Questions and definitions

A security is an issued instrument representing value and having a monetary value, for example based on a company’s share price. In precise legal terms, securities include all transferable claims to payment of money or its equivalent, as well as transferable instruments evidencing ownership rights in property other than real estate or specific movable assets. In everyday usage, securities most commonly refers to shares or bonds.

Shares are evidence issued to shareholders of their ownership stake in a company. If the company in which a shareholder holds shares performs well, the shareholder benefits; if it performs poorly, the value of the shares falls and the shareholder loses money. Shares are therefore inherently a risky investment. Dividends are paid to shareholders from the company’s profits and distributed among them in proportion to their shareholdings.

A bond is a written statement in which the issuer unilaterally and unconditionally acknowledges its obligation to pay a specified sum of money. Bonds are generally issued by companies and public bodies. Their terms, including repayment and interest—which may be fixed or variable—are always determined in advance. Various measures are used to ensure that the debtor honours its commitments; these may include pledging real estate as collateral or naming guarantors.

ISIN stands for The International Securities Identification Number (ISIN) and is a code used to identify securities. The ISIN consists of a 12-character alphanumeric sequence. The code has three parts: it begins with a two-letter country code under the ISO 6166 standard, followed by 9 alphanumeric characters and a check digit, calculated from the preceding 11 characters using the so-called Luhn algorithm.

ISIN numbers are issued by The Association of National Numbering Agencies (ANNA), whose agent in Iceland is Nasdaq Securities Registration. VBM arranges ISIN numbers for its clients.

An LEI number is a 20-character code based on the ISO 17442 standard and managed by GLEIF (Global Legal Entity Identifier Foundation)

• A kind of international identification number for legal entities that trade on financial markets (shares, bonds, foreign exchange, etc.) and a prerequisite for trading
• Every contract entered into on the market will be linked to the counterparty through its LEI number
• Used by regulators to oversee financial markets, as the LEI connects financial markets, companies and regulators
• LEI numbers are issued by accredited Local Operating Units on behalf of GLEIF

Registration with a central securities depository offers the following benefits:

• Formal confirmation of ownership and rights.
• Registration of ownership serves as proof of ownership.
• Recording in a central securities depository system constitutes legal transfer of rights.
• Investor protection.
• Simplifies management tasks and improves information security.
• Enhances the company's image and credibility.
• Shareholders can view their shares in online banking and on statements from the tax authorities.

VBM provides issuers of securities (shares, bonds and units) with electronic registration services. Registration with a securities depository provides legally valid confirmation of ownership and rights, allowing investors, for example, to see their holdings in online banking and in their tax records. Registration therefore enhances investor security and brings greater professionalism to investment services. VBM’s system keeps the shareholder register up to date with the latest transactions and enables corporate actions, such as dividend payments, to be carried out through the system.

When securities are listed on a stock exchange, they are admitted to a public market operated by the exchange. Holders can sell their securities on the market, and new investors can buy them. To list securities on a stock exchange, certain requirements must be met, including requirements relating to the size of the issue and the distribution of ownership. The issuer is also required to inform the market of any changes to the company’s circumstances, such as financing, increases or reductions in share capital, and other relevant matters.

Securities must first be registered with a central securities depository before they can be listed on a stock exchange.

No, investors cannot be direct participants in VBM. Under the Act on Central Securities Depositories, Settlement and Electronic Registration of Rights No. 17/2020, participants in central securities depositories may only be central banks, other central securities depositories, credit institutions, financial undertakings and fund management companies, as defined in the relevant legislation. Investors must therefore hold and settle their securities through a financial undertaking that has entered into a participation agreement with VBM.

In short, a typical process is:

1. The company's board decides to register the securities with VBM.
2. An issuance agreement and issue description are entered into with VBM.
3. The issuer provides VBM with a shareholder list showing each shareholder's holdings.
4. The effective date of the registration is agreed.
5. VBM coordinates with account operators (banks) regarding the registration.