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RECOMMENDATIONS FOR A STRONGER IPO CLIMATE FOR DENMARK’S GROWTH

ANALYSIS & CATALOGUE OF PROPOSED MEASURES

JUNE 2014

TABLE OF CONTENTS

How to benefit from a strong, Danish stock market? ..........................................................1

IPO Task Force .............................................................................................................3

The stock market as political priority ............................................................................4

What is happening outside Denmark? ..................................................................................5

Participants and contributors to the NASDAQ OMX Copenhagen IPO Task Force .........6

Problem, analysis and recommendations ............................................................................7

New best practice for IPOs and a guide to life as a listed company ...........................8

Incentives for improved investor focus on Small Cap companies ............................. 11

Incentive to improve equity research .........................................................................13

Incentives to increase liquidity ...................................................................................15

Appendices .............................................................................................................................17

1. Proposal on a Danish Share Savings Account ......................................................17

2. Catalogue of measures and recommendations .....................................................19

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HOW TO BENEFIT FROM A STRONG, DANISH STOCK MARKET?

The economy needs growth and that growth can only come from Danish business and industry, which historically has helped create the wealth and prosperity our society enjoys today.

Over time, many Danish companies have grown their businesses via the Danish’s stock market, which for more than 200 years has provided the framework for the meeting between investors with risk capital and Danish businesses with growth and expansion on the agenda.

This meeting has enabled companies to raise capital for acquisitions, research and expansion, and resulting in job creation and further investment in production.

But, this exchange between investor and businesses has also been instrumental in helping ordinary citizens in Denmark to become co-owners of Danish companies: co-owners who, as shareholders, have taken an ownership interest in Danish business and industry.

Denmark has a strong tradition for fostering small and medium-sized enterprises. However, it is pivotal that far more companies have the opportunity to grow into large companies. Historical-ly, the stock market has provided the platform that has enabled companies to source funding bypassing the bank loan, where wealth is distributed and ownership placed in multiple hands.

The stock market has been a firm anchor in helping retain Danish jobs and keeping Danish companies headquartered in Denmark. There are several examples of Danish companies that, after being acquired by foreign owners, have relocated their headquarters, resulting in a loss of Danish jobs.

It has to become easier for Danish businesses to retain and create new jobs if we are to meet and overcome the challenges to growth facing Denmark today.

In the past, the stock market has been key in wealth distribution and companies’ growth oppor-tunities. Yet, we believe there is a much greater potential, because the key to creating better economic growth through job creation lies with smaller companies.

At NASDAQ OMX, we also operate marketplaces outside Denmark. Looking at these opera-tions, two things spring to mind that we do not encounter in Denmark:

1. First of all, a broad-based investor culture provides a strong foundation for attracting small-cap companies to the stock market.

2. Second, we can see that when smaller companies list on the stock exchange in Sweden, for example, they have a much higher job creation rate than non-listed, private Swedish companies.

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A Swedish survey1 showed that in 2006–2013, small, listed companies had an annual job creation rate of 36 per cent. During the same period, privately owned Swedish companies had a job creation rate of 1.5 per cent.

In other words, companies gaining access to a stock market with long term risk capital expe-rience accelerated growth. But this presupposes that investors are willing to take a risk and to activate their otherwise inactive savings to the benefit of the Danish economy and growth in Denmark.

A high level of activity and risk appetite on the stock exchange is absolutely essential for Danish companies trying to raise capital on the stock market. In fact, Denmark is doing quite well when it comes to large cap companies.

In the first five months of 2014, the value of daily trading in shares on NASDAQ OMX Copenha-gen amounted to DKK 5.2 billion, propelling the Danish equity market past both the Finnish and the Norwegian markets in terms of trading turnover.

Source: NASDAQ OMX market research. Turnover of share-based securities, EUR bn.

Moreover, recent listings in Copenhagen have shown that there is both a willingness and an ability in the Danish equity market to absorb large IPOs on the Danish stock exchange. In fact, NASDAQ OMX Copenhagen has listed most of the largest IPOs in the last five years compared to any other exchange in the Nordic region.

In addition, the Danish equity market and Danish investors have proved to be very receptive, absorbing more than DKK 15 billion in new share issues and share sales in the first five months of 2014.

This strong improvement enjoyed by the stock exchange, investors and large-cap companies should be used to support small and medium-sized enterprises in search of capital.

1 An Improved Climate for IPOs for Sweden’s Growth - Problem Analysis and Proposed Actions; NASDAQ OMX Stockholm, September 2013: http://www.nasdaqomx.com/ipo-actionplan-sweden

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We believe more potential lies in the equity market, in investors and in the growth opportunities available to Danish companies.

The more investors and people with savings are actively willing to put their money into Danish companies, the better opportunities Danish companies will have to raise capital for growth and job creation.

IPO Task ForceTo capitalise on that potential, as many as 50 market participants came together in December 2013 in three working groups to discuss the specific challenges facing Danish companies wish-ing to float their shares.

The recent IPOs of Matas, ISS and O.W. Bunker showed that the Danish equity market is capa-ble of welcoming mid-cap and large-cap companies wanting to go public.2

Matas was the first company to demonstrate that it was possible to float a mid-cap company. For its part, the O.W. Bunker IPO showed that it was possible for a company relatively unknown in the Danish media and investor landscape to attract more than 20,000 new shareholders to a business area that only very few people in Denmark had even heard of in March 2014.

In other words, the market is open and ready for new listings. Therefore, the task ahead of us is to ensure that small-cap companies also find their way to the market and that the Danish stock market is better prepared to welcome new flotations.

The three working groups discussed the listing process, the investor landscape and possible obstacles to a more inclusive Danish equity culture. The discussions led to a specification of challenges, which the working groups then explored, trying to find solutions.

The result was a number of recommendations and proposed solutions, which we now have compiled in this catalogue of recommendations.

One example is the high taxation on capital gains and dividends in Denmark. Danish investors pay up to 42 per cent tax on their capital gains and dividends. The rate is 30 per cent in Sweden and 19 per cent in the United States, and the OECD average of 16.4 per cent indicates that still other countries have even lower tax rates on share income. Having the Danish rate adjusted to match the Nordic average of roughly 30 per cent would, in our opinion, not be unreasonable.

Quite simply, the large difference in tax on share income means that Danish investors demand a correspondingly higher minimum return from investing in an IPO than a US investor would require from a US IPO. And then people wonder why US investors have more risk appetite.

As already mentioned, we operate marketplaces in other countries as well, and in many ways we are just as happy to have an IPO in Denmark as to have one on the NASDAQ in the United States. We are part of a global company, and our first duty is to cater to the needs of our cus-tomers. Whether that need is met here in Denmark or in other of our markets is ultimately up to companies and investors.

2 The mid-cap segment consists of companies with a market capitalisation of EUR 150m–1bn, the large-cap seg-ment consists of companies with a market capitalisation of more than EUR 1bn.

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We would like to stress that, just because we would like to see more small companies float in Denmark, we acknowledge that the Danish stock exchange may not be the right marketplace for all companies. From time to time, we will see Danish companies seek a listing elsewhere, either because the company in question or its investment case is not attractive to Danish inves-tors or quite simply because the nature of its business means that it can attract a higher valua-tion in, for example, the United States.

Ultimately, Danish investors are to decide whether a company can successfully go to market, and they naturally require companies of quality with everything in order.

The stock market as political priorityIn addition to the levers that the market participants and we as a stock exchange can pull, as well as the general rules that listed companies and IPO candidates should always observe, this recommendations catalogue indicates a number of problems with the framework provided by current Danish rules and regulations for investing in equities in Denmark and thus with the access small Danish companies have to risk capital.

Since it is clear that NASDAQ OMX Copenhagen is a highly efficient vehicle for mid- and large-cap companies, and because we can also see that much of the growth potential lies with the small companies, we have a duty to draw attention to the skewed impact that the current rules and regulations have on small companies seeking to raise capital in the Danish market.

At the end of the day, if small companies are unable to grow in Denmark, the loser is not the stock market. Denmark has had a stock exchange for more than 200 years, and even during the worst financial crisis since 1929, Danish listed companies were able to raise DKK 38 billion in 2008 and DKK 31 billion in 2009 through rights issues and other corporate actions.

We will all be affected if small companies are unable to grow. In other words, making the stock market more accessible to small companies and improving access to raising capital in the Dan-ish stock market for investment in growth is in everyone’s interest.

As a country, we face major challenges in trying to get back on track for growth, and growth is essential if we are to retain and continue to build prosperity and create new jobs. Those chal-lenges make it imperative that we take the right decisions.

At NASDAQ OMX, we believe that the Danish economy would be much stronger if Danish com-panies were able to raise capital in the market on more attractive terms, and if it were easier for ordinary citizens to take ownership and share in the responsibility for generating the growth that we will all want to benefit from in the future.

The stock market is a unique concept in the business history of the Western world, and it should continue to play an important role for companies both large and small. Let us all exploit the potential available from encouraging as many people as possible to take ownership and share in the responsibility for helping Denmark achieve its full growth potential in a fair and transparent market. We can do it if we can find better ways to use the historically high level of savings we have in our bank accounts and pension savings for investing in the future of Danish business and industry.

When it comes to our businesses, we are all shareholders in one way or another, because we all share an interest in achieving growth and prosperity for Denmark.

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WHAT IS HAPPENING OUTSIDE DENMARK?

The challenges small companies face in financing growth is not unique to Denmark. Initiatives similar to the IPO Task Force set up in Denmark have been launched in a number of other markets. The main common denominator of such initiatives is the realisation that open and transparent stock markets should play a key role in the future growth potential of businesses by providing the necessary opportunities to raise capital.

Some examples of other initiatives are:

1. MiFID II on harmonisation and quality assurance in SME marketplaces and a revision of the Transparency Directive intended to reduce the administrative burden on SMEs.

2. The Jobs Act in the United States, whose main purpose is to promote job creation by giving emerging growth companies better access to financing without having to meet all the re-quirements of a listed company.

3. The London Stock Exchange establishing a High Growth Segment designed to assist growth companies in the technology sector in raising capital without having to fulfil the full set of rules applying to the premium and standard segments, for example in terms of histori-cal financial data and free float.

4. The efforts by Euronext to introduce an “entrepreneurial exchange”.

5. In autumn 2013, NASDAQ OMX Stockholm issued its IPO Task Force report with recom-mendations for strengthening the Swedish capital market and giving companies better access to financing. Among the recommendations are easing company disclosure require-ments and the introduction of an intraday auction.

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PARTICIPANTS AND CONTRIBUTORS TO THE NASDAQ OMX COPENHAGEN IPO TASK FORCE

It would not have been possible to prepare this report and its recommendations without the con-tributions and active involvement of key players and stakeholders in the Danish stock market.

The time allocated and the interest shown in the project bears witness to a genuine commitment among market participants to strengthening a pivotal link in the financial system.

The content, measures and recommendations of the report were provided exclusively by NAS-DAQ OMX Copenhagen, but were produced after discussions with and input from the IPO Task Force participants listed below.

A total of 55 people contributed to initiating the work of the IPO Task Force and helping it reach its conclusions. Each of the people listed below contributed actively to providing analysis and proposing measures in the three working groups.

+ Allan Reimann, Global Connect + Casper Nørgaard, Handelsbanken + Christian Hansen, Nordea + Christian Lindholm, Danske Bank + Christian Lundgren, Kromann Reumert + Claus Wiinblad, ATP + Frank Gad, SP Group + Gorm Boe Petersen, DVCA + Gregers Kronborg, NorthZone + Hans Henrik Crois Christensen, Exiqon + Jacob Andersen, Nordnet + Jannick Nytoft, DVCA + Jens Otto Damgaard, PwC + Jesper Lau Hansen, University of Copenhagen + Klaus Søgaard, Gorrissen Federspiel + Kaare Danielsen, Jobindex + Lars Vinge Frederiksen, Matas + Marianne Philip, Kroman Reumert + Niels Erik Nielsen, Lett + Niels Mengel, Danish Shareholders’ Association + Niklas Bjerggaard Andersen, Deloitte + Peter Lyck, Hannes Snellman + Sabine Braad, SEB + Steven Brooker, SEB + Thomas Frøbert, Bech Bruun + Thomas Lindquist, ABG + Thomas Steen Hansen, Danske Bank + Torben Hansen, Nordea + Bjørn Sibbern, NASDAQ OMX Copenhagen + Carsten Borring, NASDAQ OMX Copenhagen + Peter Legind-Hansen, NASDAQ OMX Copenhagen + Anne Zeuthen Løkkegaard, NASDAQ OMX Copenhagen + Jakob Kaule, NASDAQ OMX Copenhagen + Javier Lopez Garrido, NASDAQ OMX Copenhagen

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PROBLEM, ANALYSIS AND RECOMMENDATIONS

In this section, our recommendations are based on the obstacles and challenges small compa-nies may face when seeking to raise capital and find new owners on the stock exchange. Small companies are in this document defined as having a market capitalisation of less than DKK 2 billion.

The reader will note that some of the recommendations are directed specifically at the stock exchange: these are initiatives that it will be up to NASDAQ OMX Copenhagen to implement.

Other recommendations point to other stakeholders and are aimed at market participants, authorities, legislators, companies and investors. Naturally, the Danish market is more than the stock exchange: it is equally dependent on the appropriate actions of market participants and on legislators providing a framework.

We sincerely hope that the analysis and recommendations derived from the work done by the IPO Task Force can trigger a healthy debate on how the stock market and the upward trends NASDAQ OMX Copenhagen is seeing can play a greater role in generating growth and creating jobs, in Danish businesses in general and in small companies in particular.

Some of the recommendations have already been implemented and others are in the pipeline, but adjusting the rate of tax on share income, for example, will depend on external factors and should be dealt with politically.

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New best practice for IPOs and a guide to life as a listed company

PROBLEM

The IPO process and life on the stock exchange is often perceived as difficult, cost-intensive and incomprehensible. What are the myths and what are actual obstacles?

ANALYSISProspectuses and the IPO processIn Denmark, the Financial Supervisory Authority (“FSA”) administers prospectus requirements, and only the FSA can approve a prospectus. NASDAQ OMX Copenhagen admits companies to trading after the FSA has approved their prospectus. Accordingly, NASDAQ OMX Copenha-gen cannot ease the requirements, prescribe new requirements or determine how a prospectus approval process should be conducted.

Nevertheless, based on the discussions among auditors, lawyers, compact representatives and corporate finance people in the working groups, we believe it is relevant to submit the following observations and proposals for improvement.

In the years preceding the financial crisis, from 2005 to 2008, a total of 78 companies were admitted for trading on NASDAQ OMX Copenhagen and First North Denmark; in the five years after that period, a total of 11 new companies were listed and admitted for trading. This would indicate that, for most banks and advisers, it has been several years since they last went through the process of taking a company to an IPO. This, we believe, warrants an update of the best practices for listing Danish companies, now that the most severe and longest-running financial crisis since 1929 is behind us.

We have seen a move towards international prospectus standards during and after the financial crisis for the simple reason that most post-crisis IPOs have been lead-managed by internation-al finance houses. This has created a very extensive and detailed prospectus standard with much more detailed sections on risk factors and more comprehensive disclaimers than seen previously. This was all done in the best of intentions, but we do not believe that it has benefited investors, issuers or the market as such. As a matter of fact, today’s prospectuses can often be characterised as a disclaimer document rather than a document providing information to investors. This makes prospectuses much more complex than necessitated by the prospectus requirements and investor considerations. It was a widespread view among the advisers in the IPO Task Force that the advisory industry holds part of the responsibility for this trend.

At the same time, however, it is important to acknowledge that this situation cannot be changed for IPOs with an international appeal, because in such cases the international standard should apply.

Overly comprehensive and complicated prospectuses not only pose a problem for investors, and the sheer volume of text in a prospectus does not in itself give investors a better under-standing of the contents. Another thing to consider is the fact that the process of preparing a prospectus is quite cost intensive. These costs will have to be reflected in the price at which a company’s shares are offered and must be taken from the proceeds needed to support future growth.

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In addition, the actual prospectus approval process is perceived as lengthy, laborious and com-plex. This is partly due to the many parties contributing to writing a prospectus and a perception that the sooner a first prospectus draft is submitted, the faster it will get FSA approval. In fact, it impedes the approval process when the FSA and NASDAQ OMX Copenhagen are required to read, suggest corrections to, comment on and return an incomplete prospectus draft more times than absolutely necessary.

A third contributing factor in running up the costs of an IPO process and thereby discouraging both companies and would-be investors are the disproportionately large IPO management teams seen in post-crisis IPO processes. Previously, it was not unusual to see an IPO being managed by a group of two or three banks, but today it is much more common to have teams of five banks, regardless of the size of the IPO candidate. Furthermore, prospectus verification has become a standardised process in Denmark. The working groups agreed that the verification process generally improves the quality of the final prospectus, but also that the process should be aligned with the floating company’s market capitalisation. This implies that there may be situations in which a verification process is not needed at all.

Accordingly, it should be possible to restore best practice to the effect that both the volume of a prospectus and the size of an IPO management team reflect the company’s market capitalisa-tion, which then allows the approval process to be run in a more efficient manner, especially for small companies.

Life after the floatThe general feedback from the working group was that life after a float was not in itself per-ceived as complex or burdensome, assuming that the business is well-organised and has its affairs in order. However, several parties emphasised that the rules for reporting and public disclosure of insider share dealings and the rules on major shareholders were considered to be administrative burdens.

It was also stressed that public sanctions on violations of stock exchange legislation such as police notification and public disclosure of even relatively minor offences are considered enough of a burden that it can actually dissuade prospective IPO candidates from floating.

RECOMMENDATIONSProspectuses and the listing process

► Tailor made prospectuses to suit the needs of small companies

It would be possible to produce a less comprehensive prospectus that would still comply with all prospectus requirements. One claim that emerged from the discussions was that a small company could float on the basis of a 50-page prospectus exclusive of annexes. However, this has yet to be verified.

This kind of model would be relevant for smaller listings in offerings limited to and specifical-ly targeting the Danish or the Nordic markets and investor segments.

Until such a process has been applied in successful IPOs and a new market practice has evolved, an anchor investor may be required to provide a seal of approval for the invest-ment case from the perspective of retail investors.

► Optimised prospectus approval process vis-à-vis the FSA

It should be possible to shorten the timetable for FSA prospectus approval.

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+ Under certain circumstances, approval could be achieved over a period of 12 days and with three filings.

+ A prospectus could be processed concurrently with the application submitted to NASDAQ OMX for admittance to trading under the listing conditions of the stock ex-change. The verification process, due diligence, should be resolved before the first filing with the FSA.

This would require the prospectus to be virtually final at the first filing: there should be no outstanding issues at this point.

► Adjust the size of IPO management teams

The number of bankers and advisers appointed should better reflect the size of the flota-tion capital, ie. the company’s market capitalisation. Danish and Nordic banks are capable of taking a small company to an IPO without involving numerous international investment banks.

Life after the float

► SME committee

NASDAQ OMX Copenhagen intends to set up an SME committee to follow up on the challenges and potential for improvement and to work to dispel the myths about life after the float.

► A guide to life as a listed company

A “before-during-after” list of the formal and informal requirements should be prepared for companies already listed and companies contemplating going public.

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Incentives for improved investor focus on Small Cap companies

PROBLEM

Less risk appetite for small-cap stocks in changed investor and broker landscapes.

ANALYSIS

The financial crisis and the professionalization of the Danish capital market has created an in-vestor landscape in which small pension funds have begun to outsource their equity mandates to large portfolio managers and pension industry players to a much greater extent. Small pen-sion funds were previously actively involved in bringing small companies to flotation, but they no longer make that decision themselves.

Today, mandates and decision-making powers are concentrated in the small number of large pension fund portfolio managers in Denmark or even in London. These managers run large-scale businesses and have no interest in becoming majority shareholders in a large number of small companies. Nor does investing relatively small amounts in a large number of small companies make much business sense to them.

Fewer small broker firmsThere are virtually no more small and medium-sized securities companies with an in-house corporate finance department and their own investor base left in the new Danish landscape. Securities brokers such as Gudme Raaschou, for example, have disappeared from the market. Previously, these small and medium-sized broker houses played a constructive role in listing small-cap companies and functioned as a distribution link to high net worth retail investors. This type of small and medium-sized securities brokers still play a role in the Swedish market, and they are capable of bringing small companies to an IPO, providing research coverage and act-ing as the distribution link to the retail segment. In 2014 to date, NASDAQ OMX Stockholm has welcomed more than 17 new floats, most of which were listed with an initial market capitalisa-tion of less than SEK 1 billion. Such securities broker companies include Erik Penser, Mangold, Remium, Redeye and Pareto Öhman.

Tax on equity incomeCapital gains and dividends are taxed at up to 42 per cent in Denmark. This rate puts Denmark at the top of the list in an OECD context, and it constitutes a heavy extra cost burden in Danish companies’ efforts to raise long-term risk capital. Despite the extra cost, Danish investors are clearly willing to buy into large cap companies able to document solid earnings and returns.

The challenge arises when a Danish investor looks to invest in Danish growth companies, because the inherent risk of this type of company is augmented greatly by the extra cost of investors being taxed at up to 42 per cent on share income.

By comparison, a Swedish shareholder pays 30 per cent, a Norwegian shareholder pays 28 per cent, an American shareholder pays 19.1 per cent, and the OECD average is 16.4 per cent.

We also know from a Swedish survey that small companies that float are a major source of job creation. Since 2006, listed small companies in Sweden have recorded annual job creation growth of 36 per cent. During the same period, the corresponding figure for privately owned

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Swedish companies is 1.5 per cent. In other words, job creation accelerates considerably when small companies float in Stockholm.

The Danish and Swedish equity markets have many things in common. For example, NASDAQ OMX operates the marketplaces in both countries. Much of the framework that we are respon-sible for through our stock exchanges is the same in the two securities markets, including the stock exchange rules, the way we operate the marketplace and the way we attract securities brokers and bankers from the Nordic region and the rest of the world.

But there are also differences: differences that encourage small companies in Sweden to create Swedish jobs and give Swedish investors an incentive to be active in the Swedish equity market.

The importance of having an anchor investorTo many private investors, an anchor investor who takes a stake in a stock is a seal of approval of the stock and the investment case. An anchor investor does not necessarily have to be a major Danish pension fund. It can be a family-owned fund, a private fund or a large company operating in the same industry sector.

Overall, a lower risk appetite translates into lower evaluation for small companies, all other things being equal. Lower evaluation is often a determining factor for small companies’ wish to seek a flotation in Denmark.

RECOMMENDATIONS

► Get new banking segments involved

NASDAQ OMX plans to raise interest from new banking segments that do not currently par-ticipate in IPO management teams in order to take advantage of their substantial distribution power to high net worth retail investors and the retail investor segment in general. NASDAQ OMX Copenhagen believes that Danish banks, including the country’s medium-sized banks, can come to play a much more key role in equity distribution and small flotations.

► Search for new types of anchor investor

IPO managers and advisers should work to identify and approach alternative anchor inves-tors independently of the major pension funds.

► Encourage a competitive rate of tax on equity income

NASDAQ OMX Copenhagen will work to make tax conditions more attractive for investors, e.g. through a simple and competitive rate of tax on share income by

+ aligning the Danish tax on share income with the Nordic level; + introducing a share savings account similar to the Swedish investeringssparkonto; + creating standard tax rules for private individuals on capital gains and losses on listed

shares; and + abolishing mark-to-market taxation of listed portfolio shares of company investors.

► Introduce a Small and Mid Cap Interest Register

NASDAQ OMX plans to introduce and maintain a list of Danish banks that actively want to invite Small and Mid Cap companies and IPO candidates to attend investor meetings with their private banking and other high net worth clients.

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Incentive to improve equity research

PROBLEM

There is a widespread lack of research coverage in the Small and Mid Cap segments.

ANALYSIS

Equity research is a tool with well-documented effects for increasing investor interest in a stock. A research report attracts attention and visibility to a stock and makes the investor better able to make an informed investment decision.

It is a generally accepted fact that a lack of research coverage can lead to less investor interest and thus to less liquidity and turnover in a stock. This is not only a Danish phenomenon, but a general challenge for all of Europe.

For the financial sector, the financial crisis squeezed earnings from share trading, and as the costs of research coverage are often covered by income from the banks’ markets divisions, the declining income from share trading has forced many banks to cut back on their Danish equity research resources.

This has severely impacted the smaller stocks, which already provided the lowest turnover, liquidity and earnings. This makes sense from a resource perspective. From a market perspec-tive, however, it adds insult to injury: while, on balance, the larger stocks already attract a great deal of attention in the market, small papers often only get coverage from one or two banks.

As equity research is used not only by private investors, but also very much by the professional and semi-professional segments, having research coverage for a given stock is of huge impor-tance for how liquid and attractive it is.

In many cases, new stocks start life on the stock exchange with research coverage. Typically, a bank from the IPO management team will provide post-IPO coverage for a period determined at its own discretion.

One parameter that should not be overlooked is the fact that confidence in a research report will to a large extent depend on the personal and professional expertise of each individual analyst and bank.

It is important to point out that a research model should be self-sustaining and commercially viable in order to attract and retain the necessary expertise that equity research relies on for credibility.

RECOMMENDATIONS

► Improve equity research through a standard fact sheet

NASDAQ OMX plans to initiate a fact sheet model to be provided by an independent re-search company able to deliver quantitative tables of key and comparative data for bench-mark analysis purposes that cover all companies listed on NASDAQ OMX Nordic across all Small, Mid and Large Cap segments.

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In addition to serving the purpose of allowing investors to compare all stocks listed on NAS-DAQ OMX’s Nordic marketplaces, the solution should be easily scalable so that companies can add a qualitative component to the key indicators delivered by the research provider.

► Involve and motivate new banks on IPO management teams to expand their equity research

Involving medium-sized Danish banks in IPO management teams for purposes of distribu-tion to private investors could motivate the banks to add more small caps to their research universe.

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Incentives to increase liquidity

PROBLEM

Low liquidity in the Small Cap segment.

ANALYSIS

Turnover in the Small and Mid Cap segments has nearly doubled in the past 18 months.

During this same period, bid/ask spreads have dropped to their lowest since NASDAQ OMX began monitoring price spreads in the Small, Mid and Large Cap segments. The higher turn-over and improved liquidity reflects the strong interest and attractive return potential found in the Small and Mid Cap segments.

Historically, liquidity has been low in the Danish Small and Mid Cap segments: Danish institu-tional investors have often found it difficult to exit a stock once they had taken a position, for example in an IPO.

Even with the growing market activity and increased trading in the Small and Mid Cap segments of the last 12 months, many investors have experienced liquidity in certain Danish Small Cap stocks as being relatively thin. A lack of liquidity is not purely a Danish phenomenon, but an issue that most exchanges across the world are trying to address and resolve.

The perception of a lack of liquidity can act as a deterrent that encourages investors to refrain from investing in low-liquidity stocks. In other words, it is a weighty obstacle in a small compa-ny’s efforts to find new owners and investors in the Danish stock market.

RECOMMENDATIONS

► Liquidity Provider

NASDAQ OMX Copenhagen will introduce a liquidity provider scheme as used in Sweden. A liquidity provider arrangement would help formalise and make visible the benefits avail-able to listed companies that use the services of a liquidity provider. A liquidity provider would make it easier and cheaper for private investors to trade shares in companies sub-scribing to a liquidity provider arrangement.

A liquidity provider arrangement modelled on the Swedish experience would place a cap on price spreads in a stock and on the amount of time potential liquidity providers should provide bid/ask prices for a minimum order for a stock.

It is essential that NASDAQ OMX can lay down clear guidelines to ensure that companies and investors see the attractive benefits available from a liquidity provider arrangement.

► Intraday Auction

NASDAQ OMX Copenhagen has introduced intraday auctions aimed at improving liquidity in thinly traded stocks.

Today, trading on modern stock exchanges takes place in so-called continuous trading. This means that dealers place their buy or sell orders in the order system, where they are matched, producing a trade. In other words, a trade is executed as soon as a buying order can be matched with a selling order. On average, about 70,000 transactions are executed

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daily in the Danish stock market, the highest-ever level seen on NASDAQ OMX Copenhagen.

The stock market is opened and closed by a daily opening or closing auction; the purpose of these auctions is to provide fresh and relevant opening and closing prices. An added bonus is that an increasing proportion of the overall turnover is generated during these auctions. From 2007 to 2013, the proportion of turnover generated during the auctions trebled.

We would like for this consolidating effect on liquidity to also benefit thinly traded stocks, and to that end, in December 2013, we introduced a midday auction for the purpose of con-centrating liquidity and enhancing the potential for a price match.

Intraday auctions are held each business day from 13:30 to 13:35 CET. During that period, NASDAQ OMX compiles all buy and sell orders and uses them to determine an equilibrium price to be employed when continuous trading recommences.

By introducing intraday auctions for Small and Mid Cap shares, NASDAQ OMX Copenha-gen has eliminated some of the risk and uncertainty investors experience when investing in thinly traded stocks.

► Top ten investor factors

NASDAQ OMX Copenhagen will prepare a guide on improving liquidity containing the ten most important factors that Danish investors look at when evaluating a listed company. It will form part of NASDAQ OMX Copenhagen’s “before-during-after” list.

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APPENDIX 1

Proposal for a Danish share savings accountCapital gains and dividends are taxed at up to 42 per cent in Denmark. This rate puts Denmark at the top of the list in an OECD context, and it constitutes a heavy extra cost burden in Danish companies’ efforts to raise long-term risk capital. Danish investors accept the extra cost when they buy into large cap companies able to document solid earnings.

The problem arises when Danish investors look to invest in Danish growth companies, because the inherent risk of this type of company is augmented greatly by the extra cost of investors being taxed at up to 42 per cent on share income. By comparison, a Swedish shareholder pays 30 per cent, a Norwegian shareholder pays 28 per cent, an American shareholder pays 19.1 per cent, and the OECD average is 16.4 per cent.3

In addition, the job creation rate in Sweden is higher for listed small companies. From 2006 to 2013, small, listed companies in Sweden recorded annual job creation growth of 36 per cent. During the same period, the corresponding figure for privately-owned Swedish companies was 1.5 per cent. In other words job creation accelerates considerably when small companies float in Stockholm.

The Danish and Swedish equity markets have many things in common. There are also differences, however. Differences that encourage small companies in Sweden to create Swedish jobs and give private investors in Sweden an incentive to be active in the Swedish equity market.

SWEDISH SHARE SAVINGS ACCOUNTS

One thing that Sweden does different is the share savings account, called the Investeringsspar-konto (“ISK”), which the Swedish government introduced in 20124. Since launch, 438,000 people have opened an ISK.

The Swedish tax agency estimates that some 20–30,000 of these are old share custody ac-counts re-categorised as ISKs. In other words, a large majority of ISKs are new shareholders representing a new source of tax income. This is an estimation from the Swedish tax agency, however.

In 2013, the average tax income to Sweden was SEK 4,000 per ISK. Sweden’s Ministry of Finance estimated in 2011 that new ISK-related savings would amount to SEK 50–100 billion per year.

The ISK is an alternative to ordinary tax on share income. Investors can freely choose to be taxed under either scheme.

3 Source: Denmark has the highest tax on share income of all OECD countries; CEPOS, 31 October 2012 4 Source: Förslag om investeringssparkonto till Lagrådet; http://www.regeringen.se/sb/d/14761/a/168570

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HOW IS ISK CALCULATED?

Tax on ISK is calculated on the basis of a capital base. The capital base is calculated once a year and represents 25 per cent of the sum of

+ the value of the assets at the beginning of each quarter; + amounts paid into ISK during the year; + financial instruments the account holder transfers to his or her ISK during the year; and + financial instruments transferred from other investment savings accounts during the year.

The capital base is then multiplied by a pre-determined factor, which is the Swedish government lending rate on 30th November of the year preceding the income year in question. The product of the equation is the estimated income that automatically appears on an investor’s income tax return and the amount is treated as capital income. This capital income is taxed at a rate of 30 per cent.

WHAT ARE THE COSTS OF AN ISK?

Sweden’s Ministry of Finance has estimated the permanent budget effects of ISK to be minus SEK 2 billion. The costs of introducing ISK in Sweden were offset by the concurrent adjustment of general capital gains taxation to 30 per cent.

The introduction of ISK implies an expense to the Swedish treasury of SEK 2 billion per year. Whether that equation can be applied in a Danish framework is something for the Danish civil servants to consider. However, it should be noted that in itself the introduction would be expect-ed to attract first-time investors to the market, which would represent a new source of budget income for the Danish administration.

BENEFITS OF A DANISH SHARE SAVINGS ACCOUNT

Based on the experience in Sweden, we believe that a share savings account offers a num-ber of benefits to investors. Because the tax is paid and reported automatically, rules become easier and more simple to follow for investors. The share savings account and the fixed annual tax calculation mean that investors have no incentive to speculate in when best to realise an investment.

Over a short period of time, the ISK has attracted a relatively large number of first-time inves-tors. In other words, this could be a good way to promote a nascent share investment culture in Denmark and to motivate investment in Danish companies, whether in newly-listed small, growth companies or in large, well-known listed industrial companies.

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APPENDIX 2

Catalogue of measures and recommendations1. Recommendation to size prospectuses to the needs of small-cap companies

2. Recommendation for optimising the prospectus approval process vis-à-vis the FSA.

3. Recommendation to adjust size of IPO management teams

4. NASDAQ OMX Copenhagen has set up an SME committee

5. NASDAQ OMX Copenhagen plans to prepare a ”Before-During-After” list of requirements, as a guide to companies after the float.

6. NASDAQ OMX Copenhagen plans to introduce a Small and Mid Cap Interest Register

7. NASDAQ OMX Copenhagen will seek to activate new banking segments for IPOs

8. Recommendations to search for new types of anchor investors

9. Recommendation to align tax on share income to a reasonable level

10. NASDAQ OMX Copenhagen plans to initiate Fact Sheet model to enhance the potential for equity research.

11. Recommendation to involve and motivate new IPO management team banks to expand their equity research.

12. NASDAQ OMX Copenhagen plans to introduce a Liquidity Provider scheme

13. NASDAQ OMX Copenhagen has introduced Intraday Auctions

14. NASDAQ OMX Copenhagen to produce a Top Ten of investor factors for companies

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