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The Iceland Stock Exchange
Now the OMX Nordic Stock Exchange in Iceland.
While many European stock exchanges can trace their history decades or even centuries back, the Iceland Stock Exchange has just emerged from its adolescence. Established in 1985 as a joint venture of banks and brokerage firms at the initiative of the Central Bank, ICEX has developed very quickly in recent years.

Trading began in 1986 in T-bonds, which were the only listed securities for the first few years. They were the dominant component of trading value until 1993. In 1990 housing bonds (mortgage-backed securities with a State guaranty) were listed. The first equities were listed in 1990. In 1991 a joint effort by various financial institutions and industry groups succeeded in generating support and momentum for the idea of building up a proper exchange for shares. As a result, many companies began the listing process in 1992, with an average of six new listings per year from 1992 to 1996. By the end of 1996 a total of 32 companies had been listed. A big boost came in 1997 (19 listings) and 1998 (16 listings). Eight new companies were listed in 1999 and nine the following year. In 2000, for the first time, a number of delistings took place as a result of mergers and acquisitions. By the end of 2000 a total of 75 companies were listed. In 2001 more mergers and delistings resulted in a decrease of listed companies, the number at the end of that year was 71. The same development continued in 2002, when the number of companies decreased as a result of mergers and acquisitions, and only 64 companies were listed at year-end. The number of de-listings reached a peak in 2003, when 18 companies were delisted, partly due to mergers and changes in ownership. Two new companies were listed, bringing the number of listed companies to 48 at year-end.

In April 1998 the Icelandic Parliament passed a new law on securities exchanges, abolishing the monopoly and requiring ICEX to change its legal status from a self-owned institution to a limited company with shareholders. The exchange became a limited company on 1 January 1999. In June 2002, after shareholders’ meetings of the Iceland Stock Exchange (ICEX) and the Icelandic Securities Depository (ISD), a new holding company, Eignarhaldsfelagið Verðbrefaþing hf., was established for the operation of both companies. The holding company is owned by financial institutions (37.7%), listed companies (24.5%), pension funds (13.4%), the Central Bank (11%), the Investor Association (9%) and the Treasury (4.4%).

ICEX launched its first trading system in 1989, which allowed continuous order-driven and accept-based trading. Trading has always been electronic. In 2000, ICEX adopted SAXESS, the common trading system of the NOREX Exchanges. The system is highly efficient and all trades are automatically matched.

Since June 2000, ICEX has been a partner of the NOREX Alliance together with the exchanges in Copenhagen, Oslo and Stockholm. NOREX is the first cross-border exchange alliance operating a joint trading system, harmonised trading rules and membership criteria for the participating exchanges. This greatly simplifies matters for brokers who can now trade in several markets at very little additional cost. Each exchange continues to conduct its own trading activities and a key concept is the single point of liquidity. Issuers of securities do not have to list on more than one exchange but the members are encouraged to join more than one exchange. NOREX provides a simplified access to c. 80% of the Nordic equity market.

In March 2003, ICEX introduced an electronic trading surveillance system, resulting in harmonised market surveillance in all the NOREX exchanges. Rules on disclosure requirements concerning executive remuneration were adopted at about the same time, in order to improve information disclosure. The rules on listing and disclosure requirements for issuers were thoroughly reviewed during the year and the resulting new rules for issuers came into effect on 1 January 2004. ICEX’s emphasis was on strengthening market infrastructure, for instance, with changes to the rules for inclusion of companies in the ICEX-15 Index to increase the liquidity of shares, new bond indices and the previously mentioned surveillance system.

The listing of Faroese bonds on ICEX in November 2003 represents a major step towards expanding the market. The listing of Faroese equities in 2004 is under preparation. The NOREX Alliance has also been boosted with the decision by the Helsinki exchange and two Baltic exchanges to join the

Market developments in Iceland 
ICEX lists both traditional fixed-income instruments, such as Treasury bonds and bills, and equities. Until year 2000 there was a steady increase in number of listed companies, trading volume and market capitalisation on the stock market. The trend in equity trading in 2001 was downwards, whereas the bond market bloomed after some recession in 2000. Both 2002 and 2003 were exceptionally good years as trading volume has doubled in last two years. The year 2003 will be remembered for major share price increases, extensive restructuring in ownership of listed companies and record turnover on both the equity and bond markets. The ICEX-15 index rose by 56% during the year. Share price rises have only once before been greater, in 1996. For the second year in a row, all turnover records were broken. Total turnover of equities and bonds amounted to ISK 1,577 billion (bn), an increase from the previous year of 39%. The total market value of equities and bonds increased by 23% in 2003, rising to ISK 1,431 bn at year-end 2003 from ISK 1,163 bn at the end of 2002. The total market value of equities at year-end was ISK 659 bn and of bonds and bills ISK 773 bn.

There are currently 42 companies listed on the ICEX Main List and the Alternative Market. The largest sector in terms of market capitalisation is finance and insurance with a third of the total market cap. Pharmaceutical is first the runner up with only two companies comprising nearly 20% of the total market cap. However, fisheries have the largest number of listed companies, which is in line with Iceland’s strong position among fishing nations of the world. The market value of listed equities is around 80% of GDP while the bond market capitalisation amounts to 90% of GDP.

Some of the ICEX listed companies have looked abroad to expand, and should for many reasons be interesting investment opportunities for foreign investors.

The benchmark index for equities, ICEX-15, comprises the 15 largest companies in terms of market value and turnover. The index rose by 56% during 2003, exceeding its former peak value of February 2000 by 225 points closing at 2,114. This trend shows how fast the Icelandic market has recovered from the downturn in 2000-2001.

Bonding with Iceland
In 2003 there was record turnover on the bond market, like the equity market. Trading during the year amounted to ISK 1,024 bn, an increase of 26% from 2002. In course of the past two years, turnover has thus increased by 68%. As in previous years, by far the greatest trading was in government-backed benchmark bonds; the ten most-traded bonds accounted for 82% of the total turnover. The share of housing bonds and housing authority bonds in terms of turnover was 63%, while their share of the market value of bonds and bills at year-end was 53%. Turnover of Treasury bonds, T-notes and T-bills, amounted to 22% of total trading, although their share of market value at year-end was only 12%. At year-end 402 bonds and bills were listed, as compared to 401 year-end 2002. The market value of listed bonds and bills rose from ISK 635 bn to ISK 773 bn. The obligations of the Icelandic Treasury in domestic currency have the excellent ratings of an Aaa from Moody’s, an AAA from Fitch and an AA+ from Standard & Poor’s.

Interesting Icelandic companies on ICEX 

Bakkavör Group
Bakkavör Group is an integrated food production company, specialising in chilled prepared food. The company operates two subsidiaries in the UK employing approximately 2100 people. The core of the operations are the production facilities in London and Birmingham delivering products throughout the UK.

Kaupthing Bank
Kaupthing is among the Nordic region's ten largest banking groups, and the largest bank in Iceland. The Bank was formed in May 2003 from the successful merger of Bunadarbanki and Kaupthing Bank, the third and fourth largest domestic players by asset size. Kaupthing Bank is a player in all key areas of the Icelandic financial market, combining the complementary features of a strong retail franchise with wholesale investment banking expertise. Internationally, Kaupthing Bank offers the full range of investment banking services through a network of offices in Scandinavia, the UK, US, Switzerland, and Luxembourg.

is at the forefront of research, development and production in the field of prosthetics (artificial limbs). It is the second largest company of this kind in the world and the first one to go public and list on a stock exchange. The company’s products are sold in more than 60 countries worldwide and it has operations in the UK, USA, Netherlands, Sweden and Iceland.

Marel is one of the world’s leading developers and manufacturers of hi-tech, super-fast scales, software, monitoring equipment and intelligent portioning and grading modules and integrated systems for all major sectors of the food industry. As of 2004, the Marel Group operates ten subsidiary companies in Australia, Europe and N-America, while its network of agents and distributors covers some 30 countries around the world.

is the largest producer of pharmaceuticals in Iceland. Actavis is an international pharmaceutical company, specialising in the development, manufacture and sale of generic pharmaceuticals. The company has also established itself as a valued and expert supplier of pharmaceutical intellectual property. Headquartered in Iceland, Actavis operations span six continents. In addition to development and manufacturing facilities in Bulgaria, Turkey, Malta, Iceland and Serbia. Actavis has an extensive network of strategically located sales, marketing and purchasing centres.

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