Iceland: Next steps in capital account liberalisation - Impact on cash and the Certificates of Deposit (‘CDs’) issued by the Central Bank of Iceland (CBI)

Following our announcement A16079, published on 6 June 2016 and updated on 9 and 13 June 2016, Clearstream Banking¹ would like to provide customers with additional information on the impacts of the auction announced by the Central Bank of Iceland on the ISK cash and the automatic conversion into CBI’s CDs.

Background

As per information shared in its last announcement A16079, and in order to enable the processing of the auction on cash positions, Clearstream Banking has chosen to make use of the certificates of deposit instruments (CD) issued by the CBI for the purpose of the auction.

Subsequently, Clearstream Banking has converted its customers’ cash positions into an equivalent position in the CBI’s CDs. As foreseen in the law defining the auction, the CDs are held in a deposit money bank’s administrative account with the CBI. Terms and conditions of this instrument can be found in the attached document, "Terms and conditions of the CBI CDs".

Customers of Clearstream Banking whose ISK cash balances were converted into CBI’s CDs, IS0000027068, will be notified through their normal statement of holding and statement of movements reporting.

Impact on customers

Cash ISK

Until further notice it will no longer be possible for customers to deliver ISK from their account with Clearstream Banking nor to transfer ISK within the Clearstream Banking system. Such instructions will be rejected. As a result, settlement against payment in ISK is no longer possible.

Receipt of ISK cash will be automatically converted by the CBI into CDs IS0000027068. Therefore, customers willing to wire in ISK cash onto their account will be credited with CBI’s CDs - IS0000027068 instead. Credit of the CBI CDs onto customers’ account will be confirmed via MT544.

Due to the exceptional process requested by such transfers, customers willing to wire in ISK cash position under the form of CBI CDs are invited to send their cash pre-advice instruction under standard format and no later than 14 June 2016 at 16:00 CET.

Furthermore and in order to prevent reconciliation issues on the eve of the auction deadline from late instructions, Clearstream Banking will accept cash pre-advice instructions in ISK until 14 June 2016 16:00 CET. Incoming ISK cash pre-advices received after that deadline will be rejected.

Cash settlement instructions - summary

Central Bank of Iceland Certificates of Deposit – IS0000027068

CBI CDs are eligible for free of payment delivery and receipt instructions.

• Free of Payment Deliveries on IS0000027068

Clearstream Banking customers willing to get their CDs converted back into cash can deliver the CDs outside Clearstream Banking via a delivery free of payment instruction to the custodian or intermediary of their choice. The delivered CDs will be credited to the chosen custodian or intermediary’s account under the form of ISK cash provided that this custodian or intermediary has a cash restricted account with the Central Bank.

Clearstream Banking customers willing to deliver out their CBI CDs must instruct via a standard free of payment domestic MT542, or COL equivalent, and specify either of the following into narrative field 70E:

1. If the counterparty wishes to receive CDs: ART 11.1 + account number of the restricted securities account of the counterparty at CBI. (Example: ART 11.1, receiving restricted account xxxxx.)
2. If the counterparty wishes to receive cash ISK: ART 11.1 + cash account number of the counterparty in IBAN format with number 21 in the middle. (Example: ART 11.1, IBAN ISxxxxxx21xxxxxxxxxxxxxxxx.)

Customers will receive a MT546. This must not be considered as a settlement confirmation but rather as a confirmation that the instruction has been sent onto CBI for execution. Confirmation of the provisional debit will be sent to customers via MT546. Upon market confirmation of the instruction settlement customers of Clearstream Banking will receive a MT548, with reference to their original trade.

The settlement deadline for free of payment deliveries in IS0000027068 is 16:00 on Settlement Day.

• Free of Payment Receipts on IS0000027068

CBI CDs are eligible for free of payment receipts according to standard format and deadlines.

Securities settlement instructions - summary

Expected income proceeds Central Bank of Iceland Certificates of Deposit – CBI CDs

In line with the above described cash procedure, Clearstream Banking no longer accepts or handles any incoming ISK cash assets. As a direct result, all ISK expected income proceeds with payment date after 9 June 2016 and until further notice, will be automatically credited to entitled customers under the form of CBI CDs, according to the conversion rate stated by the CBI.

References: Please refer to the below link to the Terms of Auction of the CBI CDs – IS0000027068.

Further information

For further information, please contact the Clearstream Banking Client Services or your Relationship Officer.
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1.Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for CBF customers using CreationOnline), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.