As of today, Nasdaq Iceland („the Exchange“), in cooperation with Nasdaq CSD Iceland, will begin publishing an indicator of leverage on the Icelandic stock market. Each month Nasdaq Iceland will release a market notice with information on the extent to which listed shares have been pledged as collateral in the systems of Nasdaq CSD Iceland. This is measured by the market value of pledged shares as a proportion of the total market capitalization of the stock market. The data includes shares traded on the Main Market and First North Iceland.
Information about shares pledged as collateral can serve as an indicator of how much investors have borrowed to buy shares, i.e. of how leveraged the market is. High leverage may indicate an increase in investor optimism and a modest increase in leverage may therefore be seen as a positive signal. Excessive leverage may, however, be considered a negative sign for various reasons. For example, an increase in leverage may result in the price of assets being pushed above their fundamental value in the short run (create so called price bubbles). High leverage may also amplify the effect of negative events on share prices.
“By publishing information about shares pledged as collateral on the Icelandic stock market we are taking another step towards greater levels of transparency on the market.“ says Baldur Thorlacius, Head of Surveillance at Nasdaq Iceland. “On July 1, 2017, the EU short selling regulation took effect in Iceland, providing investors with information about short positions in shares. By gaining access to an indicator of overall leverage on the one hand and short positions on the other, investors are provided with valuable information about forces that can potentially affect supply and demand for shares. This will hopefully serve as a useful addition to the array of information investors previously have had access to.“
Data compiled by Nasdaq CSD Iceland only includes information about shares that have been pledged as collateral and registered as such in the systems of Nasdaq CSD Iceland, granting it legal protection in accordance with the Act On Electronic Registration of Rights of Title to Securities, no. 131/1997. The data does, therefore, not cover instances where a lender may have received all of the borrower‘s assets as collateral, including the shares, or indirect collateralization through forward contracts or other derivatives. It should also be noted that the information provides no indication of the margin to equity ratio.
Information on the proportion of shares pledged as collateral is attached and is also available in a market notice at http://www.nasdaqomxnordic.
Information about the EU short selling regulation can be found on the ESMA website: