The Executive Committee of the Spanish National Securities Market
Commission (Comisión Nacional del Mercado de Valores, “CNMV”),
in light of the current exceptional circumstances in the stock markets,
has passed on an extraordinary meeting and published on September 22,
2008 a resolution (the “Resolution”) implementing several
measures regarding short selling of shares and other equity securities
admitted to trading on the Spanish Stock Exchanges. These measures,
which are similar to those recently adopted on this matter by the
securities market authorities of other jurisdictions such as United
States of America, Canada, Australia, United Kingdom, Germany, France,
Belgium, Ireland, The Netherlands, Luxembourg, Portugal, Switzerland and
Taiwan, among others, may be summarised as follows:
1. OBLIGATION TO DISCLOSE SHORT POSITIONS
1.1 Reportable
transactions
The Resolution imposes the obligation to disclose any short position
held of shares or cuotas participativas[1] of the financial
sector issuers listed in Annex 1 of this memorandum exceeding 0.25% of
the share capital of those issuers admitted to trading. The Resolution
requires likewise to holders of a short position to disclose any
subsequent increase in the short position or decrease below the 0.25%
threshold.
For this purpose, the Resolution defines “short position” as the net
result of all positions in financial instruments, including shares or
cuotas participativas and any derivative the underlying asset of
which are shares or cuotas participativas, that give the holder a
positive (profit) exposure to downward movements in the price of the
relevant securities.
[1] Equity security available only to Spanish savings banks which
does not provide the owner with the right to vote on corporate
matters, such as the election of the board of directors
1.2 Person required
to report
The reporting obligation described in section 1.1 above applies, as
stated in the Resolution, to any natural or legal person holding short
positions of shares or cuotas participativas issued by the
entities listed in Annex 1. Although the Resolution does not clarify it
the CNMV confirmed informally that in the case of a group of entities
the person required to submit the relevant communication will be the
legal or natural person who has ultimate control, including in the
relevant communication the short positions individually held by each of
its affiliated companies bound to notify. Likewise, in the case of
management companies of collective investment schemes and investment
services firms that manage accounts on a discretionary basis, it should
be interpreted that the management company must aggregate for reporting
purposes all short positions of the same security held by the collective
investment schemes and discretionary accounts managed by it.
1.3 Temporal scope of the
reporting obligation
The measures contained in the Resolution are adopted on a temporary
basis, starting at 00:01 h of the 24th September, 2008, and
remaining in force until decided by the CNMV when market conditions that
motivated the measures disappear.
1.4 Content of the
communication
The relevant communication of short positions held of securities of
issuers listed in Annex 1 of this memorandum as well as of any
subsequent reportable variation in these short positions as per section
1.1 above must be made in writing to the General Markets Directorate (Dirección
General de Mercados) of the CNMV, which will make the information
public through a price-sensitive information notice (Hecho Relevante).
The communication can be sent through either the encryption and
electronic signature service CIFRADOC or, if not available to the person
required to notify, via e-mail addressed to area.mercados@cnmv.es or by
facsimile sent to the number +34 91 585 41 06. In these two latter
cases, the notification must be signed by the legal representative of
the holder and must include in the e-mail or in the cover page of the
facsimile (not in the document disclosing the short position)
information and contact details of the person submitting the
communication as established in the template available on the CNMV’s
website (section “CNMV latest”, subsection “CNMV communications”)
The relevant communication, which must conform to the template
available on the CNMV’s website (as specified above), must include the
following information:
- Identity of the person making the communication.
- Date of the communication.
- Identity of the relevant issuer.
- Detail of the short position held in the relevant issuer,
expressed both as a percentage of the share capital of the relevant
issuer admitted to trading (or the net balance of cuotas
participativas issued) and in number of securities of the issuer.
The communication shall be submitted preferably in the Spanish
language although the CNMV confirmed on an unofficial basis that
communications drafted in the English language will also be accepted.
1.5 Deadline
The initial communication reporting the short positions held over
shares of the entities listed in Annex 1 must be submitted no later than
19:00 p.m. of September 24, 2008.
Communications of increases in short positions or decreases below
0.25% of the share capital admitted to trading of the relevant issuer
must be disclosed no later than 19:00 of the day following the relevant
transaction.
2. REMINDER OF THE NAKED SHORT SELLING PROHIBITION
The Resolution also reminds that naked short selling in the Spanish
stock exchanges is forbidden and subject to automatic penalties under
Spanish law. Naked short sales are defined as those trades where the
seller does not have previous availability of the relevant securities,
either by means of a previous acquisition, by means of a securities loan
agreed or formalized before the trade or by means of the exercise of an
irrevocable conversion, option or derivative right. A trade where the
securities to be delivered on the settlement date have been borrowed
after the date of the trade shall be deemed naked short selling unless
the seller provides evidence that it had sufficient securities available
before the trade.
Accordingly, the CNMV urges all members of the official secondary
markets to exert the authority conferred to them by article 39 of the
Spanish Securities Market Act 24/1988, of 28 July to make execution of
trade orders received from their clients conditional upon the provision
of evidence by their clients to the effect that they have available the
securities to be delivered on the settlement date, either by relying on
their own registers if they act as their custodians or by obtaining a
representation by the client that they are not conducting a naked short
sale. Such representation can be made specifically for each trade or on
a general basis (for instance, by means of a general undertaking of the
client vis-à-vis the intermediary of not ordering naked short selling
trades) and does not need to be made in writing, being sufficient for
these purposes tape recordings of telephone conversations.
It is worth noting that, unlike other jurisdictions such as United
States of America or United Kingdom, the Resolution does not ban covered
short selling of shares or cuotas participativas of the financial
sector issuers listed in section 1.1 (i.e., where the seller has
availability of the relevant securities before submitting the trade
order), but rather imposes on such transactions the disclosure
obligations described in section 1 above.
3. PENALTY REGIME
The CNMV will regard the failure to disclose short positions (or any
reportable variation in these positions) held over securities of the
issuers listed in Annex 1, or of the issuers to which the CNMV may
subsequently extend in its case the obligation to report short positions,
as the case may be, and the delivery of false information to the members
of the market as regards the availability of securities before ordering
a trade as an indication of market abuse by way of disruption of the
free formation of prices. However, the CNMV will take into account the
operating needs of market makers and liquidity providers, defined as
firms that trade on a principal and proprietary basis to provide
liquidity, hedge or process clients trades and hedging of derivative
instruments positions.
In this regard, the CNMV announced that it will closely supervise the
observance of these rules by all regulated markets members and their
clients in order to avoid any conduct that may alter the orderly
functioning of markets or constitute market abuse.
Madrid, September 24, 2008
ANNEX 1
LIST OF ISSUERS OF SHARES OR
CUOTAS PARTICIPATIVAS FOR THE COMMUNICATION OF SHORT POSITIONS
TO WHICH THE OBLIGATION TO DISCLOSE SHORT POSITIONS APPLY
- Banco de Andalucía
- Banco de Castilla
- Banco de Crédito Balear
- Banco de Galicia
- Banco de Guipuzcoano
- Banco Pastor
- Banco Popular español
- Banco Sabadell
- Banco Santander
- Bando de Valencia
- Banco de Vasconia
- Banco Español de Crédito
- Bankinter
- BBVA
- Caja de Ahorros del Mediterráneo
- Grupo Catalana Occidente
- Mapfre
- Inverfiatc
- Bolsas y Mercados Españoles
- Renta 4
The foregoing list of issuers may be amended at
any time by the CNMV.
