The Disciplinary Committee of Nasdaq Iceland (“the Exchange”)* has concluded that the management company Rekstrarfélag Virðingar hf. on behalf of Veðskuldabréfasjóðurinn Virðing (“the Issuer”) should be publicly reprimanded in connection with incidents in which the Issuer is considered to have violated Sections 4.1.2 and 4.2.1 of the Rules for Issuers of Financial Instruments (“the Rules”). The management company Rekstrarfélag Virðingar hf., on behalf of the Issuer, is also fined ISK 1,500,000.
The Exchange has also been examining information disclosure by Veðskuldabréfasjóðurinn Virðing, having regard to specific provisions of Chapter 3 of the Rules. Section 8.4 of the Rules states that, if the Exchange is of the opinion that an Issuer has violated provisions on disclosure requirements in Chapters 2, 4 or 6 and the violation is liable for sanctions as provided for in Points 4-7 of Section 8.3 such cases shall be referred to the Exchange's Disciplinary Committee. From this it can be concluded that violation of provisions of other chapters of the Rules than stated above, such as Chapter 3, are not subject to the decision-making powers of the Disciplinary Committee but are entirely under the authority of the Exchange.
The Exchange has concluded that the management company Rekstrarfélag Virðingar hf., on behalf of the Issuer, should be publicly reprimanded in connection with incidents in which the Issuer is considered to have violated Sections 3.3.1 and 3.1.4 of the Rules. In view of the Disciplinary Committee's conclusion to fine the Issuer in addition to the reprimand for violations of Sections 4.1.2 and 4.2.1 of the Rules the Exchange deems it appropriate to take the Committee's decision into consideration in deciding on further sanctions, since both cases concern the same Issuer and can be traced to the same incidents. It is therefore considered appropriate in resolving what should be suitable sanctions in connection with the violations of Sections 3.3.1 and 3.1.4 of the Rules to take the above-mentioned decision by the Disciplinary Committee into consideration. With reference thereto, the management company Rekstrarfélag Virðingar hf., on behalf of the Issuer, is also fined ISK 1,000,000. This decision was taken based on an advisory opinion from the Exchange's Disciplinary Committee.
The fines therefore total ISK 2,500,000. Both cases concern the following incidents:
On 10 July 2014 bonds issued by the Virðing Mortgage Fund were admitted to trading on the Exchange's main market on the basis of a prospectus which was approved on 30 June 2014.
The financial information in the prospectus was as of 31 December 2013. The Fund's total assets were there said to amount to ISK 11,290 million. It was nowhere directly stated in the prospectus that after the financial information date ISK 500 million had been paid to the unit holders on 22 January 2014 and ISK 482 million on 4 June 2014. This comprised a total of approximately 9% of the Fund's total assets based on the financial information in the prospectus.
It was not until 22 August 2014, when the 6M results for 2014 were made public, that the information was revealed that the Fund's net assets were negative by ISK 25.5 million, due to disbursements to unit holders in connection with the bond issue. That same day the Exchange decided to give the bonds observation status.
The objective of Section 4.1.2 of the Rules is to ensure that investors have at all times access to the most recent information necessary to be able to form an opinion on the investment options on offer. The Issuer's leaders therefore should always make every effort to make public information which in their opinion could have a significant impact on the market price of securities. Section 4.2.1 of the Rules states that an Issuer shall make every effort to make public without delay all previously unpublished information on decisions or events which it knew, or should have known, to have a significant impact on the price of its bonds.
Provisions of Section 4 of the Rules regarding bond Issuers' information disclosure are intended in part to encourage equal treatment of investors, increase market transparency and with it the trust and credibility which must prevail there. The Issuer allowed a lengthy period to elapse before disclosing that distributions, firstly of ISK 500 million and, secondly of ISK 482 million had been made to unit holders. In the estimation of the Disciplinary Committee this comprises important information. The Exchange's Disciplinary Committee therefore was of the opinion that by its conduct the Issuer had violated Sections 4.1.2 and 4.2.1 of Rules for Issuers of Financial Instruments.
According to Section 3.3.1 of the Rules a prospectus must include such information as is necessary, given the nature of the Issuer and the securities, for investors to assess the assets and liabilities, financial situation, performance and future prospects of the Issuer and guarantors, as appropriate, as well as the rights conveyed by the securities. The information must be presented clearly and comprehensibly. A summary of the information which is to be provided is given in Act No. 108/2007, on Securities Transactions, and Regulations issued based on the Act. In the estimation of the Exchange the prospectus did not satisfy the requirements laid down in Section 3.3.1 of the Rules, as nowhere did it explain that after the date of the financial information ISK 500 million had been distributed to unit holders on 22 January 2014 and ISK 482 million on 4 June 2014. In this context it should be noted that the rules on prospectuses are all intended to ensure that investors can take an informed decision as to whether they wish to conclude transactions in the securities in question. In assessing the seriousness of the violation consideration had to be given, in the estimation of the Exchange, to the fact that this was a substantial change in the Issuer's financial situation, as the disbursements amounted to approximately 9% of its total assets.
Section 3.1.4 of the Rules states that the Issuer's information system must, in the assessment of the Exchange, be such as to make it probable that the company will be able to comply with the demands of the Exchange, and give a realistic picture of the Issuer’s operations. In assessing whether an Issuer is regarded as having violated this provision it is of significance how long a period elapsed from the time the information should have been published until this was actually done. Generally speaking the longer the time which elapses in this regard the more likely it is that the Issuer's information system cannot be considered to satisfy the requirements laid down in Section 3.1.4 of the Rules. In the case under consideration here it was not until 22 August 2014, when the 6M results for 2014 were made public, that the information was revealed that the Fund's net assets were negative by ISK 25.5 million, due to disbursements to unit holders in connection with the bond issue.
The Exchange reached the conclusion that the Issuer, by its conduct, had violated Sections 3.3.1 and 3.1.4 of the Rules.
The Disciplinary Committee
The Disciplinary Committee of NASDAQ OMX Iceland hf. deals with and takes decisions on certain cases concerning violations of Rules as laid down in the Exchange's Rules for Issuers of Financial Instruments, the First North Nordic Rulebook, the First North Fixed Income Rulebook, and NASDAQ OMX Nordic Member Rules.
The Disciplinary Committee, which is appointed by the Exchange's Board of Directors, is comprised of three independent experts and one alternate. The following Committee members took the decision in the case in question: Eyvindur G. Gunnarsson, professor in the Faculty of Law of the University of Iceland (chairman), Katrín Ólafsdóttir, PhD in economics and assistant professor at Reykjavík University, and Arnaldur Hjartarson, specialist of the Law Institute of the University of Iceland (alternate member).
*Nasdaq Iceland is the brand name of NASDAQ OMX Iceland hf.
