Settlement process - Iceland

30.11.2015

Settlement cycles

All trades executed on the Icelandic Stock Exchange (ICEX) are cleared and settled by the NCSD.

Equities and fixed income securities may be traded on-exchange and over the counter (OTC):

  • Stock exchange bond and equity trades that are executed at Nasdaq Iceland hf. have a settlement cycle of T+2.
  • Over-the-counter (OTC) trades use a T+2 period.

Settlement flow

All times below are GMT.

Trading process

Trading takes place at  between 10:00 and 15:30 on banking days.

Registration takes place at NCSD on SD-1 as follows:

SD-1:At the end of the trading day, all trades on Nasdaq Iceland hf. in dematerialised securities are transferred automatically to the NCSD system as matched trades.
19:00NCSD sends the payment instructions to the Central Bank, which acts as intermediary for netting in the payment system.
All trades are confirmed as settled to the participants before opening on the following trading day.
SD:Settlement day (T+2)
09:00The exchange of cash and securities takes place.
Trades with a countervalue of less than ISK 25,000,000 have the cash leg transferred via the local netting payment system (Fjölgreidslumidlun hf.).
For trades with a countervalue of gretaer than this amount, the cash amount is transferred via the Central Bank's RTGS system. Securities are allocated to the participants by the NCSD system. Allocations are available until 10:30 SD.

Settlement process

Over-the-counter (OTC) trades can be settled via the CSD's TRS matching system or, off-market, between two local parties via telephone matching.

  • OTC settlement via the CSD's matching system, TRS

    This method is currently only used for trades with a cash countervalue.
    Operating times of the CSD system are 09:00-17:00 and securities settlement takes place at 12:05 on regular banking days. Securities settle on a trade-by-trade basis; cash settles on a net basis, thereby following BIS Model 2.
    The main steps at the NCSD are as follows:
SD-1:All trades that are to be settled through the CSD system need to be matched on the day before settlement.
17:50The CSD sends settlement agents preliminary information about their payment obligations relative to securities settlement.
SD:Matched transactions wait in allocation accounts until the account operator has recorded the name of the ultimate purchaser/seller. This must be completed by 11:00.
11:00The CSD runs a preliminary settlement to verify the availability of sufficient securities. If the account operators (sellers) do not have sufficient securities for settlement, the CSD will present the trades for settlement again in the second cycle, at 15:00.
12:05The CSD settles the securities and sends the Central Bank a confirmation that settlement is complete.
12:15The CSD system reopens for business and sends a confirmation to this effect to the Central Bank.
15:00The CSD runs a second settlement including all the pending instructions from the first settlement. Pending transactions will be entered in the matching system again and will be cancelled if still unmatched at the end of the fifth day from the settlement date.
15:05The CSD settles the securities and sends the Central Bank a confirmation that settlement is complete.
15:15The CSD system opens for business again and sends a confirmation to this effect to the Central Bank.

N.B.: Against payment trades following this method of settlement comply with the Stock Exchange, NASDAQ OMX Iceland, rules and regulations and are also subject to its penalties.

  • Settlement via the off-market process, via telephone matching

    Off-market trades are trades settled outside the CSD system and can be executed free of and against payment.
    All trades to be settled through the off-market method are generally matched via telephone, although trades can also match through the CSD's TRS matching system. Once telephone matching is done, instructions are entered at the CSD.

    Against payment trades
    Cash and securities are currently transferred separately and so there is no immediate delivery/receive against payment.
    In order to settle such trades, the movement of securities and cash is as follows:
    • The Account operator sends the securities free of payment settlement instruction to the NCSD;
    • Cash is moved between the local custodian and the broker involved via the local cash payment system, RB (The Icelandic Bank Data Centre).

    Once the cash has moved, the securities free of payment instruction is settled by the Account operator in its system.

    Free of payment settlement
    Delivery is done via a method of dumping into a "free zone" where securities are "picked up" by the counterparty.
    Settlement can take place in real time for the delivering party once the securities are "dumped" into the counterparty's account.
  • Matching

    Instructions settling via the CSD's TRS matching system can, once matched, still be cancelled in the CSD system.

Partial Settlement

Partial settlement is not market practice in Iceland.

Registration

Book-entry securities owned by foreign investors are generally registered in the name of the trustee (nominee-registered). This can be either in the name of the custodian or local sub-custodian; however, segregated accounts on beneficial owner basis are also possible in the market.

Registration takes place automatically upon settlement.

Details on how to register for an AGM/EGM are available in “Organisation of AGM/EGMs”.

Stamp duty

Stamp duty is not applicable in the Icelandic market.

Penalties

Failed trades

For trades executed in Nasdaq Iceland hf. that fail to settle, Nasdaq Iceland hf automatically applies a penalty of ISK 30,000 per day per trade to the defaulting party.

In addition, Nasdaq Iceland hf. will charge 0.1% (of the trade value) per trade on an account with a minimum balance of ISK 60,000.

Buy-ins

No official agreed procedures exist in the market but, if a trade fails, Nasdaq Iceland hf can call the buy-in to the defaulting party.

The following Nasdaq Iceland hf. buy-in rules apply to SE transactions that are not cleared and settled through the CCP environment:

  • If the seller has not delivered the securities by SD+3 (N as Notification date), the buyer may send the first notification of a possible buy-in to the seller.
  • The first possible execution date for the actual buy-in is N+5 (SD+8) at 08:45 GMT at the earliest and the buyer must send an updated notification to the seller informing that the buy-in has started.

Duty on transactions

Stamp duty is not applicable in Iceland. However, if one of the parties is resident in Iceland, there is a transfer tax for off-exchange trades.