Markets

The Market Operations Department of the Central Bank implements monetary policy, as well as carrying out other domestic market activities, supervising markets, and participating in them as needed.

The Central Bank supervises the interbank foreign exchange market and the interbank market for krónur (REIBOR). The Bank intervenes in the interbank foreign exchange market and buys or sells krónur in exchange for euros. Every day, the Central Bank lists the official exchange rate of the Icelandic króna, as well as interest rates in the market for krónur. The Bank affects interest rates in the interbank market for krónur when it determines the interest rates on its transactions with financial institutions.

The Central Bank is a participant in the Nasdaq OMX trading system and keeps track of the securities market without supervising it. The Bank is authorised to trade in the secondary bond market if it deems such trading consistent with its objectives.

 

 

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  • The objective of monetary policy implementation

  • Rules on Central Bank of Iceland Facilities for Financial Undertakings

  • Counterparties in transactions with the Central Bank

  • Overnight loans and current accounts

  • Market transactions and liquidity management

  • Policy instruments

  • The Central Bank and the Treasury

 

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  • Interbank foreign exchange market

  • Interbank market for krónur

Parties are eligible for Central Bank of Iceland facilities and participants in the Bank’s real-time gross settlement (RTGS) system and netting system may provide collateral in the form of securities. 

Securities deemed eligible as collateral are subject to the Rules on Central Bank of Iceland Facilities for Financial Undertakings, no. 1200/2019, with subsequent amendments.

Securities used as settlement collateral for participation in payment systems shall be governed by the Central Bank rules in effect at any time: the Rules on the Real-Time Gross Settlement System, currently no. 703/2009, with subsequent amendments, and the Rules on Activities of Netting Systems, currently no. 704/2009, with subsequent amendments. 

The Central Bank reserves the right to review its decision on eligibility of specified securities in light of the conditions prevailing at any given time. 

Eligible securities for facilities and payment systems (updated weekly)

In the valuation of securities as financial collateral for Central Bank facilities and participation in payment systems, a haircut shall be calculated on the reference price according to the table below: 

 

Haircut on reference price*



<2yr

2yr<5yr

5yr>
Central Bank term deposits and certificates of deposit

0%

 

 

Bonds and bills issued by the Icelandic Treasury

1%

3%

5%

Government money market loans

1%

 

 

Government-guaranteed securities

1%

3%

5%

Covered bonds**
6% 8% 10%
 Other securities
 8%  10%  12%
 Mortgage bonds portfolio
 30% 30%  30% 
 COVID support loans 1%   1%  1%

*No market making; additional 5% haircut applied

**When using own bonds a 5% extra haircut is added

 

For overnight loans, the haircut is always 10% of the market value of the underlying collateral. If necessary - for example, due to market conditions - the Central Bank my calculate further deductions. The Central Bank reserves the right to reject an application for a facility if no agreement is reached on the valuation of collateral.