Amendments to Law 24/1988, of 28 July, on Securities Market in relation to clearing, settlement and registry of securities

Law 32/2011 which amends Law 24/1988, on the Securities Market has been approved by the Spanish Parliament and published in the Spanish Official Gazette on 6 October 2011. The most relevant amendments are as follows:

Introduction of a central counterparty for equity transactions.

Law 32/2011 imposes the obligation to carry out all equity transactions traded, in both, official secondary markets and multilateral trading systems trough a central counterparty (“CCP”). This is due to the need to provide legal certainty to the relationships between investors and the CCP.

Likewise, Law 32/2011 removes the references to the mechanism for ensuring delivery (this system which has been operating so far, guarantees the settlement of all transactions accepted by the system and always delivering securities for cash using, for such purpose and when necessary the guarantees provided by participants) allowing, ultimately, for cash settlement when securities cannot be obtained. Investors will also be afforded a high level of protection given that, their counterparty will always be the CCP (note, however, that this minimises but does not eliminate the risk of failure in delivery).

In addition, Law 32/2011 sets up the basis of the regulatory regime of the CCP, establishing, among others: (i) the obligation to take the form of public limited company; (ii) the need to be authorised by the Ministry of Economy and Finance; (iii) that it will be subject to the supervisory regime of CNMV and Bank of Spain; (iv) that it will be subject to the significant shareholding regime of Law 24/1988; (v) regulation of the committees that will form part of the CCP; and (vi) regulation of the insolvency of the CCP, any of its members or any client of a member.

Other relevant amendments

A. The right of withdrawal in the event of insolvency of the entities in charge of keeping the registry and of participating entities and the pro rata rule:

  • Holders of book-entry securities annotated in the registries of the insolvent debtor are granted a right of separation in relation to the securities registered in their favour, that may be exercised by requesting the transfer of securities to another entity.
  • The insolvency Judge and the insolvency administrators must protect the rights that arise from transactions in course of settlement when the insolvency is declared.
  • When the securities with the same ISIN code which have been set aside the insolvency estate are insufficient to fully satisfy all registered owners, deficit will be distributed pro rata among all of them without prejudice to their right to claim against the relevant entity for the unsatisfied party (which will be satisfied in cash).
  • If there are rights in rem or other encumbrances over the relevant securities, once the pro rata rule is applied, such encumbrances shall be deemed created over the outcome of the pro rata and over the credits arising from the part which has not been paid in securities.

B. Amendments IBERCLEAR’s regulatory regime: (i) new corporate law rules that will facilitate the relationship between IBERCLEAR and the other agents of the trading and post-trading system and (ii) the regulation on the agreements that IBERCLEAR may carry out is completed to provide a better coverage to the TARGET2-Securities project.

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