, based on an independent assessment and input from, among others, the European Systemic Risk Board (ESRB), concluded that it does not recommend the European Commission to withdraw the recognition of the two central counterparties.
Finanstilsynet has paid close attention to the process in ESMA and obtained the views of industry representatives.
Administrators pursuant to the Benchmark Regulation
In 2021, Finanstilsynet approved four applications for registration as administrator pursuant to the Benchmark Regulation, which entered into force in Norway in 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. Nord Pool EMCO’s application for permission to act as administrator was approved in April 2021. The firm administers the Nordic system price for the power market. The three other applications, from Oslo Børs ASA, Norexeco ASA and Nordic Bond Pricing AS, respectively, for registration as administrator were approved in spring 2021.
Capital Market Recovery Package
On commission from the Ministry of Finance, Finanstilsynet submitted a proposal in 2021 for the implementation of amendments to MiFID II intended to remove unnecessary administrative burdens on securities market participants and introduce new targeted measures to reduce the economic consequences of the Covid-19 pandemic. Among other things, the amendments to MiFID II entail that changes will be made in the position limit regime for trading in commodity derivatives. The number of commodity derivative contracts for which position limits shall be set will be significantly reduced, and new exemptions from the position limit regime will be introduced. The purpose of these changes is to stimulate the European commodity derivative markets. The proposals are now under consideration by the Ministry of Finance.
On the initiative of Finanstilsynet, the European Commission, in a Commission Implementing Regulation of 8 July 2021, recognised the Norwegian interest rate benchmark Nibor as a critical benchmark pursuant to the Benchmarks Regulation. The fact that Nibor has been recognised as a critical benchmark entails that both the administrator, Norske Finansielle Referanser AS, and the banks participating in the panel as contributors will be subject to stricter rules. For one thing, the administrator must arrange for at least one annual external review of its compliance with the regulation and of its benchmark methodology. A licence for use of the benchmark and related information must be offered on terms that are fair, reasonable, transparent and non-discriminatory. Furthermore, both the administrator and the contributors may be required to continue their operations or contributions for a limited period, even after they have expressed a wish to discontinue such activity. The Commission Implementing Regulation was implemented in Norwegian law in the Benchmark Regulations in December 2021.
With effect from 1 January 2022, the Ministry of Finance adopted regulations that amend several articles of the Benchmarks Regulation and entail that the European Commission and national authorities in certain cases may designate replacement benchmarks to be used if another benchmark is in cessation or no longer qualifies. In October 2021, the European Commission designated replacement benchmarks for the interest rate benchmarks CHF LIBOR and EONIA. Both of these benchmarks no longer qualified as benchmarks after the end of 2021. The two Commission Implementing Regulations were implemented in Norwegian law in the Benchmark Regulations in December 2021.
EMIR (European Market Infrastructure Regulation)
In May 2021, the Ministry of Finance circulated for comment a proposal from Finanstilsynet on how pan-European amendments to the EMIR Regulation, EMIR Refit and EMIR 2.2, could be implemented in Norwegian law. EMIR Refit covers a number of aspects, including reduced derivative clearing and reporting obligations. EMIR 2.2 mainly includes rules on central counterparties, especially central counterparties established in third countries that provide services within the EU. Both amending regulations are expected to enter into force in Norway during 2022.
Other supervised sectors:
- Banks and other financing activity
- Insurance and pensions
- Securities market conduct
- Investment firms
- Mutual funds and collective investment schemes
- Approval of prospectuses – transferable securities
- Financial reporting enforcement – listed companies
- International cooperation
- Money laundering and financing of terrorism
- Digital finance and IT risk