VILNIUS — Pan-Baltic investing will become more convenient next year.

Nasdaq OMX Baltic, part of the Nasdaq OMX Group will merge the stock markets of Lithuania, Latvia and Estonia into a single Baltic stock market by the first half of 2010, the company announced last week.

The new market will retain all of the companies in the three regional stock exchanges. In addition, it will give investors the option of trading on the euro, which none of the Baltic states have yet to adopt or in the local currencies.

“The major reason why the exchange is doing this is to try and create a common market,” Arvydas Jacikevičius, a senior securities broker for SEB, told Baltic Reports. “If the market is really emerging, it should be very attractive for foreign investors.”

By combining the three exchanges, Nasdaq hopes to streamline operations and make Baltic companies more attractive by allowing investment with the euro.

“As the euro is the global currency, the overall impact to investors would be decreasing costs related to the currency conversion, as a majority of them are investing in multiple markets,” Gintarė Blažytė, head of communications at Nasdaq OMX Vilnius, told Baltic Reports.

“Moreover the single currency for settlement of the Baltic securities will allow members and investors to optimize the cash management,” she added. “So we are expecting the changes to have similar effects across all the Baltic countries. By lowering the risks and costs related to trading in the Baltics, we hope to attract additional investors from outside the Baltic region, which will have a positive effect on liquidity for all Baltic markets.”

Estimates from analysts at Nasdaq OMX and the Lithuanian Securities Commission estimated an uptick in liquidity by 20 to 30 percent.

Giedre Balčytytė, adviser to the Lithuanian finance minister, said that the decision to open up the markets for the euro would not have a negative effect on the litas. The litas is pegged to the euro.

“Seventy percent of our investments are in euros,” she said. “So let’s be honest, there’s no interest from any side, or any possibility, of the litas over the euro.”

Günter Verheugen, a vice president of the European Commission, said in September that Lithuania will likely adopt the euro in 2015. Prime Minister Andrius Kubilius supports adopting the currency as early as 2012.

All roads lead to euro

Balčytytė said that Lithuania aims to adopt the euro as soon as possible, and the switch would have a “large positive impact” on reducing the deficit and bolstering the GDP.

“Current country’s deficit targets are motivated by bringing sustainability to public finance primarily,” she said. “Control of deficit reduction is assured by EU fiscal excessive deficit procedures that legally oblige Lithuania to bring the deficit below three percent by 2011-2013.”

Latvia plans to adopt the euro in 2012 or 2013. Estonia will probably the next EU country to adopt the currency, and passed a very strict budge this year in order to fulfill fiscal requirements that would keep it on track to join in January 2011.

But the consolidation does carry risks. Primarily, this move deprives each of the three countries of their own stock exchange. Instead, it replaces it with a trans-national multilateral trading facility, which is a trading system that facilities the exchange of financial instruments, often more exotic than those traded on traditional exchanges, between multiple parties.

“There is a major risk that this could split the liquidity,” Jacikevičius said.

However, Jacikevičius says overall the move is good for the region’s economy.

“One big market for investors should be quite positive,” Jacikevičius said. He added that this move is largely following the trend in finance, and “markets are becoming more and more global.”

Vilius Šapoka, vice chairman of the Lithuanian Securities Commission, said that it was fair, and perhaps inevitable, that the Baltic states would be grouped together on the global finance marketplace.

“The Baltic states are not a unique region,” he said. “All three countries are different, but off course we have similarities as well. It is not a question is it fair or not. Investors tend to group countries. And investors, not OMX, have already decided to treat Baltic states as a single market.

“We do not see any material drawbacks of this consolidation. Sooner or later this consolidation is unavoidable,” he added.

Venantas Miškinis, adviser to the finance minister, said that the ministry played little to no part in the mergers.

“I am not aware of the ministry’s involvement in this,” he said in an e-mail.

“The Lithuanian Securities Commission is the supervisor and they inform the ministry if we have to get involved,” he added. “There is already quite a bit of integration between the Baltic exchanges and this latest event might be increasing this integration by some degree. But it does not seem to be something being widely deliberated” at the ministry.