Annual Report

Transcription

1 Annual Report

2 3 Oslo Børs VPS 4 Key Figures 6 Competition but on unequal terms 7 The activities of Oslo Børs VPS 8 The functions of the securities market 9 Group strategy 14 Business Areas 24 Financial Ratios 28 Shareholder information 30 Registered in VPS 31 Board of directors statement of poliy on corporate governance 39 The Board of directors of Oslo Børs VPS Holding 41 Executive Management and committees of Oslo Børs VPS 42 Boards of directors in subsidiaries of Oslo Børs VPS 43 Organisational structure of Oslo Børs VPS 44 Annual Report 45 Annual Report Annual Accounts Annual Accounts 2009 Parent Company 107 Auditor s Report 108 Articles of Association of Oslo Børs VPS Holding ASA 2

3 Oslo Børs VPS Holding ASA owns 100% of the share capital of Oslo Børs ASA, Verdipapirsentralen ASA, Oslo Clearing ASA and Oslo Market Solutions AS. The Oslo Børs VPS Group operates attractive marketplaces for trading in financial instruments, together with clearing, settlement, securities registration and information services, in order to give customers access to an efficient and effective capital market. The company s shares are traded on the Norwegian OTC list. The market capitalisation of Oslo Børs VPS Holding at the close of 2009 was NOK 2,580 million. 3

4 Financial key figures at 31 December Financial key figures Proforma (NOK 1000) Operating revenues Operating profit Profit for the year Earnings per share (NOK) 8,81 11,40 10,70 1,05 21,48 Change in cash per share (NOK) 1,64 21,94-3,52-1,38 Ordinary dividend per share (NOK) 6,00 7,00-5,00 8,00 Extraordinary dividend per share (NOK) Return on equity 1) 67,2 % 44,3 % 0,0 % 1,4 % -38,6 % Return on total capital 1) 58,7 % 41,7 % 0,0 % 3,7 % -22,1 % Net operating margin 59,3 % 58,6 % 52,8 % 13,8 % -93,3 % No. of employees Definitions: Earnings per share Proft for the year/number of shares Change in cash per share Change in cash/number of shares Change in cash per share before dividends Change in cash before paid out dividends/number of shares Return on equity Profit for the year /average book value of equity at the beginning and the end of the year Return on total capital Pre-tax profit/average book value of assets at the beginning an the end of the year Net operating margin Operating profit/operating revenues IFRS International Financial Reporting Standards, see note 17 in group accounts Proforma Quarterly figures (NOK 1 000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating revenues Operating expenses Salary and other personnel expenses Other operating expenses Operating expenses before depreciation Depreciation Amortisations Write-downs Total operating expenses Operating profit Net financial items Ordinary pre-tax profit Tax Earnings for the period Earnings per share (NOK) 2,62 3,13 2,66 2,97 2,42 2,67 2,64 2,98 Earnings per share (NOK) before amortisations and write-downs 2,62 3,13 2,66 3,78 2,54 2,80 2,77 3, Quarterly figures (NOK 1 000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating revenues Operating expenses Salary and other personnel expenses Other operating expenses Operating expenses before depreciation Depreciation Amortisations Write-downs Total operating expenses Operating profit Net financial items Ordinary pre-tax profit Tax Earnings for the period Earnings per share (NOK) 2,69 3,02 2,46-7,13 0,98 1,68-22,05-1,78 Earnings per share (NOK) before amortisations and write-downs 2,83 3,26 2,70 1,99 1,43 2,13 1,97 1,86 Pro forma financial information is intended to show the group s overall earnings and the major features of the accounts as if the merger had taken place at the start of the accounting period. Pro forma figures are based on the profit and loss accounts of the individual units for the period in question. The figures include depreciation of excess value identified by the excess value analysis carried out in connection with the merger.

5 Financial key figures at 31 December Operational key figures (NOK 1000) Oslo Børs - Equities No. of companies listed on Oslo Børs No. of companies listed on Oslo Axess Market cap. of issuers (NOK bn) New issues for cash (NOK bn) Turnover by value (NOK bn) Percentage change from prior year 24,3 % 64,3 % 66,8 % 70,9 % 25,0 % -22,7 % -38,7 % Average daily turnover (NOK bn) 2,21 3,58 5,98 10,30 12,92 9,98 6,09 No. of transactions (1000) Average number of transactions per day Percentage increase in number of transactions 14,6 % 43,3 % 60,9 % 62,7 % 38,0 % 37,5 % -6,2 % OSEBX 170,79 236,70 332,51 440,36 490,83 225,48 371,56 Percentage change in benchmark index - OSEBX 48,4 % 38,4 % 40,5 % 32,4 % 11,5 % -54,1 % 64,8 % Oslo Børs - Bonds No. of bonds listed on Oslo Børs No. of bonds on ABM (Alternative Bond Market) Turnover by value - ex repo (NOK bn) Repo turnover by value (NOK bn) Market cap. at (NOK bn) Oslo Børs - Derivatives No. of contracts traded (1000) Turnover by value - options (NOK bn) Turnover by value - indexfutures (NOK bn) Turnover by value - forwards (NOK bn) VPS - Issuer products No. of shares and public companies registeres No. of bond issues registered VPS - Investor products No. of VPS accounts (Securities accounts) Market capitalisation (NOK bn) No. of Internet users* *Figures for number of internet users first collected from 2006 VPS - Fund products No. of mutual funds registered No. of holdings in mutual funds No. of transactions in mutual funds Market capitalisation (NOK bn) VPS - Settlement products No. of trades processed by VPS Oslo Clearing No. of clearing members No. of active derivatives accounts No. of cleared TM derivative contracts (1000) No. of cleared loan contracts (1000)

6 Competition but on unequal terms European authorities and international banks want to see a standardised and streamlined securities market in Europe along the same lines as the American model. Their ambitions do not always coincide with those of the national authorities in European countries, and this results in differences in the regulatory framework for existing and new market participants. This creates imbalances that affect the basic functions of the securities markets. At the same time, stock exchanges and central securities depositories are exposed to ever-increasing competition. But is it really in the markets interest for competition to take place on unequal terms? Let me be quite clear that I do believe that competition is a good thing. It makes us sharper, and we have benefited from becoming more market-oriented. New players can build up their organisations and systems without having to look back at what was done before, and this is something that we can learn from. We need to embrace change on a major scale in order to maintain our competitiveness, and we are making good progress with this process. Since the EU s Markets in Financial Instruments Directive (MiFID) came into force, the European market has expanded from 25 to 58 marketplaces for equities trading, resulting in a sharp fall in the fees charged for trading. Focus has now turned to increasing competition and greater efficiency for clearing and settlement services, as well as the implementation of central counterparty clearing. In addition, the European Central bank is working on a centralised securities settlement system, and the threshold for becoming a service provider will be much reduced once settlement services and securities depository functions can be outsourced to the central authorities. The securities market plays an important role for the economy and society as a whole. This includes being a source of risk capital for business and industry, and providing an arena for corporate change, restructuring and innovation. Why is this role so important? Well, in the absence of an effective private sector populated by companies that can access the financing they need, there would be neither economic growth nor employment. This means that access to an efficient and effective securities market is of crucial importance for the modern welfare state. The increasingly competitive climate in which stock exchanges and central securities depositories have operated over recent years is due in part to a well-founded desire for greater competition. In addition to encouraging greater competition, the EU authorities are also keen to harmonise national rules and regulations, enhance investor protection and reduce trading costs for investors. No one would wish to disagree with this ambition or oppose these changes. However, MiFID has also had unforeseen and undesirable consequences. For example, the resultant fragmentation of trading and lack of transparency have made it all the more difficult to supervise the markets. Market transparency, supervision of market participants and action to prevent illegal insider trading and price manipulation are all examples of issues that are key to market integrity and investor confidence. No one is willing to invest their savings, or indeed their future pension, in a market where they cannot be confident that things are run properly. There is a great deal of share trading carried out in Europe today that is not properly supervised, and there is a trend for more trading to take place in unregulated dark marketplaces. This needs to change if we are to retain investor confidence in European markets. While we have good control over the trading activities that take place in marketplaces here in Norway, we have no control over what might happen in marketplaces elsewhere that offer trading in the shares of our companies. 6 Some 18 months after the launch of MiFID, a senior EU official observed that We created MiFID to allow for more competition and creativity. But market participants became more creative than we foresaw. The European authorities are now reviewing both the positive and negative effects that MiFID has had on the markets, and changes to MiFID are expected in 2010/2011. The next stage of the drive for greater efficiency and competition by the European authorities is to create some form of centralised securities settlement arrangements. This will streamline and standardise the process of settling cross-border securities transactions, and should be in place within a couple of years. Settlement of domestic securities transactions is already extremely efficient. However, in order to deliver the full benefits of these changes, the authorities would like all settlement, both cross-border and domestic, to be centralised through the European Central Bank. This may at first glance seem a rather brutal solution, but we do appreciate that it is sometimes necessary to ruffle a few feathers to push through major changes. In distinction to the climate in which the new marketplaces for share trading are operating, traditional stock exchanges have not yet seen any changes in their regulatory environment. Lessons need to be learned from this. If central securities depositories that are subject to strict regulation are expected to compete in the future with new entrants that are not subject to the same level of regulation, this will create another market characterised by very different competitive parameters. The responsibility for ensuring that these domestic operators can compete on equal terms lies with the authorities. Oslo Børs VPS is a major participant in the Norwegian securities market. We have a long-term commitment to delivering comprehensive and competitive services to our customers. Our objective is therefore to respond and adapt to the changing environment with a high degree of flexibility and with our customers interests at the top of our agenda. Increasing competition has been beneficial in helping us to think and act more commercially, and this in turn has made us more competitive. We intend to remain competitive. At the same time, we attach great importance to upholding the integrity of the market and investor confidence, and we are concerned to ensure that the authorities support this objective by ensuring a level regulatory playing field for all players. Competition that is based on unequal terms for different players, increased risks and reduced investor protection will not deliver the kind of securities markets that we want to see in Europe. Bente A. Landsnes Group CEO of Oslo Børs VPS

7 The ACTivitieS OF OslO BøRS VPS 7

8 The functions of the securities market VPS Oslo Clearing Investor SECURITIES COMPANY OSLO Børs SECURITIES COMPANY Investor Issuer Securities market The main function of the securities market is to provide a link between issuers seeking to raise long-term capital (the primary market) and owners of capital seeking good investment opportunities (the secondary market). The term securities market refers to the market for both primary and secondary trading in securities, and the clearing and settlement of all the transactions. Access to capital By participating in the securities market, companies gain an exposure to a broad universe of investors. This creates opportunities for companies to gain access to financing, which is very important for the economy and society as a whole. Oslo Børs operates organised marketplaces for listed securities such as shares, derivatives and bonds. Providing well organised marketplace is crucial to ensure that investors have confidence in the securities market, and helps to improve the efficiency of the market by offering cost-effective services for its customers. The core business of Oslo Børs is organising and running marketplaces to facilitate trading in securities. Oslo Børs is also responsible for extensive surveillance and supervision of the capital market. VPS ensures secure settlement of the trades in securities carried out through investment firms, and maintains registers of the ownership of all securities that are registered with the VPS account system. VPS provides account and settlement services, together with related services, for issuers and investors in the Norwegian securities market through investment firms, banks and investment managers. These services help make it easier and more efficient for issuers to raise capital and manage their securities registers, and give investors the reassurance that they will be able to exercise their rights as owners of securities. Registering the ownership of securities with VPS provides legal protection and procedures for the priority of interests, which are important practical features for confidence in the Norwegian market. VPS helps to improve the efficiency of securities trading through its systems for clearing payments and securities settlement. Oslo Clearing acts as a central counterparty for participants in the derivatives market, and so allows participants to reduce their exposure to both market risk and operational risk. As the central counterparty, Oslo Clearing delivers accounts services, collateral management services, payment, clearing and settlement services and other related services. Only investment firms and credit institutions can participate in derivatives clearing as agents for clients. These institutions therefore operate as distributors of Oslo Clearing s products and services. In addition, major institutional investors such as insurance companies and pension funds can participate in derivatives clearing in their own right, but they do so as direct clearing members. Starting in 2010, Oslo Clearing will act as the central counterparty for participants in the cash equities market. Trading on Oslo Børs Trading in securities listed on Oslo Børs takes place through investment firms that act as brokers between buyers and sellers of financial instruments. Investment firms ensure that the orders they receive are carried out either through the Oslo Børs electronic trading system for the order to be matched, or by matching the order directly. Once a trade has been agreed, confirmations are sent to the buyer and seller and the trade is recorded with the central securities depository, VPS, for clearing and settlement, including registering the securities on the purchaser s VPS account. In addition to using the trading system to carry out the order, the investment firm ensures that the shares or bonds are transferred to the new owner in the VPS central register for the issuer s securities, and ensures that the purchaser pays the seller through the investment firm. Following the introduction of central counterparty clearing in the cash equities market, Oslo Clearing will be the counterparty for transactions carried out on Oslo Børs. Only net positions will be submitted to VPS for settlement. Investment firms also fulfil an important function by gathering, analysing and presenting information from issuers that provides the foundation for the market s pricing of securities. 8

9 Group strategy Structure of the group Oslo Børs VPS Holding ASA Oslo Børs ASA Verdipapirsentralen ASA Oslo Clearing ASA Oslo Market Solutions AS The group comprises a holding company with four subsidiaries, of which three companies are subject to statutory authorisation for their main business. The business activities subject to statutory authorisation are operating the marketplaces of Oslo Børs ASA, the securities registration and settlement activities of Verdipapirsentralen ASA, and the clearing house activities of Oslo Clearing ASA. The areas of business in which the financial market data and online solutions company Oslo Market Solutions AS operate do not require statutory authorisation. Market trends Securities markets still show the effects of the financial crisis. With market values at much lower levels and reduced access to risk capital, the effects are seen on the number of new listings and share issues, as well as on the level of trading activity in the marketplaces. Over the course of 2008 and 2009, a number of MTFs (multilateral trading facilities) started to offer trading in shares listed on traditional exchanges. Also, a number of traditional exchanges have either already opened order books for trading in shares listed on other exchanges or have announced that they are planning to do so. In addition, a number of what is known as Dark Pools have been established, which offer no order book transparency in order to attract investors looking to trade major blocks of shares without affecting the market and without seeing their orders split up into an unpredictable number of smaller transactions. A number of international investment firms have established trading infrastructure using order routers that have links to a number of marketplaces. Smaller investment firms are now being offered opportunities to connect up to this kind of structure. Traditional exchanges are seeing that these developments create greater competition for trading business, and put trading fees under pressure. While customers in general welcome alternative marketplaces in order to create competition, it seems that are also some customers who are simply not willing to pay for higher market quality and better service. Central counterparty (CCP) clearing has now become the industry standard for cash equities as well as derivatives. Several marketplaces have made arrangements with multiple CCPs in order to give their customers greater choice. This is creating a rapid increase in demand for interoperability between CCPs. Internationally, 2009 saw increasing focus on expanding the range of financial instruments available for trading on regulated and transparent marketplaces, and on post-trade processing using the established infrastructure of CCPs and central securities depositories (CSDs). Of the 30 CSDs in Europe, 29 have now signed a memorandum of understanding with the European Central Bank to join a common European settlement system, TARGET2-Securities (T2S), in 2013/2014. This will mean that settlement of crossborder transactions will move from the national CSDs onto T2S. However, domestic transactions, including transactions for end-investors, will continue to be settled through the national CSD framework. The EU has started work on a directive to regulate the posttrade processing infrastructure. This is expected to lead to requirements for a clearer division of responsibility between infrastructure institutions. Over the course of time this is likely to lead to greater competition for the securities register function, both from existing CSDs and from new pan-european players. Even though the formal requirements for stock exchanges and MTF s are rather similar, there seem to be some differences in the way the authorities apply these requirements. The Federation of European Securities Exchanges, FESE, has taken this up with the European supervisory organisation CESR. Differential treatment may make it more difficult for traditional exchanges to compete on equal terms. The financial crisis has caused a drop in market activity and revenue for several of the group s business areas. Increased 9

10 competition has not as yet had any significant effect on the group s market share for trading or settlement. However, the fact that this competition has come closer to Oslo in geographic terms in the form of Nasdaq OMX and Burgundy, has caused us to make some significant changes to pricing models and the fees charged for trading. The major challenge facing the group in the future will be that of maintaining market liquidity. The emergence of competing marketplaces, which has now begun to affect the Nordic countries, makes it unlikely that the group will be able to maintain its current market share. However, in terms of the current strategy period it is expected that Oslo Børs will continue to be the main marketplace for Norwegian listed securities, and that securities settlement and registration services will largely take place through VPS. Over the longer term, a decline in market share may be offset by growth in trading volumes in general. Oslo Børs VPS is already experiencing increasing pressure on trading fees. There is little reason to anticipate any change in this trend over the next few years. The introduction of CCP clearing will cause a drop in revenue from clearing and settlement from the current level. Taken together, these developments will cause a significant reduction in the profitability of trading and settlement services. This places particular demands on improving the efficiency of the group s activities in general, and its core activities in particular. There is political pressure both in the USA and Europe for OTC derivatives to be moved on to regulated marketplaces, and for greater transparency for all forms of derivatives trading and clearing. Such changes will create opportunities for new products. It will be essential in the years ahead that traditional stock exchanges and central securities depositories focus on new products and services to reduce the decline in revenue from their core activities. The group s strategic objectives The group s overall strategy has been formulated with the objective of meeting the increasing competition faced by its core businesses, as well as generating increasing revenue from value-adding services. The strategy emphasises the need to continue to operate a competitive and state of the art financial infrastructure. In parallel with this, the group intends to create additional revenue by attracting new customers and building value-adding products and services around its core business activities. As an independent group, Oslo Børs VPS Holding enjoys a high degree of commercial flexibility, and the Board has a very positive view of the opportunities that the continuing development of its activities will offer. The group s main challenge over the next few years will be the new competitive environment in Europe and the effect this will have on the Norwegian securities chain, which must be expected to lead to a reduction in the group s market share of trading in securities listed on Oslo Børs. The last 12 months have seen a number of new players start to offer trading in shares listed on Oslo Børs. In addition, the European Central Bank is working towards the launch of TARGET2 Securities (T2S), which will allow local CSDs to outsource the settlement of trade transactions to T2S. The group intends to prioritise the following goals over the next three years: 1. We will operate an attractive financial infrastructure 2. We will develop and market value-adding services that meet the market s requirements 3. We will be the preferred financial infrastructure for domestic companies, investors and investment firms 4. Develop greater international interest in the group The leading marketplace for selected sectors International focus on selected value-adding services Broadly based and robust distribution network 5. We will be an attractive workplace 6. We aim to have satisfied shareholders What we mean by attractive financial infrastructure The group will strive to offer an attractive, secure, reliable and comprehensive financial infrastructure for the market. The infrastructure will deliver a high degree of standardisation and automation. The group will focus on making efficient use of technology combined with innovation in developing and delivering services and products that meet the market s changing needs. The group intends to reduce the cost of cross-border trading for market participants, and to be recognized as competitive in terms of both prices and services. Oslo Børs VPS intends to continue to be the main marketplace for listed Norwegian securities. What we mean by developing existing and new products Product development that is linked to the group s core activities will strengthen the business as a whole in its response to the new competitive situation by providing support for the group s key strategic objectives. By building on the core activities of the companies in the group subject to statutory authorisation, we intend to develop and ex- 10

11 pand new and existing solutions to meet market needs in order to generate additional revenue by increasing the value of what we deliver to our customers and so link them more closely to us. We intend to maintain and develop further our market position for sales of market information related to our market. What we mean by the preferred financial infrastructure We will maintain and develop our market position as an infrastructure operator for regulated markets, clearing and settlement activities, as well as for the registration of financial instruments, both in the Norwegian market and on a global basis for selected sectors (energy, shipping and fisheries/aquaculture). We will offer a competitive, liquid market that is attractive for both Norwegian and global issuers, investors and investment firms. In order to reach across national boundaries we will maintain and develop a broadly based and robust distribution network. We will ensure the strictest confidentiality both internally and externally, and be recognized for the integrity of our conduct. We will treat all our customers equally and fairly, and maintain a high level of integrity in the market. What we mean by an attractive workplace The group intends to be recognized as an attractive workplace so that we can attract and retain the expertise and resources that the group needs. In order to achieve this, we will offer stimulating and challenging careers for our employees, and involve them in the decision-making that affects their working experience. What we mean by satisfied shareholders For our shareholders, we will strive to give a satisfactory return on invested capital in relation to the company s risk profile. Oslo Børs VPS Holding ASA takes the view that, in general, it will be normal to distribute at least half the group s annual profit as dividend. However, decisions on dividend must also take into account the group s liquidity and capital adequacy, including the effect that planned and possible investment might have on this. In our relationship with the market, we will follow all the requirements that would apply if the group was stock exchange listed. Activities Important areas of focus over the next year will be: Strengthen customer relationships with the most important customers Oslo Børs VPS will strive to strengthen its relationships both with its direct customers as well as with indirect customers in the form of investors and end users of the group s products and services. In the new competitive situation that is emer- 11

12 ging, there is a clear need for better, regular dialogue with customers in order to understand their needs and priorities, and the way they are thinking. This will help us to develop and adapt our products to maintain our competitiveness. Continue the development of the marketplace rules, pricing structure, technology, networks and products Continuing development of our core activities is key to maintaining competitiveness. This applies to the microstructure (pricing structure, trading rules, business terms and conditions for issuers and investors etc), to our systems (functionality, speed and cost structure) and to our contact network (issuers/listed products and members). Improve the efficiency of the group s operations in general and core activities in particular As market conditions and competition continue to change, it is essential that the group responds by managing its overall cost base. The future outlook for our core activities makes it absolutely essential that we continually develop our operations with improved efficiency in order to remain competitive. Continue to provide and develop additional services It is clear that revenue from some aspects of our core products will be on a falling trend. In order for the group to maintain a satisfactory return over time, it is crucial that we put more effort into developing and marketing additional services. The group has already identified a range of opportunities, both to improve our core activities and to create additional revenue. Increase focus on strong sectors of the Norwegian market The financial markets in Norway have a particularly strong position in the energy, shipping and aquaculture sectors. The Oslo financial community represents a cluster of expertise for these sectors, including specialist analysts, banks with international reach in these markets and investors with the knowledge and capacity to invest. Strengthening our position in these sectors offers considerable potential. The group intends to develop closer collaboration with Norwegian investment firms on the promotion of these sectors to selected geographic markets. Further develop the derivatives area The group continues to see derivatives as an area of great potential, and expects increasing interest from both institutions and intermediaries. The way in which this market operates has improved over recent years, but it takes some considerable time for institutions and intermediaries to respond by changing their trading patterns. Risk factors Commercial risks Given the current structure of operating revenue for Oslo Børs VPS, turnover is principally affected by: Trading volume and the number of transactions Trading, settlement and clearing fees accounted for approximately 42% of total operating revenue in These fees are by their nature entirely variable, and the total revenue generated will largely depend on general market conditions. Sales and distribution of financial market data products Sales of financial market data products and solutions generated approximately 15% of the group s total operating revenue in Approximately 80% of this revenue arises from sales of real-time information, and is mainly variable in nature since it depends on the number of end-users of market data from Oslo Børs. Sales of financial market data typically have a lagged positive correlation with general market conditions and activity. The number of listed securities/ companies and their market value The annual fees paid by issuers accounted for approximately 11% of total operating revenue in Operating revenue will fluctuate in line with the number of listed securities and their overall market value. Fees for equity instruments are in the main calculated on the basis of market capitalisation at the start of the year. The risks associated with the revenue categories described above arise from: Competition between marketplaces, central securities depositories and clearing houses, and changes in the level or structure of their pricing Competition from new players and greater internal trading Competition from alternative forms of saving Consolidation amongst issuers, members and information distributors Accessibility and reliability of technical systems Confidence in the process of price formation and in the Norwegian securities infrastructure Macroeconomic conditions Changes in the regulatory framework Exposure to customer-specific factors The group operates with a cost base that is very largely fixed. The operation of a securities infrastructure generally requires a high level of investment, and this together with a high proportion of fixed costs means that there is little short-term flexibility to adapt costs to changes in the actual level of market activity. Strategic risk Structural changes in the international capital market cause continuous changes in the competitive outlook. Failure to adapt to changes may have adverse consequences for the group s domestic and international position. 12

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14 BUSINESS AREAS Through its business areas, the Oslo Børs VPS Group operates attractive marketplaces for trading in financial instruments, together with clearing, settlement, securities registration and information services, in order to give customers access to an efficient and effective capital market. OSLO Børs The Oslo Børs business area comprises the wholly-owned subsidiary Oslo Børs ASA, which is authorised to operate stock exchange activities. Oslo Børs ASA merged with its former subsidiary Oslo Børs Informasjon AS in The main objective of Oslo Børs is to be the central marketplace for trading in financial instruments in the Norwegian market. The role of Oslo Børs is to make it possible for purchasers and sellers of securities to carry out their transactions in a rapid, efficient and secure manner. Oslo Børs organises trading in equities, equity certificates, fixed income products and derivatives products. In the equity and fixed income markets, the Oslo Børs marketplaces also fulfil an important function in the primary market, i.e. for the issue of shares, equity certificates and bonds. Bente A. Landsnes is the Chief Executive Officer of Oslo Børs. The other members of the executive management team are Anders Brodin (Marketplace), Øivind Amundsen (Legal Affairs), Geir Heggem (Finance and Administration) and Per Eikrem (Corporate Communications). Oslo Børs uses the Saxess trading system for equities and bonds. From April 2010, Oslo Børs will move on to the using TradElect as its trading system. Saxess is owned and operated by OMX, whereas TradElect is owned and operated by London Stock Exchange. Oslo Børs migrated to the SOLA system for derivatives trading in December This system is developed by the Montreal Exchange. Oslo Børs had 123 employees at the close of 2009, as compared to 136 at the close of 2008 and 115 at the close of Oslo Børs can look back on 2009 as another year with a relatively good level of market activity. Market conditions were again affected by the financial crisis. Trading in the equity market averaged 62,733 (66,866) transactions daily, representing average daily value of NOK 6.1 (9.9) billion. The Oslo Børs Benchmark Index closed 2009 at having risen by 65% over the course of the year. Segmental information for the Oslo Børs business area over the last three years is as follows: Figures in MNOK Operating revenues - external Operating revenues - internal Depreciation Amortisation of excess value Write-down of excess value Other operating costs Total operating costs Operating profit Share of income in joint ventures Financial income Financial expense Investment in joint ventures Other assets Liabilities Investment in the period Operating revenues were NOK 157 million lower in 2009 than in All areas saw a reduction in operating revenue in Revenue from the Equity Markets area was NOK 143 million lower, and revenue from the Market Data area was NOK 11 million lower. Operating costs decreased by NOK 16 million between 2008 and The reduction in costs reflects increased capitalisation of the costs of internal resources used in connection with projects, less use of external resources and a reduction in losses on accounts receivable. Equity Markets The Equity Markets area s operating revenue accounted for around 56% of total operating revenue for Oslo Børs in

15 Operating revenue - equity Markets Figures in MNOK Fixed fees - issuers Fixed fees - members Trading fees Prospectus and admission fees Financial market data Fees for courses/seminars Other income 1 Total operating revenues No. of listed companies at Benchmark index (OSEBX) at ,6 225,5 490,8 Market capitalisation of listed companies at (NOK billion) No. of member firms - equity markets No. of trades (1,000) Value of trades (NOK billion) Turnover in shares and equity certificates for 2009 as a whole totalled NOK 1,531 billion, down by 39% from The year saw 15,8 million transactions carried out, representing a decrease of around 7% from New share issues carried out in 2009 raised NOK 52 billion as compared to NOK 14.9 billion in With no new companies admitted to listing and 16 companies removed from listing, Oslo Børs saw a net reduction of 16 listed companies in In all, 209 companies were listed on Oslo Børs at the close of The number of companies listed on the regulated marketplace Oslo Axess decreased to 28 after 3 companies were admitted to listing and 10 companies were removed from listing in Eight exchange traded funds (ETFs) were listed on Oslo Børs at the close of 2009, an increase from the 4 ETFs listed at the close of The number of firms with membership for trading in equities on Oslo Børs was 57 in 2009, unchanged from Of these, 33 are remote members. The number of firms that have membership of Oslo Axess and of the marketplaces for bonds and derivatives is somewhat smaller. The revenue generated from fixed fees paid by issuers (annual listing fees) is dependent on the number of listed companies and their market capitalisation. Revenue from fixed fees paid by members depends on the number of active member firms. Revenue from trading fees is affected by monthly fees, order fees and the value of transactions carried out. Prospectus, admission and registration fees depend on the number of new companies admitted to listing as well as the number and size of share issues and other equity transactions carried out by listed companies. A change of 10% in the market capitalisation of listed companies at 31 December 2009 would cause a change of approximately 3.7% in annual revenue from listing fees. The most widely traded equity market security accounted in 2009 for 9.2% of the total number of trades (9% in 2008 and 7% in 2007) and 20.4% of total trading value (21% in 2008 and 22% in 2007). Revenue generated from, or in relation to, this company in 2009 accounted for 7.5% of the Equity Markets area s operating revenue (10% in 2008 and 8% in 2007) and 4.2% of total operating revenue for Oslo Børs (7% in 2008 and 6% in 2007). Fixed income Markets The Fixed Income Markets area s operating revenue accounted for around 5.5% of total operating revenue for Oslo Børs in Operating revenues - Fixed income Markets Figures in MNOK Fixed fees - issuers Fixed fees - members Trading fees Prospectus and admission fees Financial market data Fees for courses/seminars Other income Total operating revenues No. of listed issues at (Oslo Børs) No. of listed issues at (Oslo ABM) Market value of listed issues at (NOK billion) No. of member firms - fixed income Value of trades exc. repos (NOK billion) Value of repo trading (NOK billion) The revenue Oslo Børs derives from the fixed income market is principally determined by the number of issues listed. In all, 1,059 loans were listed at the end of 2009, made up of 557 loans listed on Oslo ABM (Alternative Bond Market) and 502 on the stock exchange market, representing an increase of 18 loans since the start of the year. New debt issued in respect of new and existing loans amounted to NOK billion in 2009, which was NOK billion higher than in

16 The revenue generated from fixed fees paid by issuers (annual listing fees) is dependent on the number of listed bond issues and their nominal value. Revenue from fixed fees paid by members depends on the number of active member firms. Trading fees reflect the number of transactions carried out and their value. Prospectus fees depend on the number of prospectuses submitted for inspection in accordance with the Securities Trading Act and registration documents submitted for inspection in accordance with the Oslo ABM Rules. A repo is a repurchase agreement whereby the parties simultaneously agree the sale and future repurchase of a specified amount of a bond issue. Repo transactions incur trading fees equivalent to 10% of the rate for a normal trade. The borrower with the greatest volume of loans outstanding at the close of 2009 accounted for around 28.7% of total outstanding bonds and 94% of total outstanding commercial paper. The figures include loans listed on Oslo Børs and on Oslo ABM. Revenue from this issuer accounted for 2% of the Fixed Income Markets area s operating revenue from the primary market in Derivatives Markets The Derivatives Markets area accounted for approximately 4% of total operating revenue for Oslo Børs in Trading fees account for around 94% of the area s revenue. The revenue from trading fees is dependent on the number of contracts traded and the premiums paid. The premium paid on a derivatives contract is determined principally by the price of the underlying instrument, the period to maturity and, in the case of options, the price volatility of the underlying instrument. The level of activity in the derivatives market was significantly lower in 2009 as a consequence of the financial crisis, with lower business volumes and fewer active investors. The number of active derivatives accounts fell from 2,400 at the start of the year to 1,782 at year end. Inntekter - Derivatområdet Figures in MNOK Fixed fees - issuers Fixed fees - members Trading fees Prospectus and admission fees Financial market data Fees for courses/seminars Other income Total operating revenues Index options, turnover (NOK million) Equity forwards, No. of contracts traded (1,000) Equity forwards, turnover (NOK million) Index forwards, No. of contracts traded (1,000) Index forwards, turnover (NOK million) Total No. of contracts Total value of turnover - options Total value of turnover - forwards Average premium equity options 4,4 8,8 4,8 Average premium index options 6,1 9,0 6,8 Average premium equity forwards 60,3 60,5 52,0 Average premium index forwards 249,0 322,2 405,4 Market Data Oslo Børs generates operating revenue from sales of financial market data (previously carried out by Oslo Børs Informasjon AS, which was merged into Oslo Børs ASA in 2008). Sales of financial market data are principally measured by the number of end users that have access to market data from Oslo Børs. Customers of information distributors such as Reuters, Bloomberg etc. subscribe to price and market index information from a range of different marketplaces, providing the real-time information that is essential for trading on Oslo Børs. The number of terminals with access to data from Oslo Børs increased by 2.7% in 2009 to approximately 49,200. Three types of subscription to real-time information from Oslo Børs are available: Professional users with full access to real-time information, private individuals with limited access to real-time information and private individuals with full access to real-time information. These three products accounted for 56%, 29% and 15% respectively of the total number of terminals in use in 2009 (69%, 20% and 11% in 2008 and 72%, 17% and 11% in 2007). The two largest distributors accounted for around 58% of revenue from sales of financial markets data in 2009 (61% in 2008), while the four largest distributors accounted for 65% of operating revenue (67% in 2008). Other revenue is generated by the sale of various products such as share price tables for newspapers, index weighting, SMS services and internet advertising. The two products that produce the largest revenue are fundamental data on issuers and mutual funds information. Equity options, No. of contracts traded (1,000) Equity options, turnover (NOK million) Index options, No. of contracts traded (1,000)

17 Operating revenues - Market Data Figures in MNOK Fixed fees - issuers Fixed fees - members Trading fees Prospectus and admission fees Registration fees Financial market data Fees for courses/seminars Other income Total operating revenues VeRDiPAPiRSeNTRAleN BUSineSS ARea This business area comprises the wholly-owned subsidiary VPS, which is a Norwegian public limited company authorised to register rights to financial instruments with the legal effects stipulated by the Securities Register Act. VPS develops and markets products and services for banks, investment firms, fund management companies and other financial institutions. These in turn deliver the products and services to issuers and investors. The services offered by VPS make it easier and more efficient for issuers to raise capital and manage their securities registers, and give investors the reassurance that they will be able to exercise their rights as owners of securities. Registering the ownership of securities with a central securities depository such as VPS provides legal protection and procedures for the priority of interests, which are important practical features for confidence in the capital markets. VPS helps to improve the efficiency of securities trading through its payment clearing and settlement system. Ole-Wilhelm Meyer is the Chief Executive Officer of VPS. The other members of the executive management team are Leif Arnold Thomas (Product & market), Harald Næss (IT) from 15. april, Tom Kolvig (Legal) and Tore Vingelsgaard (Administration). VPS had 130 employees at the close of 2009, as compared to 135 at the close of 2008 and 130 at the close of VPS handled a total of 43.3 million transactions related to trades in securities, a decrease of 4% from In addition, VPS handled 5.5 million purchases and sales of mutual fund units, a reduction of 5% from Segmental information for the Verdipapirsentralen business area over the last three years is as follows: Actual Proforma Figures in NOK Operating revenues - external Operating revenues - internal Depreciation Amortisation of excess value Write-down of excess value Other operating costs Total operating costs Operating profit Share of income in joint ventures Financial income Financial expense Investment in joint ventures Other assets Liabilities Investment in the period Actual figures for 2007 are for the period from 27 November Pro forma figures for 2007 are based on the annual accounts of Verdipapirsentralen ASA for 2007 adjusted for amortisation of excess value. 17

18 Operating revenues decreased by NOK 40 million from 2008 to The settlement products area reported decreased operating revenue of NOK 41 million, while the fund services area saw an increase of NOK 4 million in operating revenue in Operating costs increased by NOK 922 million from 2008 to This includes NOK 921 million of amortisation and writedowns of goodwill and systems. Other operating costs were at the same level in 2009 as in Issuer Products The Issuer Products area s operating revenue accounted for 22.7% of total VPS revenues in The Issuer Products area offers products and services that rationalise and improve the efficiency of tasks carried out by account operators and issuers, while at the same time ensuring that investors, companies and other users receive accurate information. The services are delivered through reliable and secure applications. Most services are available over the internet. The Issuer Products area offers its services through three products: VPS Corporate is an internet-based work platform that account operators can use to register and monitor the companies they have registered in VPS. VPS Corporate is also used by investment firms to register subscriptions for new issues/ distribution sales and for registering bid acceptances. The service includes historical information and search functionality with access to information on all shares and equity certificates registered in VPS. The system rationalises the implementation of corporate actions by offering a set of services for carrying out actions such as new issues, dividend payments, purchases etc. VPS Corporate Services is an internet-based application that allows VPS-registered issuers to make more efficient use of the information registered about their own securities. Issuers can access the service through the internet to monitor who is holding their securities, changes in shareholder structure, and to generate reports for their board etc. This can include information on individual shareholders, historical information such as the dates and amounts of dividends, information on the company s last public share issue etc. VPS Corporate Services is a subscription-based additional service for companies registered in VPS. VPS Fixed Income is an internet-based application for processing fixed income instruments. The system was launched in 2008, and is used by account operators and VPS to register fixed income instruments and carry out actions relating to them. The revenue generated by the Issuer Products area in respect of limited companies is affected by the value of the share capital of the companies and the number of shareholders. In respect of fixed income instruments, revenue is affected by the volume of debt issued and the number of bondholders. In addition, revenue is affected by the number of corporate actions that are carried out and the complexity of these actions. At the close of the year, a total of 1,432 (1,489) limited companies/equity certificate issuers and 2,119 (2,096) bond issues were registered in VPS. Issuer Products - Revenue Total operating revenue (NOK million) Issuer Products - Key Figures: No. of AS/ASA companies registered in VPS No. of equity certificate issues registered in VPS No. of bond issues registered in VPS No. of short-term fixed income issues registered in VPS Investor Products The Investor Products area s operating revenue accounted for 17.3% of total VPS revenues in The Investor Products area offers services for investors to make it easier to own and transfer securities, and to keep track of their personal investments. A VPS account can handle all types of registered securities owned by the individual investor, and represents the core element of the product area s service offer. Investors can confirm their ownership of securities by registering their holdings in the VPS register. In addition, investors can pledge as collateral their entire VPS account or specific securities held on the account. This is generally recognized as an entirely satisfactory method for pledging collateral. In order to take advantage of the opportunities of internet-based communications, VPS has also developed an internet service that gives investors access to their VPS accounts over the internet. This service gives investors access to all their securities, even if they are registered through different account operators. VPS also offers a range of additional services linked to this internet service. The major part of revenue from the Investor Products area is affected by the number of VPS accounts and the market value of the securities registered in VPS at the start of the year. The market 18

19 value of shares and bonds used for invoicing in 2009 was lower than the value applied for The number of VPS accounts increased by 2.45% in 2009, and total market value increased by a sizeable 43%. The number of investors with access to the VPS internet service increased by 7.6% over the course of the year Investor Products - Revenue Total operating revenue (NOK million) Investor Products - Key Figures No. of accounts Market value (NOK million) * No. of unique internet users liquidity available in the settlement process. The degree of optimalisation can be expressed as a settlement ratio, which measures the number of trades settled on the agreed settlement date. The settlement ratio achieved by Verdipapirsentralen has risen significantly from 80% at the end of the 1990s to 98.62% at the close of The efficiency of the settlement process is supported by an automated securities borrowing and lending arrangement based on a lending pool. In addition, trades that cannot be settled on the agreed settlement day are resubmitted for settlement until they are cancelled or settled, and the settlement cycle is run twice a day. Transfers of securities holdings take place in real time, and the system can handle settlement on the same day that a trade takes place (S = T + 0). *Market values at are preliminary figures. These figures will be updated with new prices on or around 1 March. Settlement Products The Settlement Products area s operating revenue accounted for 45.5% of total VPS revenues in Settlement Products provides clearing and settlement services for trading in securities. These services combine low risk with low costs, as well as offering a high level of security for all settlement participants. VPS therefore makes an important contribution to the effective operation of the capital market in Norway through efficient and secure transfers of securities on the one hand and clearing and settlement from buyer to seller on the other hand. The clearing and settlement system supports straight through processing (STP) for the entire value chain. VPS attaches great importance to developing the system in response to changing customer requirements, and VPS closely follows market developments and trends both in Norway and internationally. In addition, VPS pays particular attention to complying with international recommendations and standards for clearing and settlement. VPS is a signatory to the international securities industry s Code of Conduct, which addresses issues such as efficiency, openness and transparent competition for trading and settlement of securities in Europe and freedom of choice for investors involved in cross-border trading and settlement. The clearing and settlement services are based on generally recognized principles such as delivery against payment (DvP) and multilateral netting between settlement participants, which offers important liquidity benefits for the participants involved. Clearing of payments takes place through the central bank, Norges Bank. VPS uses linear programming for an optimisation function that ensures maximum utilisation of the securities holdings and cash Settlement participants communicate with the system using an international open-standard interface (ISO15022). VPS aims to replace status reports provided in list form and updated at specific intervals with real-time information communicated in accordance with this standard. VPS started implementation of ISO15022 communication in 2002, and usage has grown very strongly. The ratio between the number of online status reports and the number of transactions settled gives an indication of the degree of automation in the settlement system, i.e. the extent of straight through processing. At year-end 2009, VPS had 104 settlement participants (i.e. entities that have entered into a settlement agreement with VPS). Of these, 26 are settlement agents and 78 are brokers. Four new settlement participants joined in Of the 78 brokers that participate in settlement, 39 are remote members of Oslo Børs. Four of the remote members are direct participants in VPO (the central securities settlement system) while the remaining 35 use a settlement agent to settle their trades through VPO. The revenue generated by the Settlement Products area is dependent on the number of securities transactions carried out in the market that generate settlement transactions carried out by VPS. The number of such transactions fell by 4% between 2008 and The fees charged for settlement services were reduced in the fourth quarter of 2009 and the third quarter of 2008, and these reductions affected the area s revenue in Revenue will be affected in 2010 by the introduction of central counterparty clearing for the cash equities market in the second quarter. 19

20 Settlement Products - Revenue Total operating revenue (NOK million) Settlement Products - Key Figures: Settlement ratio 98,58% 98,06% 97,46% No. of reports (ISO 15022) 80,1 mill 81,7 mill 58,3 mill No. of trades settled 43,3 mill 44,9 mill 31,8 mill Reports per transaction 1,85 1,82 1,83 Fund Services The Fund Services area s operating revenue accounted for 14.3% of total VPS revenues in Fund Services offers a broad range of services for mutual fund management companies and other distributors of mutual fund products to assist with the management of their funds and the unit holder registers for individual funds. The VPS account system provides the basis for the Fund Services products, with investors holdings of fund units registered on a VPS account in the same way as for other securities. VPS registration of mutual fund investments offers major benefits for investors, not least because this makes it possible to aggregate different types of securities on the same VPS account, and investors can then use their holdings in mutual funds registered with VPS to pledge as collateral. The number of mutual fund investments registered in VPS increased by 4.9% in It is not compulsory to register holdings of fund units with a central securities depository. Accordingly, the fund services area markets its registration services to securities custodians and distributors of both Norwegian and international fund management products in competition with other service providers and the customers own systems. At the close of 2009, 69% of the market value of Norwegian mutual funds was registered in VPS. In addition various foreign mutual funds and nominee registered funds are registered in VPS. The total market value of VPS registered mutual fund holdings was NOK 318 billion at the close of 2009, representing an increase of 50.8% from The Fund Services area comprises three main areas, complemented by additional services. Fund Basics, Distribution Solutions and Unit Linked Defined Contribution Pensions. In all these areas, VPS is responsible for operations, maintenance and ongoing development of the systems, which allows the customers to focus on their core activities. Fund Services cover all aspects of the value chain, from establishing and registering a mutual fund through to distribution and customer service. Similarly, the services for defined contribution pension products cover the entire range from calculating pension contributions to making pension payments with tax deduction and producing annual statements. The integrated design of the services offered by VPS delivers a unified set of solutions that meet the requirements of mutual fund management companies, distributors of fund products, pension providers, companies and fund investors. These services are tailored for each of the specific user groups using webbased user-friendly solutions with user support from VPS. The overall number of mutual fund transactions processed through the systems decreased by 5.9% in Fund Services also includes integrated payment functionality that supports purchases and sales of fund units with full delivery vs. payment for investors. In addition, functionality is provided for paying commissions, combining funds and splits of fund units. VPS also provides services for distributing statements to investors in respect of trades, realisation reports and annual statements, including information for tax returns. Statements can also be provided in the appropriate format for Swedish and Finnish investors and the taxation requirements that apply. In addition to the main suite of services, customers can also choose from a range of other services offered by VPS. The revenue generated by the Fund Services area is principally dependent on the number of transactions, the value of assets registered and the number of holdings Fund Services - Revenue Total operating revenue (NOK million) Fund Services - Key Figures: No. of mutual funds registered in VPS Market value of mutual funds registered in VPS (NOK billion) No. of investor holdings in mutual funds No. of mutual fund transactions No. of pension accounts in VPS registered schemes (Mandatory Employers Pensions)