A fast developing market

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 Iceland 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 industrial enterprises succeeded in generating support and momentum for the idea of building up a proper exchange for equities. As a result, many companies began preparing for listing in 1992, and an average of six new listings were added per year from 1992 to 1996. By year-end 1996, a total of 32 companies had been listed. There was a substantial increase in 1997 (19 listings) and 1998 (16 listings). By year-end 1999 the number of listed companies had reached 75. In 2000 there was, for the first time, no increase in the number of listed companies although new ones were listed, as several companies merged. At the beginning of 2001, there were 75 listed companies and, due to continued delistings and fewer new listings, by the end of that year there were only 71 listed companies. The same development continued in 2002, when 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, Helsinki, Oslo, Stockholm, Riga and Tallinn. 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.

The Reykjavik City Hall

Market developments

ICEX lists both traditional fixed-income instruments, such as Treasury bonds and bills, and equities. Until 2001 there was a steady increase in number of listed companies, trading volume and market capitalisation on the stock market. The trend in 2001 was downwards but has been on the rise since. The year 2003 will be remembered for major share price increases. 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 1577 billion (bn), an increase from the previous year of 39%. Total turnover of listed securities has thus more than doubled in the past two years. 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 around third of the total market cap. The market value of listed equities is 80% of GDP while the bond market capitalisation amounts to over 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.

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Bakkavör Group (www.bakkavor.com) Bakkavör is an integrated food manufacturing company, specialising in chilled prepared food. The company operates two subsidiaries in the UK employing approximately 2500 people.

Ossur (www.ossur.is) 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, of course, Iceland.

Marel (www.marel.is) Marel is one of the world's leading developers and manufacturers of high-tech processing equipment for the food industry. As of 2004, the Marel Group operates fifteen subsidiaries in Australia, Europe, S-America and N-America, while its network of agents and distributors covers some 30 countries around the world.

Actavis Group (www.actavis.com) is the largest producer of pharmaceuticals in Iceland. The Actavis Group is a leading player in the development, manufacture and sale of high-quality generic pharmaceuticals. Founded as Pharmaco in 1956 and previously operating under different names such as Balkanpharma, Pharmamed, Delta, Omega Farma and UNP, the company is now one of Europe’s biggest producers of generic products.

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, outperforming most other world markets.

Bonds are also attractive
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.

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