Spain. International Securities Law and Regulation

Introduction

In General

The master outline of the Spanish stock market is found in Law Number 24/1988 of 28 July 1988 (the 'Stock Market Law', or Ley del Mercado de Valores). Following original publication of the Stock Market Law, numerous legal provisions have been introduced to complete the Spanish stock market system.

The Stock Market Law has been thus amended, inter alia, by Law Number 37/1998 of 16 November 1998, which implements the European Community (EC) Investment Services Directive, Law Number 44/2002 of 22 November 2000 on the reform of the Financial Market, Law Number 26/2003 of 17 July 2003 on the transparency of listed companies, Law Number 6/2007 of 16 April 2007 on the legal regime applicable to takeover bids, Law Number 47/2007 of 19 December 2007, which implements the provisions of the MiFID Directives in Spain and, more recently, Royal Decree-Law 10/2012 of 23 March 2012, on the amendment of certain rules in relation to the powers of the European Supervisory Authorities, and Royal Decree-Law 24/2012 of 31 August (validated by means of Law 9/2012 of 14 November, on restructuration and resolution of credit entities, as amended by Royal Decree-Law 3/2013 of 22 February), which implemented in Spain Directive 2010/73/UE; as well as Law 14/2013 of 27 September, on Entrepreneurs; Royal Decree-Law 14/2013, of 29 November, by means of which those measures that needed to be in place as a matter of urgency pursuant to Regulation (EU) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms and Directive 2013/36/UE of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, are implemented and Law 10/2014, on regulation, supervision and solvency of credit entities.

Law Number 24/1988 amounted to a notable progress in the development of our stock market as pointed out on many occasions by the most prestigious Spanish scholars.[1] It has been stated that 'above all, the Law sets out a comprehensive and modern vocation which is translated into a system of rules oriented towards establishing a stock market with internal coherence and which comprises a set of profoundly innovative regulations in comparison to our traditional rules for this market'.[2]

Objectives

The purpose of the Stock Market Law, as provided for in its article 1, is to regulate all matters relating to the Spanish trading systems available to financial instruments, including the establishment of the principles applicable to their organization and functioning, the financial instruments traded in those systems and the issuers thereof, the provision in Spain of investment services, and the supervision, inspection, and sanctioning regime.

Following the implementation in Spain of the MiFID Directives, the Stock Market Law is based on the concept of 'financial instruments', which includes negotiable securities (which basic features are their negotiability and collective issuance) and a wide range of derivative instruments. A key point of the regime set out by the Stock Market Law is the creation of the National Stock Market Commission (Comisión Nacional del Mercado de Valores, CMNV), which is a public law organism with its own legal entity. The National Stock Market Commission is a watchdog entity entrusted with the supervision and inspection of the stock market activities, and it has the power to take part in regulatory tasks and to carry forward reforms. It is the Spanish equivalent of the United States' Securities Exchange Commission, the United Kingdom's Financial Services Authority, the Italian CONSOB, and the French Autorité des marchés financiers.

Trading System Categories and Proceedings

In General

Pursuant to the Stock Market Law, financial instruments can be traded in regulated markets and multilateral trading facilities.

Regulated Markets

Regulated markets are those which allow the match of sale and purchase orders over financial instruments, give rise to contracts with respect to the instruments traded therein, are authorized to operate on an ongoing basis, and are subject to access, admission to trading, operational procedures, and information and publicity requirements. The existing regulated markets in Spain are:

• Those stock exchanges existing at any given time, with the governing body of each being their operating company;
• The book entries public debt market, with its governing body being the Central de Anotaciones, which is administered by the Bank of Spain;
• The futures and options market (MEFF); and
• The fixed rent market (AIAF).

Operation in the regulated markets is governed by each of the markets' regulator. However, in case of transfers of financial instruments traded on a regulated secondary market, it is compulsory that a member entity of the relevant market participates in or mediates the transfer.

The Stock Market Law also establishes the basic principles of the Spanish Clearing and Settlement of Securities Service (IBERCLEAR), which is organized as a limited liability company and, pursuant to the Stock Market Law, carries out clearing and settlement activities in the stock exchanges and the public debt market (although, in practice, it clears and settles in the fixed rent market as well).

Multilateral Trading Facilities

The Stock Market Law defines multilateral trading facilities as systems that allow the match of sale and purchase purposes over financial instruments of multiple third parties in order to give rise to contracts. As distinct from the regulated secondary markets, multilateral trading facilities are to be authorized by the National Stock Market Commission (and not the Ministry of Economy and Competitiveness), can be freely created, and their management company can be an investment firm, a management company of a regulated secondary market (Sociedad Rectora), or a special purpose entity incorporated by one or more management companies of regulated secondary markets.

In addition, 'fictitious' markets can be created by investment firms or credit entities by way of the provision of the so-called systematized internalization services (internalización sistemática), which consist of the execution by those entities, outside of a regulated secondary market or multilateral trading facilities, and against their own books, of customers orders in relation to shares admitted to trading in a regulated secondary market, provided that such way of proceeding is maintained on an organized, frequent, and systematic basis and the amount of the orders is equal to or below the standard volume in the relevant market.

Stock Market Regulations

In General

Many development regulations have been enacted to complete the provisions of the Stock Market Law, both by the Spanish Government and the National Stock Market Commission, including:

• Royal Decree Number 726/1989 of 23 June 1989, relating to management companies (Sociedades Rectoras) and members of stock exchanges (Bolsas de Valores), governing entities (Sociedad de Bolsas), and group guarantees (Fianza Colectiva);
• Royal Decree Number 1416/1991 of 27 September 1991, covering special securities transactions and the non-exchange transfer of quoted securities and average weighted prices;
• Royal Decree Number 116/1992 of 14 February 1992, regarding the representation of securities by way of accounting entries and the clearance and settlement of securities transactions;
• Royal Decree Number 948/2001 of 3 August 2001, on the investors' guarantee fund;
• Royal Decree Number 1310/2005 of 4 November 2005, on admission of securities to trading in regulated secondary markets, public offers of sale or subscription, and the prospectus required for those purposes;
• Royal Decree Number 1333/2005 of 11 November 2005, on market abuse;
• Royal Decree Number 1066/2007 of 27 July 2007, relating to public offers for the acquisition of securities;
• Royal Decree Number 1362/2007 of 19 October 2007, on the transparency requirements relating to the issuers of securities admitted to trading in a regulated secondary market;
• Royal Decree Number 217/2008 of 15 February 2008, on the legal regime applicable to investment firms and all entities rendering investment services;
• Royal Decree Number 1282/2010 of 15 October 2010, concerning the regulation of the official markets for futures, options, and other derivative financial instruments;
• Royal Decree Number 303/2012 of 3 February 2012, relating to the Consultative Committee of the National Stock Market Commission;
• Royal Decree Number 1082/2012 of 13 July 2012, developing the regime on undertakings for collective investment;
• Royal Decree-Law 24/2012 of 31 August (validated by means of Law 9/2012 of 14 November, on restructuration and resolution of credit entities, as amended by Royal Decree-Law 3/2013 of 22 February), which implemented in Spain Directive 2010/73/UE; and
• Royal Decree Number 1698/2012 of 21 December (by means of which Directive 2010/73/UE is implemented in Spain), modifying the previous regulations on prospectuses and transparency requirements of issuers.
• Circular of the National Stock Exchange Commission No. 3/2013, of 12 June, by means of which certain obligations as to the information that must be provided to clients of investment services for purposes of the suitability and appropriateness test are developed.

National Stock Market Commission

The control, supervision, and inspection of the operation of the Spanish primary and secondary markets and of the activities of those private individuals and legal entities related to these markets are entrusted to the National Stock Market Commission.

The National Stock Market Commission is a public law organism with its own legal entity and full capacity to act as a private enterprise or a public authority. In the exercise of its public functions, and where the Stock Market Law and any other law is silent on any matter, the National Stock Market Commission will act in accordance with the provisions of Law Number 30/1992 of 26 November 1992 relating to the legal regime of the public administration and the ordinary administrative proceedings.

The National Stock Market Commission is governed by the Stock Market Council, which has those powers granted by the Stock Market Law and those others which may be given by the government or the Ministry of Economy and Competitiveness in accordance with regulations developing the Stock Market Law. The Council is composed of the following members:

• A chairman and vice-chairman appointed by the government on a proposal made by the Ministry of Economy and Competitiveness;
• The General Director of the Treasury and Financial Policy and the Sub-Director of the Bank of Spain, who are ex officio members; and
• Three directors appointed by the Ministry of Economy and Competitiveness.
  
  A Secretary with no voting rights must be appointed and must participate in the meetings of the Council. The Executive Committee is composed of the chairman, the vice-chairman, and the directors appointed by the Ministry of Economy and Competitiveness.

The Consultative Committee of the National Stock Market Commission is a body responsible for advising the Council on certain specific matters, including the rules enacted by the National Stock Market Commission and the imposition of sanctions because of very serious infringements. The Committee is chaired by the vice-chairman of the council and includes representatives of the regulated secondary markets, the issuers, the investors, and the Spanish regions (Autonomous Communities) where a regulated secondary market is located. The National Stock Market Commission's functions include:

• Supervise and inspect the stock markets and any activities undertaken by any private individual or legal entity connected with their transactions;
• Register the issuances and public offers relating to traded financial instruments;
• Impose sanctions;
• Provide information to enhance the transparency of the securities markets, ensure adequate price formation, and protect investors;
• Advise the central and, if applicable, the Autonomous Communities on matters connected with the securities markets; and
• Enact rules developing the provisions contained in regulations approved by the government or the Ministry of Economy and Competitiveness. These regulations are known as Circulars.

In addition to the control exercised by the National Stock Market Commission, the Autonomous Communities have the power to control, inspect, and impose sanctions to companies operating within their territories and in relation to securities admitted to trading in markets located in their areas. The National Stock Market Commission may enter into agreements with those regions that are competent in these matters relating to the securities markets for the purpose of coordinating their respective areas.

Legal Regime

Stock Exchanges

In General

There are four stock exchanges in Spain: Madrid, Bilbao, Barcelona, and Valencia. The creation of a stock exchange needs to be authorized by the Ministry of Economy and Competitiveness, unless the Autonomous Community where the stock exchange is located has express statutory power to create an exchange in its region.

The object of the stock exchanges is the trading of securities, although financial instruments traded in other regulated secondary markets can be traded as well in the stock exchanges. Each stock exchange is governed and administered by a limited-liability company known as a management company (Sociedad Rectora).

The management company directs and controls the activities undertaken on a stock exchange and, as manager, shall be responsible for the organization of the resources needed to operate the stock exchange. Some of the functions and duties of management companies are to:

• Clearly state and publish the conditions for the admission of securities to trading in the stock exchange;
• Resolve the admission of securities to trading in the stock exchange;
• Ensure that the price formation process is correct and open and that the regulations applicable to transactions are strictly observed;
• Notify the National Stock Market Commission and, where applicable, the corresponding Autonomous Community, of any matter that might amount to a breach of or a deviation from the basic principles of the Spanish stock market legislation;
• Render such assistance to the National Stock Market Commission or to the Autonomous Community as may be requested in connection with the duties of supervision, inspection, and control;
• Request from the National Securities Exchange Commission the suspension of any securities to trading when reporting or other obligations are breached by the issuer or other circumstances which may disturb the normal trading of the securities arise; in urgent circumstances, the management company could unilaterally suspend the trading;
• Propose the exclusion from trading of those securities in relation to which the volume, frequency, or spreading criteria established in the relevant regulations are not fulfilled;
• Ensure that the members of the stock exchanges require clients to give the minimum guarantees and conform to applicable coverage ratios for credit and term transactions; and
• Receive and transmit certain information.

Membership

The following entities can become a member of a stock exchange:

• Investment firms authorized to execute orders on behalf of clients or to operate on its own account (ie, dealers or brokers);
• Credit entities;
• Credit entities or investment firms domiciled in another European Union (EU) member state, provided that they are authorized to execute orders on behalf of clients or to operate on their own account (even on a cross-border basis and without having to hold an establishment in Spain);
• Credit entities or investment firms domiciled outside the EU, provided that their home regulator has authorized them to execute orders on behalf of clients or to operate on their own account;
• The public administration (through the General Directorate of Treasury and Financial Policy); and
• Those other entities as determined by the relevant stock exchange management company in accordance with objective criteria.
  
  It is not necessary that the member entities are shareholders of the management company of the stock exchange.

Stock Exchange Interconnection System

The four Spanish stock exchanges are connected through the Stock Exchange Interconnection System (Sistema de Interconexión Bursátil ¾ SIBE), which is a national computer-aided communication system in which listed securities as resolved by the National Stock Market Commission may be traded, provided that they are listed in at least two stock exchanges.

The Stock Exchange Company (Sociedad de Bolsas) is a limited liability company in charge of the management of the Stock Exchange Interconnection System. Its share capital is distributed in equal parts among the four management companies of the existing Spanish stock exchanges, which have an equal representation in the board of directors and appoint an extra member to act as chairman thereof.

Latibex and MAB

Latibex was authorized in 1999 and is an organized system for the trading, clearing, settlement, and registration of transactions over Latin American securities that are expressly admitted for these purposes. It is not a different regulated secondary market with a separate legal entity. The securities admitted to this market are traded in the four stock exchanges.

The main conditions that the securities need to fulfill in order for them to be admitted in Latibex are being admitted to trading in a Latin American official stock exchange, having a capitalization value of at least €300 million, providing evidence of compliance with the applicable obligations in the home stock exchange, and assuring that the information submitted to the home stock exchange is immediately available in the market.

MAB (Mercado Alternativo Bursátil) is a system for the trading, clearing, settlement, and registry of shares and other securities in undertakings for collective investment, securities or financial instruments issued or related to entities with a small capitalization, and other securities or financial instruments which, in light of their nature, deserve a singular regime. It is noteworthy that the current regime of MAB is being revised by Spanish authorities and is likely to be amended before the year end in order to enhance supervision and control of the securities that are traded in it and their issuers.

Transactions

The settlement of stock exchange transactions, ie, the completion of agreed sales and purchases, is undertaken by way of multilateral clearing through IBERCLEAR. This service deals with the clearance of all credit and debit balances as between securities and cash amounts that have arisen due to purchase and sale transactions undertaken by each of the entities adhered to the service (entidades adheridas) either on their own behalf or on behalf of customers.

IBERCLEAR is a limited-liability company where shareholders are the four stock exchange management companies and the entities adhere to the service. The brokerage firms and agencies that are members of one or more stock exchanges are automatically members of IBERCLEAR. Additionally, the following entities can adhere to IBERCLEAR:

• The credit institutions, the Bank of Spain, and the General Deposits Corporation;
• The Sociedades and Agencias de Valores y Bolsas (ie, brokers and broker-dealers) which are not members of a stock exchange; and
• The non-resident entities which undertake activities analogous to the Servicio de Liquidación y Compensación de Valores, provided that a reciprocity agreement is entered into where the entity is not domiciled in the EU.

Book Entries Public Debt Market

The sole object of the Book Entries Public Debt Market is the trading of fixed rent securities represented through book entries and issued by the State, the Official Credit Entity (ICO) and, at their request, the European Central Bank, EU central banks, development multilateral banks which Spain is a member of, the European Investment Bank, Autonomous Communities or other public entities, as well as other financial instruments as approved from time to time.

The Bank of Spain is the management body of the Book Entries Public Debt Market. The registry of the securities traded in this market has been entrusted to IBERCLEAR, which manages the issuance and redemption of the securities, coupon payments, and balance transfers resulting from transactions in the secondary market. Additionally, IBERCLEAR holds the accounts, which can be individual (in the name and on behalf of the member entities) or global (opened in the name of the member entities but on behalf of their customers). Only those entities complying with the requirements set forth in the Stock Market Law can qualify as members of the Book Entries Public Debt Market.

Futures and Options Markets

In accordance with articles 31 and 59 of the Stock Market Law, the government, pursuant to Royal Decree Number 1282/2010 of 15 October 2010, has developed the regulation for the futures and options markets. In the futures and options markets a wide range of derivative instruments are traded, the underlying being defined by the relevant market management company. The purpose of these markets is the trading, registration, clearing, and settlement of futures, options, and other derivative financial instruments, eligible in accordance with the relevant market regulations.

Futures and options are standardized contracts where the only terms that are subject to negotiation between the parties are price and settlement date. Fulfillment of the agreements is guaranteed by the management company; in other words, each of the parties contracts with the market, so there is no counterparty risk.

Financial futures and options markets need to be authorized by the Ministry of Economy and Competitiveness, except where their scope is regional, in which case they shall be authorized by the relevant Autonomous Community. The options and futures markets currently existing in Spain include MEFF Renta Variable (in Madrid), MEFF Renta Fija (in Barcelona), and Olive Oil Futures Market (in Jaén).

Fixed Rent Market

Enterprise promissory notes, notes, bonds, and other fixed rent securities are traded in the Fixed Rent Market (AIAF). The management company of the market is the Mercado Renta Fija, S.A. Only credit entities, broker-dealers (sociedades de valores), or brokers (agencias de valores) can become members of this market.

Entities Authorized to Operate in the Spanish Securities Market

The following types of investment firms exist pursuant to the Stock Market Law:[3]

• Broker-dealers (sociedades de valores), which can provide all investment services;
• Brokers (agencias de valores), which can only provide investment services on behalf of clients but not dealing for their own account;
• Portfolio management companies (sociedades gestoras de cartera), which can only provide portfolio discretionary management and investment advisory services; and
• Financial advisory firms (empresas de asesoramiento financiero), which can only provide investment advisory services.
  
  Additionally, credit entities will be entitled to render all investment services, while investment funds management companies can provide specific investment services. EU credit institutions and investment firms are able to provide investment services in Spain (provided that their legal regimes, articles of association, and specific authorizations enable them to do so) by:

• Opening a branch in Spain (subject to a passporting procedure and without a prior authorization being required in Spain); or
• Rendering services on a cross-border basis in the Spanish market (subject to a passporting procedure and without prior authorization being required in Spain).

Non-EU investment firms may provide services in Spain by opening a branch, provided that an administrative authorization from the Ministry of Economy and Competitiveness, on proposal of the National Stock Market Commission, is obtained or by rendering services on a cross-border basis, provided that an administrative authorization from the Ministry of Economy and Competitiveness, on proposal of the National Stock Market Commission, is obtained.

Under the Stock Market Law, the establishment by a Spanish investment firm of a branch or the provision by a Spanish investment firm of investment services abroad will require a mere prior notice to the National Stock Market Commission (if the host country is a EU jurisdiction) or the authorization by the National Stock Market Commission (if the host country is not a EU jurisdiction).

It is the Ministry of Economy and Competitiveness that, on a proposal from the National Stock Market Commission, grants the relevant license so that the investment firms can provide investment services, except in the case of advisory companies, where the National Stock Market Commission is the one that grants the authorization. The requirements necessary to enable an entity to obtain and maintain the above license include:

• Their corporate object must be limited to those investment services which they are able to render according to their authorization;
• Their registered address and main place of business must be located in Spain;
• They must be open limited-liability companies (sociedades anónimas) except for the advisory companies, which can be closed limited-liability companies (sociedades de responsabilidad limitada) with indefinite duration and share capital divided into registered shares;
• They must have at all times a minimum share capital, fully paid up in cash, whose amount depends on the type of investment firm (it goes from €2,000,000 for securities companies to €50,000 for advisory companies);
• They must have a board of directors of at least three members;
• All members of the board of directors, including the private individuals who represent legal entities which are directors, and all managing directors and similar officers must have a recognized business or professional background;
• The majority of the members of the board of directors and all managing directors and similar officers must have sufficient knowledge and experience in matters related to securities markets;
• They must have an adequate organization, personal means, internal control procedures, and departments and technical support sufficient to deal with the nature and volume of their activities, including without limitation to those necessary to prevent money laundering activities;
• They must have an internal code of conduct and a specific regime for self-dealing by directors, managers, employees, and attorneys;
• Save for certain exceptions, they must fulfill certain ratios of volume of investments in low risk and high liquidity assets;
• They must adhere to the Investment Guarantee Fund (see text, below); and
• They must also comply with the applicable capital requirements as set out in Regulation (EU) No 575/2013 of 26 June 2013.
  
  Investment firms can appoint agents which can act on their behalf and which can only operate on an exclusive basis for the relevant investment firm and its group. Investment firms remain liable for the performance of their agents. The following investment services in relation to financial instruments can be provided by investment firms and credit entities pursuant to the Stock Market Law:

• Receive and transmit orders in relation to one or more financial instruments;
• Execute orders on behalf of clients;
• Deal on own account transactions;
• Provide portfolio management;
• Offer investment advice;
• Underwrite financial instruments and/or placing of financial instruments on a firm commitment basis;
• Place financial instruments without a firm commitment basis; and
• Provide multilateral trading facilities management services.

The following ancillary services can be provided by investment firms and credit entities pursuant to the Stock Market Law:

• Offering safekeeping and administration of financial instruments for the account of clients, including custody and related services such as cash/collateral management;
• Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments;
• Giving advice to undertakings on capital structure, industrial strategy, and related matters and advice and services relating to mergers and the purchase of undertakings;
• Engaging in investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments; and
• Providing services related to underwriting or placement of financial instruments.

The Stock Market Law and Royal Decree Number 948/2001 regulate the creation of the Investors' Guarantee Fund, which is a separate entity with its own legal entity aimed at, under certain circumstances (mainly, insolvency of an investment firm, or express declaration by the National Stock Market Commission in the sense that an investment firm is not able to fulfill its obligations), covering the value of the assets deposited by the investors at the affected firm, up to a certain amount.

All Spanish investment firms other than advisory companies and branches of non-EU investment firms must adhere and contribute to the Investors' Guarantee Fund, while adhesion and contribution by branches of EU investment firms is voluntary. The coverage provided by this fund is complemented with the one granted by the Deposit Guarantee Fund of the credit entities.

Public Offer of Securities, Admission of Securities to Trading, and Prospectuses

Rules on the public offer of securities, and the admission of securities to trading are set forth in articles 25-30 ter of the Stock Market Law, Royal Decree Number 1310/2005 of 4 November 2005, and Order Number EHA/3537/2005 of 10 November 2005.

A public offer is defined as a communication to persons by any means or any way which includes sufficient information on the terms of an offer and the offered securities, which allows an investor to decide on the acquisition or subscription of those securities; however, an offer may not be considered in any event as a public offer when:

• It is only addressed to qualified investors (including credit entities, pension funds, investment firms, investment funds, governments, central banks, supranational institutions, and large corporations);
• The number of persons to which it is addressed (excluding the qualified investors) is less than 150 per member state;
• The nominal value per security or the minimum investment in securities is at least €100,000; or
• The aggregate amount of the offer (calculated within the last 12 months if the offer is continuing or made in respect to the same securities more than once) is below €5,000,000.
  
  Any on-sale of securities which has been previously the object of a public offer shall be deemed a separate offer and the same definition of public offer must be used in order to determine whether the public offer regime is applicable to that second offer.
  
  A public offer of securities and the admission of securities to trading in a Spanish regulated secondary market requires compliance with certain requirements, except for certain specific cases set forth in Royal Decree Number 1310/2005 (including exchange of shares, shares offered as part of the price of a takeover bid or in the context of a merger, dividends in shares, and debt securities issued or guaranteed by public bodies). The National Stock Exchange Commission would be the competent authority to supervise a public offer or the admission of securities to trading in these cases:

• For issuances of debt securities with a nominal value of at least €1,000 each and debt securities which entitle the holder to acquire negotiable securities or receive a cash amount as a result of their conversion or the exercise of rights attached to them, when the issuer of the underlying securities is not the issuer of the debt securities or another entity of the same group, if the issuer of the securities is domiciled in Spain, or the securities are to be traded in a Spanish regulated secondary market, or the securities are publicly offered in Spain (and the issuer, offeror, or the applicant selects Spain as home country);
• For securities other than those referred to above, if the issuer of the securities is domiciled in Spain; and
• For securities other than those referred to above, if the issuer of the securities is domiciled outside the EU and the securities are to be traded in a Spanish regulated secondary market, or the securities are publicly offered in Spain (and the issuer, offeror, or the applicant selects Spain as home country).

The documentation to be provided to the National Stock Exchange Commission in the context of a public offer or an application to trade securities in a Spanish regulated secondary market is, in general, the following: (a) the by-laws, (b) the corporate resolutions, (c) audited financial statements of the last three years (for equity securities) or two years (for debt securities) and (d) an informative prospectus which has to be verified and registered with the National Stock Exchange Commission (such verification not meaning any recommendation to buy or an opinion on the solvency of the issuer or the quality of the securities).

The contents of the prospectus are equivalent for public offer and admission to trading purposes (and the same prospectus could be used for both purposes during one year), and are determined by Commission Regulations (EC) 809/2004 of 29 April 2004. As a general principle, a prospectus shall contain all necessary information in relation to the issuer and the securities so that the potential investors may make an informed assessment of the investment.

A prospectus can be a single document or be composed of separate documents: registration document, securities note, and summary. When an updated registration document is already registered with the National Stock Exchange Commission, an issuer can use it and just prepare the securities note and the summary when new securities are going to be admitted to trading. That said, a summary will not be required when the prospectus relates to debt securities for an individual nominal value of at least €100,000.

The summary must be drawn up in a common format (in accordance with the applicable regulations, as provided under Annex XXII to the Commission Delegated Regulation (EU) Number 486/2012 of 30 March), as well as in a brief and non-technical way, reflect the features and essential risks associated to the issuer, the guarantors (if any), and the securities, and contain a statement clarifying that it must be read as an introduction for the prospectus and that a decision to invest will be based on the assessment of the complete prospectus. An investor cannot claim on the basis of the summary, unless it is misleading or inconsistent with the rest of the sections of the prospectus.

A base prospectus can be used for issuances of debt securities or warrants which are issued under an issuance program, or debt securities issued by a credit entity on an ongoing or continuous basis provided that certain conditions are met. A base prospectus contains all information except for the final terms of the securities, which are deposited at the National Stock Exchange Commission afterwards. It is an efficient process as the National Stock Exchange Commission just verifies and registers the base prospectus, but all issuances made thereunder do not require any further approval.

A supplement of a prospectus (either a base prospectus or an ordinary one) needs to be made when the prospectus contains an inaccuracy or a new significant factor arises in relation to the information contained in the prospectus (for instance, interim financial information) that can influence the assessment of the securities.

There is an obligation to publish all prospectuses and their supplements. Several alternatives are available for these purposes, although in Spain the National Stock Exchange Commission publishes all prospectuses in its website and this requirement is thus automatically fulfilled.

A Prospectus verified by and registered with the competent securities market authority of an EU member state can be used for the public offer or admission to trading in other EU member states (without the host member state being entitled to impose any additional requirement). This process, which is called passporting procedure, just involves a notification between supervisors enclosing a certificate evidencing that the prospectus was prepared in accordance with the Prospectus Directive, a copy of such prospectus, and a translation of its summary into the language of the host member state. Additionally, issuers that wish to launch a tender offer or request for the admission to trading of debt securities under a base prospectus previously filed with the competent authorities of the other member states must communicate the final terms to the competent authority of the relevant host member state.

On top of potential criminal and administrative liability, the Stock Market Law and Royal Decree Number 1310/2005 establish a specific liability regime in connection with the prospectus. This liability is imposed on the issuer, offeror, or the person applying for the admission to trade in a regulated secondary market, as the case may be, as well as on its directors, the guarantor (where applicable and in respect of the information prepared by it), the arranger for the information in the securities note in initial public offering, and any other person who accepts to assume liability in connection with the prospectus and that circumstance is reflected therein.

These persons will be liable for the damages caused to those investors that acquire the relevant securities as a consequence of false information included in the prospectus or the omission of significant information therein.

Periodic Returns

Entities which issue securities traded in any secondary market (for these purposes, listed entities) must submit, when Spain is the host member state, certain information on an annual, semi-annual, and quarterly basis to the National Stock Exchange Commission, and shall disclose it on their website. Such information shall be prepared in accordance with Circular of the National Stock Exchange Commission Number 1/2008 of 30 January 2008.

Within four months as from the end of the fiscal year, listed entities must prepare and publish their individual and, if applicable, consolidated annual accounts and management report (which must include a report on corporate governance), as verified by their auditors, together with a statement on their contents signed by its directors.

Within two months as from the end of the first half of the fiscal year, listed entities shall prepare and publish an individual and, if applicable, consolidated summarized balance sheet and interim management report for the first six months, together with a statement signed by their directors on their contents.

Additionally, within two months as from the end of the fiscal year, listed entities must prepare and publish an individual and, if applicable, consolidated summarized balance sheet and management report for the full year, together with a statement signed by its directors on their contents. This obligation may not be applicable if the listed entity has published the annual information referred to above within the first two months.

Within 45 days as from the end of the first and third quarter of the fiscal year, listed entities shall prepare and publish information on the financial position and results of the issuer and its subsidiaries, as well as on significant events (together with its impact on the financial position or results of the group) occurring during the first quarter and the first three quarters, respectively. All transactions of a listed entity with related parties must be disclosed in the semi-annual reports.

Significant Shareholdings

In General

Pursuant to article 53 of the Stock Market Law and Royal Decree Number 1362/2007, those persons who directly or indirectly purchase or transfer shares or financial instruments attributing voting rights in an entity whose shares are listed in a regulated secondary market and, as a consequence, its voting rights reach, exceed, or are reduced below 3 per cent, 5 per cent, 10 per cent, 15 per cent, 20 per cent, 25 per cent, 30 per cent, 40 per cent, 45 per cent, 50 per cent, 60 per cent, 70 per cent, 75 per cent, 80 per cent, or 90 per cent of the voting rights, must inform the issuer and the National Stock Exchange Commission within four stock exchange working days as from the date when the obligor knew or should have become aware that any of the above thresholds have been crossed.

As an exception, where the acquirer or transferor is domiciled in a tax haven or in a territory with no taxation or with which no effective tax information exchange exists, the obligation to report is triggered each time a 1 per cent or any of its multiples are crossed. Additionally, directors of the affected company are obliged to report all purchases and transfers of shares within five stock exchange working days, as well as the shareholding they have when they are appointed and removed, whereas directors and managers must inform of the stock-options plans and any other plan linked to shares of the listed company (as well as of the operations with shares and derivatives over shares where they or specially-related persons are involved).

In addition to the acquisition or transfer of listed shares, the acquisition or transfer of financial instruments which entitle the holder in its own initiative to acquire existing shares attaching voting rights also trigger the obligation to report. Moreover, even where no acquisition or transfer exists, certain other events would trigger the obligation to report:

• When the proportion of voting rights of a certain person reaches, exceeds, or is reduced below the relevant thresholds as a consequence of a change in the total number of voting rights of the affected company;
• The first listing of a company in a regulated secondary market;
• In the case of a capital increase to be freely allotted by shareholders (ampliación de capital liberada), if voting rights are altered because of the purchase or sale of the right to subscribe the new shares; and
• Where a takeover bid is launched, shareholders in the affected company, shareholders with 1 per cent or more of the voting rights, and shareholders with more than 3 per cent that modify its shareholding shall make the corresponding notification.

Who Must File

In addition to the direct or indirect shareholders, other persons may have the obligation to report when the voting rights involved reach the thresholds set forth above:

• Regardless of the ownership of the shares, those who acquire, transfer, or have the possibility to exercise voting rights attached to the shares as a consequence of certain transactions set forth in Royal Decree Number 1362/2007, including agreements to syndicate the exercise of the vote in certain circumstances, the temporary transfer of voting rights, and the granting of usufruct rights over the shares;
• The custodian of the shares provided that it can discretionally exercise the voting rights attached to the deposited shares;
• The person who uses an intermediate company or person to hold the shares and voting rights;[4]
• The attorneys, when they can discretionally exercise the voting rights, in absence of specific instructions from the shareholders;
• The undertakings for collective investments management companies in respect of the voting rights attached to the shares held by the undertakings for collective investments managed by them, except where they expressly waive the exercise of voting rights; and
• Where there is a co-ownership of shares, the person designated to exercise the voting rights.

Notice of Acquisition of Own Shares

The purchase by a listed entity in a single transaction or successive transactions of own shares, either directly or through a controlled or intermediate entity, representing 1 per cent of the share capital or any of its multiples, must be notified to the National Stock Market Commission.

Significant Information

Listed entities shall disclose significant information (see Rules of Conduct below) by means of a notice to the National Stock Exchange Commission (Hecho relevante) when such significant information may affect the quotation price of the listed company.

Rules of Conduct

In General

Articles 78-83 quater of the Stock Market Law, Royal Decree Number 217/2008, and Royal Decree Number 1333/2005 contain the main conduct rules applicable to the securities market, which can be classified into rules of conduct applicable to the rendering of investment services, rules addressing market abuse, and rules concerning a sanctioning regime.

Client Classification

Depending on the type of entity and the experience, knowledge, and qualification in the field of the securities markets, the customers shall be classified as eligible counterparties, professional customers, or retail customers. Those customers classified as retail customers enjoy a higher level of protection under the applicable legislation (for instance, investment firms and credit entities are obliged to furnish the retail customers with extensive information in relation to themselves and the services rendered, the financial instruments and investment strategies, and the platform for the execution of orders and associated costs and expenses).

Inducements

The only fees and benefits permitted under the Stock Market Law and Royal Decree Number 217/2008 are fees and non-cash benefits paid or delivered to entities acting on behalf of the investment firm or the customer; fees and non-cash benefits paid or delivered to third parties or by third parties, provided that certain information on the existence, nature, and amount of those fees or benefits is provided to the customer and payment thereof contributes to an increase in the quality of the service provided to the customer and does not affect the obligation of the firm to act always in the best interest of the customer; and fees necessary or adequate to properly provide the investment service (such as custody, settlement, currency exchange, or legal fees) and which, because of their nature, cannot conflict with the duty of the firm to act with the necessary honesty, impartiality, diligence, and transparency in the best interest of the customer.

Suitability and Appropriateness

With respect to investment advice and portfolio management services, the investment firm is obliged to obtain as much information from the customer as necessary in relation to its objectives, financial position, risk aversion, experience, and knowledge with the aim of being able to recommend those services and financial instruments which best suit the relevant customer. When it comes to the rest of investment services, the firm must request the information necessary to assess the customer's knowledge and experience and therefore to determine if the product or service requested by the customer is appropriate and warn the customer accordingly.

Best Execution

The investment firms must adopt all reasonable measures to obtain the best possible result for the client's transactions, considering price, other costs, speed, and certainty of the execution, and have a best execution policy in place summarizing the weighted importance of these criteria in the decision on how the orders from customers should be executed.

Insider Trading

Privileged information is any information of a specific nature which directly or indirectly refers to one or more financial instruments or securities or to one or more issuers thereof which has not been made public and which, had it been made public, could have considerably influenced the quotation of such security or securities. Pursuant to article 81 of the Stock Market Law, any person or entity who possesses privileged information (as defined above) may not undertake, whether directly or indirectly, any of the following activities for its own benefit or for the benefit of anyone else:

• Prepare or undertake any kind of transaction in the market relating to the securities or financial instruments to which the information refers, or derivative agreements having those securities or financial instruments as underlying asset;
• Communicate such information to any third party, save in the normal course of work, profession, office, or function; and
• Recommend any third party to acquire or transfer securities or financial instruments or to make any other transaction based on the privileged information.

Disclosure of Significant Information

Under article 82 of the Stock Market Law, significant information is defined as that whose knowledge can affect a reasonable investor in order to acquire or transfer securities or financial instruments and, therefore, can influence significantly their price in secondary regulated markets.

Issuers of securities and financial instruments are obliged to communicate any significant information to the National Securities Exchange Commission prior to the disclosure in any other way, and as soon as the event has been known, the decision has been taken, or the agreement has been executed. Significant information shall also be immediately uploaded to the listed entity's website. The National Securities Exchange Commission can require a listed entity to publicly disclose information that the regulator deems significant.

Exceptionally, the issuer may delay the publication of the significant information when it deems that disclosure would damage its legitimate interests, provided that the non-disclosure does not produce a misleading effect, the issuer can guarantee the confidentiality of that information, and the National Securities Exchange Commission is immediately informed.

The above notwithstanding, there is a broad duty to keep confidential those analysis, preparatory, and negotiation acts prior to the execution of an agreement or taking a decision which may qualify as significant information and, in particular, ongoing negotiations which could be affected if they were disclosed, and resolutions adopted by any corporate body of the listed entity which need to be ratified by another one in order for the decision or agreement to be effective.

During that previous phase, the listed entity shall adopt all necessary measures to ensure confidentiality of that information and, in particular, restrict the access to that information only to those persons as strictly necessary and keep a record of the persons who are aware of the information. If prices or volumes traded in relation to the shares of the listed company become abnormal and there are signs that the confidentiality has been breached, the listed entity shall disclose the significant information.

Distortion of Prices in Market

All persons or entities operating in or related to the securities market must refrain from preparing or carrying out transactions that distort the free formation of prices. For those purposes, operations or orders using fictitious mechanisms or any other way of deception or which provide or may provide false or misleading signs in connection with the offer, the demand or the price of a financial instrument, as well as the spread of misleading information, are considered acts which distort the free formation of prices. Among the activities that are particularly considered as distorting the formation of prices, Royal Decree Number 1333/2005 includes the following:

• The individual or concerted action to retain a dominant position over the offer or demand of a financial instrument with the result of determining non-balanced trading conditions;
• The sale or purchase when the market has closed with the effect of misleading the investors;
• The use of the media to expose an opinion on a financial instrument after taking a position on it and benefiting from the effects of that opinion; and
• Any other specific practices as established by the National Securities Exchange Commission.

Sanctioning Regime

Finally, the Stock Market Law defines a very broad sanctioning regime which extends to all entities or persons that are involved in any way in the securities markets. As aforementioned, the National Securities Exchange Commission is vested with all supervision and inspection powers necessary for the exercise of the sanctioning regime, which include physical inspections and unlimited access to documentation. All information obtained by the National Securities Exchange Commission exercising its functions is subject to a strict secrecy duty that applies to all officials involved.

Takeover Bids

Takeover bids are regulated by articles 60, 60 bis, 60 ter, 60 quáter, and 61 of Stock Market Law and Royal Decree Number 1066/2007 of 27 July 2007, as amended (specifically, pursuant to Royal Decree-Law 4/2004, of 7 March). There are two types of takeover bids, ie, mandatory takeover bids and voluntary takeover bids.

Persons who achieve control of a company listed in Spain are required to launch an offer addressed to all equity securities of the affected company and at a fair price. For these purposes, control is deemed to exist in the following circumstances:

• Through the acquisition of shares and other securities granting, directly or indirectly, voting rights in the listed company in an aggregate percentage of at least 30 per cent. Some rules on computation of voting rights are provided in the applicable regulations (eg, call options over listed shares are not considered for purposes of this threshold until they are exercised);
• Through the designation, within 24 months after the acquisition of shares, of a number of board members which, together with those already appointed by the same person, represent more than half the board; and
• Through an agreement (tacit or express, written or verbal) with other shareholders so that the joint shareholding reaches the 30 per cent threshold, provided that the agreement is aimed at establishing a joint policy in relation to the management of the listed company or at influencing it significantly, or regulates the exercise of the vote in the board of directors or the executive committee.
  
  Additionally, the offeror shall provide a third-party report on the valuation criteria to reach the offer price and offer an alternative cash price if the proposed consideration is securities, when the target company has been affected in the previous two years by special circumstances (including arguable market manipulation, force majeure, or expropriations).
  
  There are cases where, even where control is acquired, the obligation to launch a mandatory takeover bid is not triggered; for instance, in restructuring transactions, or when the control is achieved following the completion of a voluntary takeover bid launched at a fair price or accepted by shareholders representing at least 50 per cent of the shares to which the offer is addressed, excluding those held by the offeror or by those which had a binding commitment to accept. The breach of the obligation to launch a mandatory takeover bid involves a suspension of the exercise of political rights in relation to the shares held by the relevant shareholder.
  
  It is noteworthy that last March 2014, an amendment to the takeover bids regime in Spain was introduced to clarify that no bid should be launched in those cases where lenders capitalize their debts and convert them into shares of listed companies to the extent that: (a) the relevant company is in serious and imminent financial trouble (even thought it has not filed for insolvency yet) and (b) the transaction is conceived to secure the long term financial recovery of the company. The National Securities Exchange Commission shall be entitled to decide if those requirements are met on a case-by-case basis, unless the capitalization takes place within the context of a refinancing agreement pursuant to which dissident creditors have been crammed-down.
  
  When a mandatory takeover bid is not required, voluntary takeover bids can be launched, in which case the offer would not have to be at a fair price, may not be addressed to all securities (in certain cases), could include conditions (for instance, the deletion of restrictions in the target company's by-laws or a minimum number of acceptances), and would not have to include an alternative in cash when the consideration consists totally or partially in securities.
  
  Specific sub-types of public offer for acquisition of shares are deemed mandatory takeover bids: the offer for the exclusion of the shares for trading in the Spanish stock exchange, and the public offer for the share capital decrease through the acquisition of treasury stock.
  
  Takeover bids can be totally or partially structured as purchases or exchange of securities, and an equal treatment of all addressed shareholders must be ensured. The offer can include different alternatives at the targeted shareholder's choice, although, if a mandatory offer applies, an alternative in cash is always required.
  
  Fair price is defined in the applicable regulations as follows: (a) where, during the 12 months prior to launching the bid, the offeror or the persons acting in concert with it have acquired shares of the affected company, the fair price cannot be below the highest purchase price during that period; and (b) in any other circumstance, the fair price will not be below that calculated through different methods contemplated in the regulations (including last semester market price track-record and book value). Fair price is subject to supervision and control by the National Securities Exchange Commission, which shall have the power to modify it in certain cases and request a report on the methodology and criteria used for its determination.
  
  Upon the launch of the offer, the offeror must provide evidence to the National Securities Exchange Commission as to the existence of a sufficient guarantee of the fulfillment of the obligations resulting from the offer, that is, of the payment or delivery of the offer consideration. Such a guarantee shall be different depending on the nature of the consideration (bank guarantees for cash consideration and securities blocking certificates for consideration in securities). The following milestones and features can be highlighted in relation to the takeover proceedings:

• The takeover announcement must be made once the triggering event of the mandatory takeover bid has occurred or the decision to launch a voluntary bid has been taken;
• Within one month as from the announcement, an application for authorization by the National Securities Exchange Commission shall be submitted, including, among the rest of supporting documentation, the takeover prospectus. The trading of the shares of the affected company will be suspended until the National Securities Exchange Commission admits the application;
• The National Securities Exchange Commission must resolve on the application within 20 working days as from the date when all necessary documentation has been filed to its satisfaction;
• The offer must be published within five working days as of the authorization, and at that moment the acceptance period shall be initiated;
• Within the first 10 days after the commencement of the acceptance period, a report must be issued by the board of directors of the affected company, on its position in respect of the offer;
• The offer can be modified through a supplement of the takeover prospectus no later than five days before the expiration of the acceptance period, provided that the modification implies a better treatment for the shareholders (in terms of scope, price, and/or elimination of conditions); and
• Competing offers will be permitted until five days before the expiration of the acceptance period, provided that their scope is at least the same as that of the preceding offer and improves their conditions in terms of scope and/or price.[5]
  
  During all these proceedings, the board of directors and any other management body or attorney of the affected company and other entities within its group shall refrain from carrying out any act which can impede success of the offer, except for looking for competing offers.
  
  In particular and without limitation, those under this passivity duty may not resolve any issue of securities, execute or promote operations related to the affected securities, transfer or charge assets of the company, or distribute extraordinary dividends or a special remuneration to the shareholders against the usual policy, where any of these actions can impede the success of the offer.
  
  When, as a consequence of a takeover bid addressed to all the securities, the offeror is owner of securities representing more than 90 per cent of the share capital with right to vote, and more than 90 per cent of the addressed shareholders have accepted the offer, the offeror will be entitled to squeeze out the remaining shareholders at a fair price and the remaining shareholders will be entitled to sell their securities at a fair price. For these purposes, the fair price will be the consideration of the previous takeover bid.

[1] Sánchez Calero, Instituciones del Derecho Mercantil (19th ed, 1996), vol II, at pp 243 et seq.

[2] Uría, Derecho Mercantil (25th ed, 1998), at p 684.

[3] Entities whose main activity is rendering investment services over financial instruments to third parties on a professional basis.

[4] In particular, in an arrangement where one person leaves the holder of the shares totally or partially covered against the risks inherent to the holding, purchase, or transfer of the shares, the holder of the shares will be an intermediate company and the person assuming the risk would be obliged to report.

[5] The first offeror will have certain advantages if the proceedings are to be decided through a closed envelopes procedure.