New age in the old Stock Exchange Building
All international indicators acknowledge the stable development of the Finnish economy. Inflation is nearly non-existent and interest rates have remained well under control. The sole problem is high unemployment, which is only slowly falling. Finland has every prospect of being in the first wave of countries to enter Economic and Monetary Union when - the timetable is still the subject of debate - the Euro replaces several national currencies in Western Europe. The disciplined manner in which she has managed her economy has even earned Finland the accolade of model student in EU circles. That is the environment in which the Helsinki bourse has sustained an excellent development that has been enticing investors for years. At the end of 1997 the Helsinki Stock Exchange and the derivatives exchange (SOM) fused to form a larger entity with even better prospects of success in a changing market.
The Helsinki Stock Exchange dates from 1912. One of the few remaining relics of the world as it existed then is Lars Sonck's imposing national romantic building with its courtyards, restaurants and clubs. The large trading floor is no longer used for its original purpose; now the brokers sit in front of computer monitors in their own offices.
Nor is money any longer money in the old meaning that everyone understood. When the United States took the Dollar off the gold standard in 1971, others followed suit. Now money is something other than the equivalent of a certain weight of a precious metal. Securities are no longer pieces of paper with elaborate decorative designs printed on them; in fact, they are not paper at all. The money and company shares that keep this world turning now exist in electronic form in the memory chips of computers.
The elegant trading chamber in Helsinki, with its desks and parquet floors, has been yawningly empty in the 90s. Now news - in the form of numbers - flashes from one side of the globe to another at the speed of light and flickers on screens beside which conclusions are drawn and decisions made. Yet there is still a role for stock exchanges. Indeed, international investors' interest in the Helsinki bourse has been steadily growing. It has its special strengths, which guarantee its position. One of the essential conditions that it fulfils is that the investment objects it offers are interesting.
Foreign investors trust Helsinki
About 45 per cent of the Helsinki bourse's total capitalisation is in foreign ownership. Share prices have been rising almost uninterruptedly - there have been only a few brief dips - since autumn 1992, when the recession bottomed out. One record followed another in 1997. There is still no sign of this trend ending, even though growth must always peak some time. The Helsinki bourse is an international marketplace, because 10 of the 23 authorised firms of brokers ("Trading Members") are foreign-owned. Those 10 have a market share of over 50 per cent between them. A traditional stock exchange is a secure place for both investors and companies compared with, for example, the electronic bourses that operate through information systems and on which trading is difficult to oversee.
"The international, global markets that have come into being are reflected in the development of share prices in Helsinki," says Maija Särömaa, who handles media relations. "Here, just as in the other European bourses, events in, say, New York are followed very closely. When something happens there, it is immediately felt here. A large number of our foreign investors are big North American institutions. Overall, foreign investors are very important, accounting for about half of the daily trading volume here."
"Analysts speak of economic fundamentals, the basic factors that influence stock markets. Those are sound in Finland," she adds. The way share prices have been developing in Helsinki bears her out, but she cautions: "Prospects for a continuing positive development are favourable. However, there are a lot of things in the world that we cannot influence, but which affect us."
Smallness has its advantages
"The idea of merging the Nordic bourses has been mooted on numerous occasions in the course of the years, but for the moment at least it is not on the agenda. By contrast, cooperation, networking in the Nordic and European contexts and also more broadly, is an alternative that brings Finland greater benefits than merging organisations," says Särömaa, emphasising that the bourse is more than just a terminal at which one transacts deals. "Running a marketplace involves a lot of administration, oversight and information mediation. Knowledge of the local conditions in which the listed companies operate gives investors better protection and adds to the value of the service they get. That is why small bourses like ours in Helsinki are needed. Modern information technology makes a single big European stock exchange conceivable, but it could never oversee every listed company as thoroughly as we do. Little Finland would be drowned out and unable to establish a profile. That situation would be especially exacerbated in difficult times, when no one would take notice of companies in a remote place like Finland."
Electronic trading is one example of the development that has been taking place in the bourse's international services. An EU directive on investment services was incorporated into Finnish law in August 1996. A trader authorised in any EU member state can now deal on all bourses throughout the Union. That facilitates and simplifies operations. Traders in Stockholm and Copenhagen are already online to the Helsinki bourse.
The valuable functions of the Helsinki Stock Exchange have two dimensions. First, it gives investors a certain degree of protection in both good and bad times. Second, companies need a secondary marketplace when they raise equity capital. There are not many Finnish companies big enough to be able in all conditions to attract the interest of investors at large marketplaces; in other words, to get hold of money when they need it. In this respect, having a bourse of its own gives the Finnish business world an invaluable benefit.
Combining forces to cope in a changing market
The Helsinki Stock Exchange and the derivatives exchange SOM merged in December 1997 to form a new company called HEX, the Helsinki Securities and Derivatives Exchange. The merger created a stronger, about 90-strong organisation capable of providing a higher standard of service than ever. Juhani Erma is President and CEO of the new company and Asko Schrey the Vice-President and Chief Operating Officer. A further benefit of the merger will be increased international cooperation, and thereby better opportunities for Finnish investors to spread their risks.
There were many reasons for combining forces: better information technology, harmonisation of regulations in Europe and a growing volume of international investment as Europe moves towards economic and monetary union and a common currency. Trade across the frontiers of the countries participating in EMU will become easier once exchange-rate risks are eliminated.
The response to the challenges thrown up by a changing operating environment has been the same in many European countries as in Finland. In Germany, Switzerland, the Netherlands and Denmark, to take some examples, implementation of a new strategy has begun by merging the various organisations serving the market into bigger entities.
Life in the old Stock Exchange Building in Helsinki is lived very much in touch with the pulse of the times, even though the walls still exude the stolid dignity of bygone decades. To step from the street into the courtyard there, is to enter an atmosphere that was created with and for money. John Maynard Keynes once wrote that trading on the stock exchange would be unbearably boring if it were not driven by a slight passion for gambling. Those who work in the bourse know whether he was right.