REYKJAVIK, Dec 3 (Reuters) - Iceland's central bank announced on Wednesday the first concrete step towards re-establishing a market in the crown, saying financial institutions will become currency market makers on Thursday.
The central bank said it had become "virtually the only provider of foreign exchange" after trade in the crown effectively died in October when the country's financial crisis overwhelmed the island.
Sedlabanki said under new rules about to take effect, institutions will become currency market makers.
"The requirements concerning amounts and frequency of quotes are less stringent than those which market makers were previously obliged to meet in the interbank market," it said in a statement.
Three banks that were created out of the ruins of top banks Kaupthing, Landsbanki and Glitnir will be the initial three market makers.
"The exchange rate of the crown must be determined by supply and demand in the marketplace, and not by the sale of foreign exchange from the central bank's reserves. The new arrangement promotes orderly development in this regard."
But Sedlabanki left open the possibility of intervention.
"It cannot be ruled out that the central bank might participate in the foreign exchange market in the near future. If the Bank does so, it will be with the aim of controlling excessive volatility and not to support any particular exchange rate," it said. (Editing by Andy Bruce)