24.02.2017

Exemptions for derivatives trading for hedging purposes

Exemptions for derivatives trading for hedging purposes

The Central Bank of Iceland considers premises to exist to grant specific exemptions from the Foreign Exchange Act, no. 87/1992, upon receipt of an application, for derivatives trading for long-term hedging purposes. This change in execution represents another step towards full liberalisation of the capital controls. More specifically, the exemptions in question could facilitate the mitigation of exchange rate risk in connection with both inward and outward payments due to direct investment. Furthermore, they will enable firms to correct foreign exchange imbalances on their balance sheets. Among the objectives of the change is to assess firms’ need for and interest in hedging and to prepare for full liberalisation. The exemptions are also conducive to reducing the risk in companies’ operations and to favourably affecting their borrowing terms and creditworthiness. Exemptions for speculative derivatives trading will not be granted at this time. Such transactions rank lower in priority during the capital account liberalisation process.

In all instances, exemptions granted for derivatives trading for long-term hedging will be subject to specific conditions pertaining, for instance, length of contracts, hedge ratio, timing, and information disclosure to the Central Bank. With these conditions, the Bank attempts to ensure that derivatives trading will actually be undertaken for the purpose of long-term hedging against foreign exchange imbalances, not for the purpose of taking a position with or against the Icelandic króna.

Information on exemption processing in accordance with the above, including the documents and information required for the exemption process, can be found here: Here (information in Icelandic)

In order to conduct the transactions described above, it is necessary to apply to the Central Bank of Iceland for an exemption from the Foreign Exchange Act, no. 87/1992. The exemption application form, together with information on the application process, can be found on the following page: Exemptions.  

Applications should be sent to the Bank by postal mail at the following address:

Central Bank of Iceland
att’n: Capital Controls Surveillance Unit
Kalkofnsvegur 1
150 Reykjavík

Further information can be obtained from Capital Controls Surveillance Unit staff at tel: +354 569-9600 during the Unit’s telephone hours: Monday through Friday 10:00-11:30 hrs. It is also possible to send queries by e-mail to: gjaldeyrismal@sedlabanki.is. Please note that this e-mail address is only to be used for queries about foreign exchange matters. Requests for exemptions from the Foreign Exchange Act, no. 87/1992, must be sent to the Central Bank of Iceland in writing, together with pertinent documentation.

 

No. 5/2017
24 February 2017

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