Saga Capital Investment Bank Iceland

Saga Capital Investment Bank hf.
Rules of Procedure on Proprietary Trading

1. General

1.1. These Rules are adopted:

1.2. The purpose of these Rules is to promote impartiality and equal treatment of clients in the business activities of Saga Capital Investment Bank hf. (hereinafter “Saga Capital” or “the Company”), prevent conflicts of interest, and ensure impartiality, confidentiality and integrity in Saga Capital’s trading for its own account and the employees own trading.
 
1.3. To achieve the above objectives, these Rules provide for equal treatment of clients as regards information, prices and other terms of business, the separation of the individual divisions of Saga Capital, employees’ securities trading, Saga Capital’s proprietary trading, employees’ participation in business operations, and dealings of employees with the Saga Capital.
 
1.4. These Rules shall be accessible to Saga Capital’s clients and are subject to the approval of the Financial Supervisory Authority.

2. Scope of application

2.1. These Rules apply, as appropriate, to all employees of Saga Capital, apart from those who are expressly exempted as provided in Section 2.2.
 
2.2. The Rules do not apply to employees who have no access to confidential information, e.g. cleaning personnel. However, such employees shall sign a pledge of confidentiality.
 
2.3. The Rules do not apply to members of the board of directors and owners of qualifying holdings, with the exception of the provisions of chapters 2, 6, 8, 9 and 13, which do apply to such persons, as applicable.
 
2.4. These Rules shall also apply to spouses (married partners, cohabiting partners, registered partners) and any persons domiciled in their homes who are not competent to manage their own finances. Any reference to employees in these Rules refers to such parties as well, except as expressly indicated otherwise. Employees shall notify the Compliance Officer if their spouse works for another financial undertaking and falls within the scope of its Rules.
 
2.5. The Rules also apply to holding companies owned by the parties to whom they apply, as well as to other companies where they can, directly or indirectly, make decisions on transactions covered by these Rules. “Holding company” pursuant to this section refers to companies that are wholly owned and controlled by parties, one or more, who are subject to these Rules.
 
2.6. These Rules apply to trading in financial instruments as defined in Act No. 108/2007 on securities transactions. They also apply to foreign exchange trading, as appropriate. The Rules do not, however, apply to buying and selling currency for the purpose of paying for goods or services or for overseas travel, or to spot transactions involving foreign currency for the payment of debts in foreign currency.

3. Business practices, impartiality and equal treatment

3.1. Saga Capital is required to operate in accordance with proper and sound business practices and customs in the financial market, as provided in Article 19 of Act No. 161/2002 on financial undertakings.
 
3.2. Employees of Saga Capital shall at all times observe full impartiality in their work. They shall ensure that Saga Capital’s clients enjoy equal access to information in connection with specific transactions, taking into account rules on confidentiality and the nature of the transactions in question each time.
 
3.3. Measures shall be taken to ensure that clients are provided with clear and detailed information on the services and options available to them, taking into account their respective experience, knowledge and financial position.
 
3.4. Specific care shall be taken in securities transactions covered by these Rules to ensure the following:
4. Separation of divisions

4.1. Clients of Saga Capital shall be treated with complete impartiality, and the integrity of the Company shall be preserved. To this end, potential conflicts of interest shall be averted by separating operating divisions as further decided in this chapter. Separation means the segregation of divisions in management, performance, IT systems and by means of rules on interdivisional communications. The separation shall be as follows:
 
Proprietary trading shall be separated from Corporate Finance, Debt Finance, SecuritiesBrokerage and Treasury with regard to their management, performance and information systems. Measures shall be taken to ensure that these operating units are kept separate within the same premises and that clear provisions are in place concerning the means of communications between their employees in the Security and Communication Rules which are further discussed below. The division shall be segregated in premises with access control from the divisions referred to above.
 
Corporate Finance shall be separated from Debt Finance, Securities Brokerage, Proprietary Trading and Treasury with regard to management, performance and information systems. Measures shall be taken to ensure that these operating units are kept separate within the same premises and that clear provisions are in place concerning the means of communications between their employees in the Security and Communication Rules which are further discussed below.  The division shall be segregated in premises with access control from the divisions referred to above.
 
Debt Finance shall be separated from Corporate Finance, Securities Brokerage, Proprietary Trading and Treasury with regard to management, performance and information systems. Measures shall be taken to ensure that these operating units are kept separate within the same premises and that clear provisions are in place concerning the means of communications between their employees in the Security and Communication Rules which are further discussed below. The division shall be segregated in premises with access control from the divisions referred to above.
 
Securities Brokerage shall be separated from Corporate Finance, Debt Finance, Proprietary Trading and Treasury with regard to management, performance and information systems. Measures shall be taken to ensure that these operating units are kept separate within the same premises and that clear provisions are in place concerning the means of communications between their employees in the Security and Communication Rules which are further discussed below. The division shall be segregated in premises with access control from the divisions referred to above.
 
Treasury shall be separated from Corporate Finance, Securities Brokerage, Proprietary Trading and Debt Finance with regard to management, performance and information systems. Measures shall be taken to ensure that these operating units are kept separate within the same premises and that clear provisions are in place concerning the means of communications between their employees in the Security and Communication Rules which are further discussed below. The division shall be segregated in premises with access control from the divisions referred to above.
 
4.2. In communications between the operating divisions above, which are segregated with regard to flow of information, measures shall be taken to ensure that sensitive information does not pass between them, and employees should not provide information on projects and databases outside their respective divisions, as provided in Saga Capital’s Rules on Security and Communications.
 
4.3. Employees of individual divisions shall not work in other divisions which are segregated with regard to flow of information except with the permission of the Compliance Officer. The Compliance Officer shall record information on the projects of employees working across division boundaries, their time and date and their reason.
 
4.4. At all consultation meetings within Saga Capital, all due care shall be taken to avoid conflicts of interest and ensure compliance with rules on handling confidential and insider information. If any insider information is disclosed concerning individual clients of Saga Capital at consultation meetings of division executives the participants in the meeting shall not make any decisions on Saga Capital's proprietary trading in the securities of the issuers that the insider information concerns.

5. Rules on Security and Communications

5.1. Employees shall observe the following rules on security and communication in their work:

1. Employees are required to respect, and promote compliance with, the provisions of applicable laws and regulations concerning insider information and confidentiality.
2. Confidential information and insider information shall be kept within as restricted a group as possible. An employee is permitted to disclose such information only if authorised to do so (by virtue of his/her position or with the authorisation of a superior who holds such authorisation) and on a need-to-know basis, where the recipient needs the information for the discharge of his/her duties or position, or if the disclosure is required by law.
3. Documents labelled as confidential shall be opened only by persons who are clearly authorised to access such data. In the event of any doubt, only the manager of the division in question is permitted to open such documents in order to verify the access permission of the person in question.
4. Employees shall ensure that confidential information and insider information is safeguarded against access and is not disclosed to any non-authorised persons, i.e. persons who do not need the information for the discharge of their duties or position. Such information shall, as appropriate, kept in locked storages or saved in databases where it can be accessed only by authorised persons. Particular care shall be taken as regards the separation of divisions in handling insider information.
5. Measures shall be taken to ensure that confidential information or insider information is not left on desks at the end of the working day or left so that it can be accessed by unauthorised persons. Measures shall also be taken to ensure that access to computers at the end of the working day is locked in a secure manner. The same applies if an employee leaves his/her computer or data for extended periods during working hours.
6. Reproduction of documents containing confidential information or insider information shall be kept to a minimum. Persons sending confidential information or insider information shall take care that the information reaches only the intended recipient.
7. An employee who needs to enter a division other than the division where he/she works, should take care not to be placed in a position of access to any confidential or insider information which may exist in that division and does not concern the employee.  

5.2. Access to electronic documents shall be controlled by adequate security measures, e.g. through the use of passwords, electronic identification and access definitions in databases. If passwords are used for access control, these must be sufficiently complex and the access control so designed as to withstand any brute force attack. Employees are not permitted to write such passwords down on paper or in computer files. Only those employees who need to have access to electronic data shall be granted access.
 
5.3. All original documents shall be preserved in a fireproof cabinet in the safekeeping of the archivist, who is responsible for document storage and for granting access to the document cabinet. Originals shall not normally be removed from the cabinet, and records shall be kept of any removals.
 
5.4. Access by unauthorised parties to all Saga Capital's division shall be controlled. Furthermore, access by employees between divisions requiring separation with regard to information flow shall be restricted. Access shall be restricted by adequate demarcation of the premises in question.

6. Saga Capital’s proprietary trading

6.1. Saga Capital’s market trading in securities for its own account and personal trading by management and staff shall in no way conflict with client interests. Saga Capital, managers and staff shall avoid trading in a manner liable to give rise to suspicion that the trading is in conflict with clients’ interests.
 
6.2. Saga Capital’s proprietary trading and trading by members of the board of directors, holders of qualifying interests, insiders and employees for their own account shall not take precedence over the trading instructions of clients.
 
6.3. In the case of Saga Capital’s proprietary trading, where Saga Capital is responsible for brokerage in the transaction, the trading slip shall specify that Saga Capital is the counterparty in the transaction in question.
 
6.4. When providing advice on securities transactions clients should be informed if Saga Capital has interests at stake in the company in question, provided that information to such effect is available to the employee concerned. However, clients need not be informed of such interests if Saga Capital’s holding is insignificant or of insignificant financial consequence for Saga Capital.
 
6.5. Analyses by Saga Capital of individual companies intended for public disclosure shall specify whether Saga Capital has any interest in the company in question, provided that the employee(s) preparing the analysis has/have access to such information. However, such interests need not be disclosed if they are of minor financial significance for the Company, e.g. if the holdings or lending interests in the company are insignificant.

7. Trading by employees

7.1. Approval of Compliance Officer
Employees are required to notify the Compliance Officer in writing or by e-mail of any proposed trading falling within the scope of these Rules. Employees are not permitted to engage in trading without the Compliance Officer’s prior approval of the trade. If a trade is not carried out the day that approval was granted by the Compliance Officer, the approval will lapse.
 
The Compliance Officer is authorised to request cancellation of an employee’s trade if it is the Officer’s opinion that the trade should not have taken place. In such cases the trade shall be reversed if possible.
Even where the Compliance Officer issues an opinion regarding a transaction, the transaction is entirely the responsibility of the employee.
 
7.2. Processing and records of trades
With the exceptions provided for in these Rules, all trading by Saga Capital employees shall be conducted through Saga Capital. Employees are not permitted to handle personally their own transactions, or those of linked parties falling within the scope of these Rules. The proper procedure of such trading is that the employee shall send a letter or e-mail requesting processing of the trade, together with approval of the trade by the Compliance Officer, to an employee of Saga Capital previously designated to handle employee trading. The latter party will execute the trade and deliver the appropriate documents to the party within Saga Capital responsible for settlement of the trade. All documents concerning the processing and settlement of the trade shall be sent to the Compliance Officer as soon as they have been prepared, and the Compliance Officer shall keep a special record of such documents.
 
Employees are not permitted to trade before a client if a request has already been made by the client for a trade.
 
If Saga Capital receives a request to buy or sell securities over a specific period of time, employees who are aware of such a request are not permitted to trade for their own account in the securities in question.
 
Notwithstanding the provisions of this section, employees are permitted to engage in trading in foreign securities, where Saga Capital’s intermediation is not possible without substantial additional cost, trading in financial instruments over the Internet or regular savings, e.g. in the form of subscriptions to UCITS or investment funds. Furthermore, the board of directors of Saga Capital is permitted to grant exceptions from the intermediation of the Company in special circumstances, provided that the Financial Supervisory Authority does not oppose such exception.
 
In cases where exceptions are granted from intermediation by Saga Capital under these Rules, such trading shall be notified to the Compliance Officer.
 
7.3. Offerings where Saga Capital is a participant
Employees are not permitted to participate in security offerings where Saga Capital is the securities issuer, offer co-ordinator or participant, with the result that information is available within the Company on the offering which is not publicly available, except in the following instances:

1. The offering is a public offering soliciting subscriptions at a fixed price rather than bids for individual securities, prices or interest rates, and parties are not prioritised in the order in which they subscribe. In such circumstances, employee bids shall be submitted at the start of the first day of the offering and the prospectus of the offering shall refer to the permission of employees to participate in the offering.
   
2. Employees are permitted to exercise pre-emptive rights deriving from previous holdings of securities, provided that these holdings pre-date Saga Capital’s involvement in the offer in question or if the employee has acquired such securities as a gift, inheritance or payment for fixed assets.

 7.4. Listed and unlisted securities
Saga Capital’s employees are not permitted to trade in unlisted securities, with the following exceptions:

1. Trading in securities sold in a public offering prior to listing of the securities in a regulated market is permitted.
2. An employee’s spouse engaged in commercial operations may conduct transactions connected to such operations, provided that the Compliance Officer has been informed of the nature of the commercial operations.
3. Trading in units and shares in UCITS and investment funds which are subject to official regulation is permitted.
4. Securities may be transferred which employees have received as a gift, inheritance or for sale of their own assets, or which they acquired prior to joining Saga Capital. Employees are also permitted to participate in increases in share capital or exercise pre-emptive rights to acquire shares in unlisted companies where they have holdings as a result of the circumstances referred to above.
5. Investment is permitted in shares of companies which are not actively traded and are not intended as investment, e.g. in charitable organisations, sports clubs and companies for commercial operations by family members.
6. Trading in shares in Saga Capital Investment Bank is permitted, e.g. on the basis of option contracts with employees and/or on the increase of shares in the company.
7. Furthermore, the board of directors of Saga Capital is permitted to grant exceptions as regards trading in unlisted securities in special circumstances, provided that the Financial Supervisory Authority does not oppose such exception.

Trading conducted pursuant to this section shall be subject to the same rules as trading in listed securities, as regards the process of the trade, registration etc.
 
7.5. Minimum holding time
Shares that an employee has acquired and fall within the provisions of these Rules shall be held for a minimum of three months from the date of their acquisition. Employees may, however, sell the securities prior to that deadline in the following circumstances:

1. To protect themselves from losses in securities trading, provided that the price of the securities is equal to, or lower, than the original purchasing price;
2. In the case of financial instruments which are listed on a regulated securities market abroad with efficient price formation, and if the financial instruments in question have a high turnover relative to the market concerned (e.g. S&P 500 or FTSE 100);
3. In the case of shares in UCITS or investment funds subject to official regulation or listed shares in investment companies;
   
4. In the case of securities received by employees as a gift, inheritance or payment for sales of their assets;
5. In the case of securities acquired by the employee before these Rules take effect for him/her;
6. In the case of trading by employees of Saga Capital involving shares issued by the Company, when the trading is in compliance with the provisions of legislation and rules on insider trading and the handling of confidential information.
   

The Compliance Officer may, furthermore, grant exceptions from the minimum holding period due to special circumstances, primarily as a result of unexpected changes in an employee’s circumstances since the time that the securities were bought, such as illness, accident or a death in the family or divorce
 
7.6. Investment companies
Employees are not permitted to participate in investment groups (clubs) or other similar associations whose purpose it is to enable participants to invest jointly in securities. However, this does not apply to investments in UCITS, investment funds or investment companies which are subject to official regulation, where shareholders do not directly influence the selection of investments.
 
7.7. Advisors and fiduciary representatives
Employees who work as professional advisors or fiduciary representatives of securities issuers and have access in the course of their duties to insider information on the issuer concerned shall not trade for their own account in the issuer’s securities from the time that such duties begin until three months have elapsed from their conclusion. However, an employee may trade within this period if his/her work for the issuer concerned concluded with the publication of a prospectus where insider information accessible to the employee was made public.
 
7.8. Saga Capital’s internal research
Employees are not permitted to make use of the internal analyses carried out by Saga Capital for personal gain in securities trading if the conclusions the analyses are not available to other clients.
 
7.9. Notification at the start of work
Employees are required to inform the Compliance Officer of all their securities holdings on starting work for Saga Capital and at any time during their term of employment at the Company if requested by the Compliance Officer. 

8. Dealings of personnel with Saga Capital

8.1. Saga Capital may grant its employees discounts on trades conducted pursuant to the Company’s tariffs, and more favourable interest terms on loans granted for the purchase of securities. Such special terms shall be decided in advance by the CEO of Saga Capital.
 
8.2. If employees of Saga Capital have in any other respect than provided for in section 8.1 enjoyed better terms in their securities trading than the terms in effect in stock markets for comparable securities at the time that the trading took place, the Compliance Officer shall immediately rectify this in favour of the client in question or have the trade reversed. In such cases, Saga Capital employees must accept the reversal of such transactions if required.
 
8.3. Agreements by Saga Capital concerning loans, guarantees, options or similar dealings with the CEO and his/her spouse shall be subject to the approval of the board of directors. Decisions to such effect shall be entered in the minutes.
 
9. Trading by the members of the board of directors and parties holding active participating interests

9.1. Saga Capital shall ensure that transactions with the members of the board of directors and parties holding active participating interests in the Company are in no way suspicious or liable to cast any doubt on the integrity and reputation of Saga Capital.
 
Requests by the above parties for trading shall be processed in the same manner as requests from other clients and shall not enjoy any precedence of any kind. Such trading shall be recorded by the Compliance Officer in the same manner as employee trading. The same applies to the auditors of the Company and, as applicable, permanent advisors.

10. Membership of boards of directors and other employment outside Saga Capital

10.1. Employees of Saga Capital shall not serve on the boards of directors of business enterprises or accept wages from other companies or participate in enterprises in any other manner except with the permission of the CEO. However, Saga Capital’s employees may serve on the boards of subsidiaries of Saga Capital and related companies. A shareholding in a company constitutes participation in a business enterprise, except in the case of an insignificant holding which does not entail direct influence on the management of the company.
 
The CEO of Saga Capital shall only grant permission to employees pursuant to paragraph 1 if there is no perceived risk of conflicts of interest. The CEO shall report to the board of directors at least annually on decisions pursuant to this article.
 
If the CEO sees urgent reason for so doing, he/she may withdraw permission granted in accordance with the above. The withdrawal shall take effect when it has been sent to the employee in a verifiable manner. The employee in question is then required to resign from the board of directors or cease participating in the business enterprise in question within six months from the time that the withdrawal of permission took effect. The CEO may provide for an earlier deadline if necessary in the interests of Saga Capital.
 
10.2. Notwithstanding the provision of Section 10.1, employees are permitted to serve on the boards of directors of companies pursuant to section 2.5. Employees shall inform the Compliance Officer of their holdings and service on the board of directors in such companies.
 
10.3. The CEO shall not normally serve on boards of directors and participate in business enterprises in other respects except as provided for by law or in the case of business enterprises in which Saga Capital has an interest. However, the board of directors may authorise the CEO to serve on the board of directors of business enterprises or participate in business enterprises in other respects in the interests of Saga Capital. The board of directors may withdraw such authorisation to the CEO, and such withdrawal is then subject to the provisions of section 10.1.
 
10.4. The Compliance Officer of Saga Capital shall maintain a record of employees who have been authorised to serve on boards of directors or participate in business enterprises. The record shall include the names of the employees in question, information on when the authorisation was granted and in respect of which company.
 
If an employee ceases to be a member of a board of directors or to participate in a business enterprise he/she shall notify the Compliance Officer. Upon receipt of such notification, the Compliance Officer shall remove the person in question from the record, which constitutes the termination of the employee's authorisation.
 
10.5. Employees are not permitted to engage in other occupations. However, the board of directors and the CEO may grant permission for such occupation if they consider it to be compatible with the employee's position.
 
10.6. The provisions of this Article are not in any way intended to curtail the freedom of employment of the spouse of an employee.
 
10.7. The permission of members of the board of directors to serve on the boards of directors of related companies is subject to special rules established on the basis of paragraph 2 of Article 54 of Act No. 161/2002 on financial undertakings. 

11. The Compliance Officer and supervision of the implementation of the Rules

11.1. Saga Capital shall designate a Compliance Officer, nominated by the board of directors. The position of the Compliance Officer in Saga Capital’s organisation chart shall secure his/her independence from the divisions in the Company falling under his/her surveillance. An alternate Compliance Officer shall also be appointed for consultation in the event that the Compliance Officer cannot be reached. The position of the Compliance Officer is subject to supervision by Saga Capital’s Internal Audit division, but the director of Risk Management shall decide on the securities trading of the Compliance Officer.
 
11.2. The Compliance Officer has the following role within Saga Capital:

11.3. The Compliance Officer shall have access to all the information within Saga Capital which is necessary for his/her duties. Employees are required to provide him/her with any information that he/she may request as promptly as possible.
 
11.4. The Compliance Officer is authorised to prohibit trading by specific employees in certain securities without reasoning or time limits. The Compliance Officer may also temporarily ban trading in connection with the internal research of a company when the research is not available to other clients.
 
11.5. The Compliance Officer shall monitor trading by employees in securities where Saga Capital, or parties with links to Saga Capital, have interests.
 
11.6. Each month, the Compliance Officer shall prepare a summary of trading by employees pursuant to these Rules which should include information on the purchase and sale of securities, the buying and selling price, time of trades, who handled the trades and who the counterparty was in each case. The CEO shall review the summary and confirm it.
 
11.7. Employees are required to notify the Compliance Officer if they suspect any violation of these Rules.
 
12. Employee’s declaration

12.1. Employees shall sign a declaration to the effect that they have acquainted themselves and their spouses with these Rules and that they undertake to comply with them, cf. Exhibit A. If a spouse is employed by another financial undertaking and has signed a comparable declaration concerning rules which apply to its employees’ trading, which have been approved by the Financial Supervisory Authority, the provisions of those rules shall apply to transactions by the spouse.

13. Penalties etc.

13.1. Violations of these Rules may be subject to cautioning, termination of employment and/or disciplinary action pursuant to applicable legislation. Transactions in violation of these Rules shall on the request of Saga Capital be reversed if possible, but if not, attempts shall be made to confiscate the profits so that they accrue to the Bank.
 
13.2. In other respects than provided for in these Rules, the provisions of Act No. 108/2007, as amended, shall apply to trading by parties covered by the Rules.
 
13.3. The Compliance Officer shall notify any violations of these Rules to the board of directors of Saga Capital. The board of directors or, as applicable, the CEO with the authorisation of the board, shall send information on notified violations to the Financial Supervisory Authority.
 
13.4. These Rules enter into effect on their signature by the board of directors of Saga Capital.
 
13.5. Measures shall be taken to ensure that clients of Saga Capital have access to these Rules.
  

Akureyri 8 June 2009

Board of Directors of Saga Capital Investment Bank hf.