The Swedish securities market
From an international perspective, Sweden has a very well-developed securities market, which is central to the development of the economy. The Swedish Securities Markets Association continuously monitors and analyses developments in the Swedish securities market and uses this information as a basis for discussions and responses to consultations, as well as for reports and analyses.
The three main tasks of the securities market
The securities market has three main tasks: to convert savings into funding, to make it possible to manage liquidity and to enable the management of various risks by trading in financial instruments designed for this purpose.
Turning savings into funding
On the securities market, central government, municipalities, companies and other players can finance existing and ongoing operations as well as new projects and investments.
Central government and municipalities have for long been financing themselves to a large extent on the bond market, but companies are also increasingly financing themselves on the bond market. Companies also use the equity market both to raise capital initially, for example in connection with IPOs, and on an ongoing basis through new issues.
Conversely, the securities market is important for investors who can use this market to invest savings and liquidity in bonds, shares and other financial instruments.
In this way, the securities market is important for the development of the economy as it enables companies and other players to develop and grow while allowing investors to save through investments in shares, bonds and other financial instruments.
The central government, municipalities, companies and other players who turn to the bond market for their long-term financing can also use the so-called money market for their liquidity management. On the money market, these actors can cover their need for liquidity by issuing securities with a maturity of up to one year, which can be compared with the bond market, where maturities are often longer.
Companies and other players who need to protect themselves against different types of economic risks can use the securities market. The need for protection depends on the company’s activity and its financing: companies that import or export goods may need to protect themselves against changes in exchange rates and commodity prices, while companies that finance themselves internationally may need to protect themselves against changes in interest rates and exchange rates.
Firms can manage risks in the securities market by, for example, trading in contracts specifically designed to manage such risks, including derivatives such as options, futures and swaps.
The different parts of the securities market
In simple terms, the Swedish securities market can be said to consist of the equity market, the bond market and the derivatives market.
The equity market
From the perspective of both investors and companies, Sweden has one of the most well-developed equity markets in Europe. The Swedish equity market is also one of the largest in terms of market capitalisation in relation to GDP.
Sweden has a strong tradition of investing in equity and over 2 million Swedish individuals own shares in Swedish companies. This means that almost every fifth person in Sweden has a direct ownership in shares, in addition to the ownership through investment funds. The Swedish stock market is also attractive from an international perspective and just over 40 per cent of ownership in Swedish shares comes from abroad.
Every year, many new companies enter the Swedish equity market by listing on the stock exchange. For example, 2021 was a record year for IPOs in Stockholm, with more IPOs than in France, Spain and Germany combined.
Many companies use equity capital to develop, expand and sustain their business. This is important for large, medium and small companies. The latter category of companies is often referred to as Small and Medium-sized Enterprises or “SMEs”. The Swedish stock market for SMEs is by far the largest in the EU.
The bond market
On the bond market, the central government, municipalities, companies and other players can finance themselves by issuing bonds. The Swedish bond market is growing steadily and the growth of the bond market is mainly due to companies outside the financial sector that are increasingly choosing to finance themselves by issuing bonds. This so-called market funding has increased faster than bank loans for several years and now accounts for just over a third of Swedish companies’ funding. As a result, Swedish companies have some of the most diversified financing in Europe.
One part of the bond market that is growing particularly strongly is the green bond market. Green bonds are intended to finance sustainable investments and projects. This trend is global, but Sweden is at the forefront of this development and has a high proportion of green bonds in relation to the size of the bond market and the country. In Sweden, it has mainly been companies within and outside the financial sector that have issued green bonds, but the Swedish government is now also present in the green bond market.
The derivatives market
The derivatives market contains financial instruments that can be used to manage different types of risk. Companies, for example, may need to protect themselves against, or hedge, various types of financial risk. Companies can do this by trading in derivative contracts that are specifically designed to manage such risks.
Companies’ need for derivatives depends on the nature of their operations and financing, and this affects which derivatives are relevant. Companies that import or export goods may need to protect themselves against changes in exchange rates and commodity prices. Companies financing themselves on the international securities market may need to protect themselves against changes in interest rates and exchange rates. Depending on their needs, they may therefore trade derivatives linked to currencies, commodities or interest rates. There are also derivatives linked to shares and other securities.
There are also those who use derivatives to speculate on certain types of market movements, such as a share or a stock index.
Examples of derivative contracts are options, futures and swaps.