OFF-EXCHANGE SEGMENTS OF THE SECONDARY MARKET IN DENMARK

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MARKET IN DENMARK0

The greater part of secondary stock market transactions

in Denmark take place off the stock exchange. The chief

participants in this market are the major banks in

Copenhagen. Since no office collects data on off-exchange

dealings systematically, we cannot say with certainty

whether banks in other parts of the country play an

active role in this market. Nor is it known whether, and

if so to what extent, institutional investors act

without the agency of banks. Even the turnover of this

segment of the market can only be stated approximately.

Off-Exchange (or "over-the-counter") sales in shares

is estimated at between one and two times that of the

corresponding stock exchange figure, over-the-counter

sales in bonds at between one and seven times. In the

case of bonds - if one includes new-issue dealings,

which form a substantial part of stock exchange business

three times stock exchange sales is more likely to be

too low than too high an estimate.

Off-exchange transactions are almost without exception

based on the stock exchange prices for the relevant day.

The transactions in question consist partly of interbank

dealings, partly of in-house crossing transactions,

but also of business in Danish Eurobonds, for which the

large banks act as market makers, and, finally, of

business in small orders and block transactions. We

must give, briefly, more detail of the last two

categories.

cents zero

1. Execution of small orders

By "small orders" we mean orders for less than the

designated unit of trading or such parts of orders in

excess of one or more round lots, in other words,

orders for odd lots. In theory, even odd-lot orders may

be executed on the Hovedb^rs; if application is made to

this effect half an hour before the commencement of

trading, the small orders may be called out following

regular dealings in the security in question. This

procedure is cumbersome; thus, it is not used. As a rule,

banks are prepared to buy or sell odd lots for their own

account at prevailing stock exchange prices. If several

prices could be applied to the transaction, the bank

chooses the price it considers reasonable for the

deal. Since the prices from which the choice may be

made have arisen at virtually the same moment there

is little difference between them unless the effect of

a large order has made itself felt. In addition, a

premium or discount for dealing in a small quantity

(odd-lot differential) is added to or subtracted from

the price. The client is charged the usual commission.

2.. Block transactions

In listed bonds, in particular, block transactions

are very common. Such dealings usually involve sales

to insurance companies and pension funds; less often

they take the form of transactions between banks. All

transactions are normally based on reported stock

exchange prices. Even where deals of several million

kroner are involved, the ask is said to be quoted not

higher than 25 - 50 base points above the bid, if they

differ at all from the reported prices. For such

business the banks charge the normal commission. Persons

or organizations other than banks are not granted

special terms, apart from stock exchange members, who

pay half commission.

Besides dealings for cash, a certain amount of business

takes place for future settlement, which mostly entails

the client buying bonds for delivery at a later date

(up to one or two months after trading date) when the

necessary funds are available. A premium over the current

stock exchange price is often charged in forward trading

of this kind. The banks either deliver the bonds from their

own holdings or purchase them for cash on the market.

the source by Dr.Hartmut Schmidt

OFF-EXCHANGE SEGMENTS OF THE SECONDARY MARKET IN DENMARK