NASDAQ OMX Iceland hf. (Nasdaq Iceland) will on March 30, 2015 introduce Static Volatility Guards for benchmark Treasuries and Housing Financing Fund bonds (benchmark bonds). The Volatility Guards are designed to reduce the impact of sudden market movements and the likelihood of trading incidents.
The Static Volatility Guard is a trading pause and resumption process designed to restore an orderly market in a single order book. It will be utilized if an order deviates too much in percentage from a reference price, which is normally either the day's opening auction price or, if there was no opening auction trade, the previous day‘s last Automatch price. When the Static Volatility Guard is triggered, continuous trading is halted and followed by an auction period which lasts 180 seconds, after which the order book moves back to continuous trading.
The Static Volatility Guards reduce the likelihood of erroneous transactions taking place and, hence, the need for cancellation of trades. Still the need will undoubtedly not be eliminated and, thus as before, cancellations of trades in benchmark bonds will be evaluated on a case by case basis.
Scope and configuration
The Static Volatility Guards will apply to benchmark bonds issued by the Government of Iceland and the Housing Financing Fund. The trigger thresholds for the Volatility Guards take account of spreads in market making agreements for the bonds in question.
Specifically the configuration of thresholds at launch is as follows:
Treasury bonds*
Time to maturity Threshold
6 to 12 months 1%
1 to 2 years 1%
2 to 4 years 2%
4 to 6 years 2%
6 to 9 years 3%
9 to 12 years 3%
12 to 18 years 3%
*The following classes at launch: RIKB 16 1013 (1-2 years), RIKB 17 0206 (1-2 years), RIKB 19 0226 (2-4 years), RIKB 20 0205 (4-6 years), RIKS 21 0414 (6-9 years), RIKB 22 1026 (6-9 years), RIKB 25 0612 (9-12 years) and RIKB 31 0124 (12-18 years).
Housing Financing Fund bonds
Class Threshold
HFF150224 3%
HFF150434 4%
HFF150644 4%
In order to avoid unnecessary triggering of the Volatility Guards, the trigger thresholds will, as a general rule, be doubled on days when the monetary policy committee of the Central Bank of Iceland announces interest rate decisions.
The threshold values may change from time to time as market making agreements are amended or if suggested by experience. Any changes will be announced by Nasdaq Iceland in a Market Notice.
Time schedule
- INET Test (OTF) – March 9, 2015
- INET Production – March 30, 2015
If you have any questions regarding this Exchange Notice, please contact Nasdaq Iceland‘s Trading Division at + 354 525 2850 or tradingiceland@nasdaq.com
