07 April 2022

Central Bank amends rules on derivatives trading

The Central Bank of Iceland has amended the Rules on Derivatives Transactions in which the Icelandic króna is Specified in a Contract Against Foreign Currency. The amendments pertain to interbank transactions and the thresholds for notification of derivatives trades to the Central Bank. The amended Rules have been published in the Law and Ministerial Gazette [Stjórnartíðindi] as Rules no. 412/2022 and will take effect tomorrow, 8 April 2022. The Rules were approved by the Financial Stability Committee at its last meeting.

The amendments are of two main types: on the one hand, transactions between two domestic commercial banks are no longer included with the forward foreign currency position according to the Rules; and on the other hand, the thresholds for notification of derivatives transactions to the Central Bank have been increased. They are intended to make the execution of derivatives more efficient.

The restriction on domestic commercial banks’ derivatives transactions involving the Icelandic króna is unchanged from the previous Rules, and the total permissible exposure in such transactions is still restricted. Therefore, the forward foreign currency position of each commercial bank vis-à-vis each individual counterparty may not be positive or negative by more than 10% of the capital base, and the gross forward foreign currency position (the sum of the forward positions vis-à-vis each counterparties) shall not exceed 50% of the capital base of the commercial bank in question.