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The implications of suspending trading in Danish investment fund units

Publiceret 19-03-2020

The exceptional market conditions seen in connection with the corona crisis can make it necessary in some cases to suspend trading in Danish investment fund units. The aim is to protect investors.

Investors buying or selling investment fund units are obviously keen to obtain the best possible prices. It is therefore important that the prices of the securities in which a fund invests are current and accurate, as they provide the basis for calculating the fund's net asset value per unit. The net asset value per unit in turn provides the basis for transaction prices, as well as issue and redemption prices of the fund's units.

Why suspend trading in investment fund units?

In periods of exceptional market conditions, such as those observed in connection with the corona crisis, it may at times be difficult to find accurate prices of a fund's securities in the market. This will make it impossible to calculate the fund's net asset value per unit, and in that situation the fund may choose to suspend trading in its units. Suspension of trading ensures equal treatment of sellers and buyers of a fund's units. In other words, a decision to suspend trading in a fund's units is made to protect investors' interests. 

"In Denmark, we have a system where equal and fair treatment of new and existing investors is key. The system has been tested for decades under normal conditions. But at the moment we are witnessing market conditions which, in terms of price movements and uncertainty, surpass everything we have seen so far, and in such a situation suspension will often be the last, and best, resort when it comes to protecting investor interests in general," says Birgitte Søgaard Holm, Executive Director, Investments and Savings, Finance Denmark, and continues: 

"Despite the very turbulent market conditions, we are doing all we can together with Nasdaq Copenhagen to keep investment unit trading open." 

How does suspension impact investors?

For investors in listed funds, suspension means that the fund units cannot be traded on the stock exchange for a period of time, and that investors cannot place orders to buy or sell. It also means that investors cannot subscribe for new units or have their units redeemed by the fund. The best thing to do is to keep an eye on Nasdaq's or the fund's website to learn when the suspension is lifted and trading in the units is resumed. Suspension is usually a temporary measure, and it will be in the fund's interest to lift the suspension as soon as market conditions allow. Investors who have placed limit orders through their online banking service are recommended to contact their bank to clarify what will happen to their orders if trading in their units is suspended.

Danish listed investment funds update their net asset value per unit at least three times during a trading day, and usually there will be a high degree of certainty that prices quite accurately reflect the value of the underlying securities. The frequent updating of net asset values per unit is one of the reasons why it is much easier for Danish investors to trade their units on an ongoing basis than is the case in most other markets.

The decision to suspend trading in a fund's units also means that no new investors will be admitted to the fund (no issues) and existing investors cannot exit the fund (no redemptions). In practice, Nasdaq Copenhagen is requested to suspend trading immediately, and this will be announced on Nasdaq's website. The suspension will usually also be announced on the fund's website.

The fund concerned will request Nasdaq to lift the suspension as soon as market conditions allow the calculation of an accurate net asset value per unit. This will also be announced on Nasdaq's and usually also the fund's website.

Unlisted funds are not subject to the same rules as listed funds. The vast majority of unlisted funds comply with the Danish Investment Association's recommendation to calculate the net asset value per unit at least once a day, but investors are advised to consult a fund's articles of association for further details. Suspension of trading and the subsequent lifting of the suspension will usually be announced on the fund's website.

Please contact your bank if you have any questions.