The International Capital Markets Review: Spain
During 2019 and 2020, the Spanish capital markets were greatly impacted by two significant events. Neither of these events is particular to Spain and each has affected other markets to a greater or lesser degree. The first has been the entry into force of EU Regulation 2017/1129 (the Prospectus Regulation)2 with effect from 21 July 2019. While an analysis of the changes introduced by the Prospectus Regulation is not within the scope of this review, its implementation has had an impact on market practice, particularly in relation to risk factors. This chapter highlights some of these matters. The second has been the global covid-19 pandemic. Emergency legislation brought in to deal with the pandemic has impacted the capital markets to some degree; however, its impact on activity in the market has been more marked. Public bodies, financial institutions and corporates have tapped the markets to reinforce their liquidity positions in anticipation of a global slowdown caused by the pandemic. This has resulted in high issuance volumes, particularly by investment grade corporates and financial institutions, and the use of public funding schemes via capital market instruments.
ii Structure of the law
The principal law applicable to the Spanish capital markets is Royal Legislative Decree 4/2015 of 23 October, which enacted the restated text of the Securities Market Act (SMA). This law provides the framework under which the majority of the laws and regulations applicable to the capital markets are developed. As Spain is an EU Member State, the SMA reflects the implementation of numerous EU directives in the Spanish legal system. This means that, in general, the laws and regulations applicable in Spain are aligned with those applicable in other EU jurisdictions. Accordingly, since the SMA entered into force on 13 November 2015, there have been a number of relevant amendments, primarily to implement EU directives coming into force since that date.
Other relevant legislation includes:
- Royal Decree 878/2015,3 which sets out (1) the legal regime applicable to securities depositories and central counterparties, and (2) the transparency requirements applicable to issuers with securities listed on official secondary markets;
- Royal Decree 1362/2007,4 which regulates disclosure obligations related to the ownership of, and certain transactions over, securities;
- Law 10/2014,5 which sets out the capital requirements for banks and the tax treatment of debt securities of Spanish issuers meeting certain requirements; and
- Royal Legislative Decree 1/2020,6 which establishes the insolvency regime applicable to Spanish entities.
Some EU legislation is directly applicable in Spain and so forms part of the body of law applicable to capital market activities. The most relevant is as follows:
- the Prospectus Regulation, which sets out the requirements for prospectuses where there is a public offer of securities or the listing of securities on a regulated market in the EU;
- Regulation 596/20147 on market abuse (MAR);
- Regulation 575/20138 (CRR), which sets out the capital requirements for banks; and
- Regulation 648/20129 (EMIR), which aims to increase transparency in the derivatives markets and to reduce credit and operational risks.
Finally, and in line with other jurisdictions, capital market practice in Spain is impacted by guidance issued by relevant authorities: the Spanish Securities Market Commission (CNMV) in respect of Spanish legislation and the European Securities and Markets Authority (ESMA) in respect of EU legislation. Market practice, often as formulated by trade bodies such as the International Capital Markets Association (ICMA), the International Securities and Derivatives Association and the Association for Financial Markets in Europe, is also relevant.
iii Regulatory authorities
The key institution for the Spanish capital markets is the CNMV. By virtue of the SMA, the CNMV is the entity with primary responsibility for the regulation of the capital markets and it has a supervisory role in respect of entities and individuals carrying out securities and investment services in Spain. It is empowered to sanction breaches, including through the issue of fines. It also issues circulars that are intended to provide guidance on certain aspects of the capital markets.
Other entities relevant for the operation of the capital markets in Spain include:
- The Bank of Spain, whose role includes the management and operation of the public debt issued by Spain and (in its capacity as an agent of the European Central Bank (ECB) in Spain) reviewing certain capital market issues by Spanish financial institutions to ensure that they meet capital requirements.
- Bolsas y Mercados Españoles, SA (BME), a privately owned entity, which is the operator of all stock markets and financial systems in Spain, including the four Spanish stock exchanges (Madrid, Barcelona, Bilbao and Valencia) and the multilateral trading facility (MTF) BME Growth, in respect of equities; AIAF and the Alternative Fixed-Income Market (MARF) in respect of debt securities; and MEFF in respect of financial derivatives, futures and options.
- BME also owns and operates the principal settlement and clearing systems in Spain: BME Clearing (which is the Spanish stock exchanges' central counterparty) and Iberclear (which is authorised under the Central Securities Depositories Regulation (CSDR)10 to provide settlement services in Spain).
The year in review
i Developments affecting debt and equity offerings
The implementation date of the main provisions of the Prospectus Regulation11 had a significant impact on the timing of debt capital market transactions, as issuers sought to avoid uncertainty generated by the new regime. In particular, many issuers updated their debt programmes before that date to take advantage of the grandfathering provisions of the Prospectus Regulation. However, the impact of the Prospectus Regulation on transaction documentation has been less significant than initially expected, particularly in those transactions benefiting from the wholesale disclosure regime.
By way of example, the Prospectus Regulation focuses on the importance of the quality and clarity of risk factor disclosure. Article 16 of the Prospectus Regulation requires risks to be specific to the issuer or the securities, material for making an informed investment decision and corroborated by the content of the prospectus. The Guidelines on risk factors under the Prospectus Regulation published by ESMA in October 2019 (which came into effect in December 2019), along with ESMA's question and answer document on the Prospectus Regulation and the work of issuers with the competent authorities during the last year, have all contributed to develop a relatively consistent market approach to the drafting of risk factors.
The impact of the Prospectus Regulation on retail prospectuses has been more significant, largely because of the new rules on the length and content of the summary (further developed by Delegated Regulation 2019/979),12 and because (with the intention of reducing the administrative burden and improving the readability of the prospectus) pro forma summaries are no longer permitted to be included in base prospectuses. This has led some regular issuers to prepare pro forma summaries for each instrument type that can be issued under the relevant debt programme, or retain pro forma summaries in other transaction documents (such as the procedures memorandum).
In equity capital market transactions, issuers have worked efficiently with the CNMV to adapt past market practices to the Prospectus Regulation's requirements. The main practical impact so far, noting the scarcity of transactions, has been in relation to summaries and risk factors, in line with what is noted above for debt offerings.
The covid-19 pandemic has had a significant impact on all industries worldwide. As a result, many governments and authorities have approved measures to facilitate the access of companies to sources of liquidity, including via the capital markets. In addition, the Spanish government has adopted certain measures to protect Spanish listed companies from the impact of the crisis.
So far, the impact of the covid-19 pandemic on capital market documentation has not been significant. However, relevant regulatory guidance, issued by ESMA, together with national competent authorities (NCAs), indicates that issuers should disclose as soon as possible any relevant significant information concerning the impact of covid-19 on their business, prospects or financial situation in accordance with their transparency obligations under MAR, as well as providing transparency on the actual and potential impacts of covid-19 in their interim financial reporting disclosures.13
Relevant measures affecting the capital markets include the following.
Spanish commercial paper public guarantee scheme
In May 2020, the government published a resolution for a public guarantee scheme of commercial paper issuances under programmes registered on the MARF. This scheme is only open to Spanish issuers that are not financial institutions and that registered the commercial paper programme on or before 23 April 2020. Relevant issuances must have taken place between 5 May 2020 and 30 September 2020 although the government has recently extended this to 1 December 2020.
EU Recovery Prospectus
On 24 July 2020, the European Commission adopted a 'Capital Markets Recovery Package' as part of its covid-19 recovery strategy. Within this package, the Commission issued a proposal to amend the Prospectus Regulation, which included the introduction of the 'EU Recovery Prospectus'. This aimed to simplify equity raising processes for issuers who have been listed on a regulated market or small and medium-sized enterprise (SME) growth market for at least 18 months. It is intended to be a temporary regime that will expire within 18 months after coming into force. This proposal is currently under discussion.
Spanish foreign direct investment restrictions
On 17 March 2020, the government issued Royal Decree-Law 8/2020,14 which introduced a screening system under which certain foreign direct investments in Spain became subject to prior administrative authorisation. The screening system applies to non EU–European Free Trade Association residents that reach or exceed a 10 per cent stake or participation in the management or control of a Spanish company if the investment is: (1) made in certain 'strategic sectors', or (2) made by investors subject to special scrutiny (including those controlled by foreign governments).
These restrictions will need to be taken into account for foreign investors participating in a takeover bid for, or acquiring a significant stake in, a Spanish listed company. These restrictions have been included in the Spanish Foreign Investment Law15 and as such are not envisaged to be temporary restrictions, despite being passed in the context of the covid-19 pandemic.
Net short positions
On 16 March 2020, the CNMV introduced a temporary ban on the entry into securities and financial instrument transactions resulting in the creation of, or increase in, a net short position on shares admitted to trading on the Spanish stock exchanges or BME Growth. This restriction remained in force until 18 May 2020.
On the same date, ESMA resolved to temporarily require holders of net short positions in shares traded on any EU regulated market to notify the relevant NCA if the position reached or exceeded 0.1 per cent of the issued share capital. This measure is applicable in Spain and was renewed on 17 June 2020 for a period of three months. On 17 September 2020, ESMA renewed that decision for an additional three months.
Investment fund in strategic companies
Royal Decree-Law 25/202016 created a fund for the government to provide temporary public support to strategically important non-financial companies facing heightened solvency risks as a consequence of the covid-19 pandemic. This support may be granted in the form of debt or equity, and will be available to companies that fulfil all relevant requirements. Until the public funds are reimbursed, recipients of this support will be subject to certain restrictions (including on organic and inorganic growth, distribution of dividends and payment of variable remuneration to management).
Other trends and developments
Green, social and sustainability bonds
We have seen the consolidation of the global green, social and sustainability (GSS) trend in the debt capital markets. Many regular Spanish issuers have issued inaugural GSS bonds, and we expect this trend to continue over the coming year, particularly if the ongoing initiative by the EU Commission to create an EU Green Bond Standard is implemented. ICMA's Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines, which are voluntary process guidelines for GSS bond issuances, are also relevant in this field.
Future discontinuation of benchmark interest rates and development of alternative reference rates
The transition away from the LIBOR benchmark interest rate towards risk-free rates is firmly under way. A number of risk-free rates are being developed as alternatives to certain IBORs, for example, SONIA (a risk-free rate for sterling LIBOR), SOFR (a risk-free rate for dollar LIBOR) and €STR (a risk-free rate for euro LIBOR/EURIBOR). There has been a focus on ensuring that robust fallback provisions are in place in relevant documentation, taking into account Regulation (EU) 2016/1011.17
Takeover activity in the Spanish market has been fairly limited. One of the main deals to note is the takeover bid launched by SIX Group AG for the shares of BME, the operator of the stock markets and financial systems in Spain. As a result of this deal, which had an acceptance rate in excess of 93 per cent, BME will cease to be a listed company.
Another significant deal, the takeover bid launched by KKR, Cinven and Providence for the shares of the telecommunications company Masmovil Ibercom, SA, consolidates the trend of private equity sponsors seeking to delist strategic target companies (as happened with the takeover bids for Telepizza and Parques Reunidos in 2019).
Developments in governance affecting Spanish listed companies
On 26 June 2020, the CNMV approved certain amendments to the Good Governance Code of Listed Companies, as approved in February 2015. The reform aims to clarify and expand certain recommendations in four main areas: (1) involvement of women in boards of directors, (2) increased relevance given to disclosure of non-financial and sustainability information, (4) increased relevance of non-financial risks (including reputational risks), and (4) clarifying certain recommendations related to directors' compensation.
Spanish Companies Act
A draft amendment of the Spanish Companies Act,18 to implement Directive 2017/828,19 has been submitted by the government for processing in the upcoming months. Some significant features are: (1) the potential introduction of 'loyalty shares' in the Spanish system (i.e., shares granting double voting to stable shareholders), (2) listed companies' right to have information on the ultimate beneficial owners of their shares, (3) the option not to publish quarterly financial reports, and (4) regulation of the role of proxy advisors.
In November 2019, Directive 2019/216220 on the issue of covered bonds and covered bond public supervision was published. The main purpose of this Directive is to regulate the conditions under which credit institutions can issue covered bonds as a financing tool, by setting out the product requirements and establishing specific product supervision to which credit institutions are subject. Member States have until 8 July 2021 to transpose the Directive and their national measures must apply from 8 July 2022 at the latest. The implementation of the Directive into Spanish law is currently at the draft bill stage.
ii Developments affecting derivatives, securitisations and other structured products
Publication of regulatory and implementing technical standards pursuant to Article 7 of the Securitisation Regulation
On 3 September 2020, the long-awaited final technical standards on disclosure and reporting, notifications and securitisation repositories, as mandated under Article 7 of the Securitisation Regulation,21 were published. The date for entry into force of the technical standards is 23 September 2020.
Any transactions closing after 23 September 2020 will need to comply with the requirements as the transition period ceases from that date. Therefore, (1) all reporting from that date must comply with the new regulatory and implementing technical standards (RTS/ITS) prescribing the use of the new templates, and (2) all new 'Simple, Transparent and Standardised'22 securitisation notifications must comply with the new RTS/ITS using the templates set out in the annexes to the Securitisation Regulation.
Notwithstanding the above, transitional provisions for 'public' securitisations to provide information via an Article 7(2)-compliant website continue to apply until a securitisation repository is authorised. Although the first authorised securitisation repository is expected to be in place by the first quarter of 2021, it remains unclear how early in the first quarter this will be, given indications that the process of registration will take at least six months.
Risk factors in Spanish securitisation transactions: CNMV position
The CNMV has taken a particularly restrictive view on what is considered a specific, material and corroborated risk under the Prospectus Regulation. Risks that ostensibly meet these requirements but that are to a certain extent generic (in the sense that they may apply to any similar securitisation transaction) are often not considered acceptable by the CNMV.
Consequently, market participants in Spanish securitisation deals should be aware that they may not be able to include in Spanish prospectuses risk factors that would normally be acceptable for other competent authorities and included in other EU deals. In addition, the fact that a particular risk factor has been accepted in a prospectus approved by a different competent authority is not binding on the CNMV.
Furthermore, there is a trend in the Spanish market of including disclaimer language (normally in the 'Important Notices' section), cautioning parties that generic risks that may apply to the particular underlying assets or securities are not included in the prospectus. This purports to put prospective investors on notice that they need to conduct their own assessment to make sure they are fully aware of all risks that may have an impact on the transaction (and are thus not limited to those specifically foreseen in the risk factor section).
Own-shares trading through equity derivatives by Spanish issuers: CNMV guidelines
Trading in own shares by an issuer is always subject to close scrutiny by the regulatory authorities, as a company is, by definition, an insider in respect of itself. Article 5 of MAR exempts buy-back programmes and stabilisation transactions from the prohibitions on insider dealing and market manipulation set out in Articles 14 and 15 of MAR. Companies trading in their own shares outside the safe harbours created by Article 5 of MAR must be extremely careful to ensure that such trades do not breach the MAR prohibitions.
While many jurisdictions restrict own shares trading by listed companies, the Spanish Companies Act allows Spanish listed companies to acquire and hold up to 10 per cent of their share capital on a discretionary basis, without requiring the acquisition to comply with any of the purposes set out in Article 5 of MAR.
As a result, the entry into discretionary transactions on own shares by a Spanish listed company is relatively frequent in Spain, including through 'over-the-counter' equity derivative instruments. However, transactions on own shares are subject to stringent reporting obligations. Those reporting obligations are set out in Article 126 of the SMA and are developed in detail in Articles 40 and 41 of Royal Decree 1362/2007.23 Those rules have created substantial doubts as to the regulatory treatment of equity derivative transactions in own shares and whether those shares should be regarded as 'interposed party arrangements' for the purposes of Article 40 of Royal Decree 1362/2007. The consequences of derivative transactions being identified as interposed party arrangements impact disclosure obligations and their treatment as treasury stock.
The CNMV issued a public statement on 22 May 2020 clarifying the criteria used for reporting treasury shares transactions when the issuer has entered into equity swaps or other financial instruments. The CNMV sets out that the duty of reporting own-shares transactions is solely applicable to transactions executed by the issuer (directly, indirectly or through a proxy) over its own shares, and does not cover financial instruments entered into by the company where its own shares are the underlying asset. However, this is not an absolute rule, as the CNMV statement considers that certain financial transactions in an issuer's own shares may still be regarded as interposed party arrangements, triggering reporting obligations and the legal treatment of the underlying shares as treasury stock of the issuer.
Ultimately, whether the counterparty acts as an interposed party of an issuer must be determined on a case-by-case basis. Accordingly, the CNMV has set out a non-exhaustive series of transaction characteristics that indicate that the transaction would not be determined to be an interposed party arrangement. The CNMV's statement provides a welcome and long overdue clarification of the criteria to be taken into account for these purposes.
iii Cases and dispute settlement
There have been a number of noteworthy cases relating to the Spanish capital markets in 2020.
Single Resolution Board determination in respect of Banco Popular
The Single Resolution Board (SRB) determined that shareholders and creditors affected by the resolution of Banco Popular Español, SA (Banco Popular) in 2017 were not entitled to compensation from the Single Resolution Fund (SRF).
On 7 June 2017, the SRB adopted a resolution scheme in respect of Banco Popular, following an announcement on 6 June 2017 by the ECB that Banco Popular was failing or likely to fail. The resolution action consisted in the application of the sale-of-business tool to transfer the shares in Banco Popular to Banco Santander, SA. Following the implementation of this resolution action, which concluded with the full integration of Banco Popular into Banco Santander, the SRB was required to determine whether the shareholders and creditors affected by the resolution action were entitled to compensation from the SRF. Article 15(1)(g) of Regulation 806/201424 sets out the 'no creditor worse off' principle, that is, that no creditor should incur greater losses in a resolution proceeding than it would have incurred if the entity had been liquidated under a normal insolvency proceeding. To carry out this assessment, the SRB must make an evaluation of the difference in treatment, which is to be carried out by an independent expert, and it must launch a right-to-be-heard process involving the affected shareholders and creditors of the resolved institution.
The SRB received the valuation report relating to Banco Popular on 31 July 2018. On 6 August 2018, after publishing a preliminary decision stating that no compensation was due, the SRB opened the right-to-be-heard process for Banco Popular's shareholders and creditors. After receiving more than 2,800 submissions, and having reviewed (along with the independent valuer) all submissions received, the SRB adopted its final decision on 17 March 2020. The SRB determined that Banco Popular's shareholders and creditors were not entitled to compensation from the SRF, as they would not have been better off under a normal insolvency proceeding.
Claims in respect of initial public offerings
Various civil proceedings have been brought against a financial entity in relation to the subscription of shares during the initial public offering (IPO) of that entity. The Spanish Supreme Court issued two judgments in favour of retail investors, following which the entity settled all claims from retail investors. However, more than 90 claims have been filed by institutional investors, primarily seeking a ruling that the share subscription be annulled, claiming mistaken consent arising from misinformation in the IPO prospectus and in the entity's financial accounts.
The outcome of these proceedings at first instance has been inconsistent. Some judgments have ruled in favour of the entity, but the majority have ruled against. In 2019, the entity brought a final appeal to the Spanish Supreme Court. To rule on the appeal, the Supreme Court has requested a preliminary ruling from the Court of Justice of the European Union (CJEU), seeking to establish (1) whether an action for damages arising from a public offer is available to both retail and institutional investors where the offer of shares was directed at both retail and institutional investors but the prospectus was prepared for retail investors; and (2) if an action for damages is open to qualified as well as retail investors, whether it is possible to assess the extent to which the institutional investors had, on the basis of their existing legal and commercial relationships with that issuer (for example, as shareholders of the issuer or members of its management bodies), knowledge of the economic situation of the issuer beyond what was disclosed in the prospectus. The decision from the CJEU is still pending, and following the CJEU's decision, the Supreme Court will make a ruling on the entity's appeal.
iv Relevant tax and insolvency law
Tax treatment in the Spanish capital markets
The tax treatment in the Spanish capital markets has not been subject to recent amendments. The key features of the regime are as follows.
Income obtained by non-Spanish resident investors from a Spanish company is considered Spanish source income and, therefore, subject to taxation in Spain under non-resident income tax (NRIT), generally by way of withholding tax (NRIT WHT).
Capital gains on the disposal of shares and units issued by Spanish resident entities or undertakings for collective investment (UCITs) are subject to NRIT, currently at 19 per cent. The paying entity is not obliged to apply NRIT WHT except for gains arising from an investment in a Spanish UCIT. Spanish tax legislation provides a full exemption for capital gains (1) upon the disposal of shares obtained by EU residents if certain legal requirements are met; and (2) on transfers of shares of Spanish companies or reimbursement of units in a Spanish UCIT carried out on a Spanish official secondary securities market if they are obtained by residents of countries that have entered into a convention for the avoidance of double taxation (DDT) with Spain that includes an exchange of information clause.
Dividend payments obtained by a non-resident from a Spanish company are subject to NRIT, currently at 19 per cent, and the paying entity is obliged to apply NRIT WHT. However, under the provisions implemented in Spain in line with the Parent–Subsidiary Directive,25 dividends distributed by a Spanish subsidiary to its EU parent company or its European Economic Area parent company (with some additional requirements) are exempt from taxation in Spain to the extent that certain legal conditions are met (including the anti-abuse provision). In any case, DDTs must be considered to determine whether reduced tax rates or a full exemption may apply.
Interest payments obtained by a non-resident from a Spanish company are subject to NRIT, currently at 19 per cent, and the paying entity is obliged to apply NRIT WHT. However, EU residents are entitled to an exemption on interest obtained in Spain provided that interest is not obtained through a tax haven jurisdiction or a permanent establishment located in Spain or in a country or jurisdiction that is not an EU Member State. Notwithstanding the above, there is a special tax regime for income derived from preference participations and debt instruments issued by a Spanish issuer.26 This provides that non-resident taxpayers shall not be subject to NRIT or NRIT WHT in Spain to the extent that the information procedures in the format required under Law 10/2014 and the applicable regulations27 are duly fulfilled. These procedures no longer require information to be provided on the identity and country of residence of the investors.
New tax developments
Although the general tax regime has not been recently modified, the developments below are likely to become relevant.
Directive 2018/88228 (DAC 6) provides for the mandatory disclosure to tax authorities of information on 'potentially aggressive tax planning arrangements' by intermediaries or, if there is no intermediary or the intermediary is protected by privilege, by the taxpayer. As far as capital market transactions are concerned, it seems that only a limited number of cross-border IPOs may be affected, when the proceeds are ultimately remitted to a non-cooperative jurisdiction. This will need to be reassessed upon full implementation of DAC 6 in Spain.
Although the first notifications under DAC 6 were not due until August 2020, the disclosure rules cover reportable transactions implemented from 25 June 2018. Because of the recent covid-19 pandemic, the European Commission has approved a deferral of the time limits, whereby the first notifications will need to be filed by 28 February 2021.
Spanish financial transactions tax
On 15 October 2020, Law 5/2020 regulating the Spanish financial transactions tax (FTT) was approved. According to the Law, the FTT will apply at a rate of 0.2 per cent to certain acquisitions of shares listed on a Spanish regulated market and issued by Spanish companies whose market capitalisation exceeds €1 billion (a list of such companies will be published on the Spanish tax authorities' website before 31 December each year), regardless of the jurisdiction of residence of the parties involved in the transaction. Debt instruments will not be subject to the FTT.
The Law will enter into force three months after the date on which it is published in the Official State Gazette. It will therefore come into force on 16 January 2021.
The recast Insolvency Law
On 6 May 2020, the new consolidated text of the Spanish Insolvency Law29 (CIL) was finally published in the Official State Gazette. The CIL aims to clarify and harmonise insolvency regulations. Different sections have been grouped into subjects for easier identification and interpretation. However, as is usually the case in legislative consolidation processes, the scope of the CIL goes beyond the reorganisation and reordering of existing law, expanding and amending several provisions to clarify their contents and adapt them to current insolvency case law.
The approval of the CIL is the first step towards implementing European insolvency legislation, in particular, Directive 2019/1023,30 which must be implemented before 17 July 2021. Furthermore, the CIL has incorporated references to the new European regulations on insolvency proceedings and to the Spanish Law on International Legal Cooperation in Civil Matters concerning the recognition of rulings handed down in foreign legal proceedings.
v Role of exchanges, central counterparties and rating agencies
The central counterparties, central securities depositories and blockchain bonds and cryptoassets
The approval of EMIR in 2012, and MIFID II31 and the CSDR in 2014, established the legal regime for market infrastructures. Three types of exchanges (regulated markets, MTFs and organised trading facilities), defined as trading venues, compete for the organised trading of transferable securities; central counterparties undertake the role of clearing and settling all those trades entered into in the trading venues; and central securities depositories (CSDs) have the role of depositing and registering those securities admitted to trading in any of those trading venues. This new legal regime ensured the interconnectivity and competitiveness of these market infrastructures in their respective roles. Article 49 of the CSDR sets out the right of any issuer to arrange for its securities admitted to trading to be recorded in any CSD established in any Member State, subject to compliance by that CSD with conditions referred to in Article 23.
However, the role of the CSD in the initial registration of transferable securities may be facing a challenge in respect of certain types of unlisted assets and securities, registered as cryptoassets. A recent study prepared at the request of the European Parliament indicated that at the start of 2020, there were over 5,100 cryptoassets in existence, with a total market capitalisation exceeding $250 billion.32 Although the figures are modest when compared to the total market capitalisation of all securities, they have attracted attention and scrutiny from ESMA and the European Banking Authority.
ESMA considers cryptoassets to be 'a type of private asset that depends primarily on cryptography and Distributed Ledger Technology (DLT). There are a wide variety of crypto-assets. Examples of crypto-assets range from so-called cryptocurrencies or virtual currencies, like Bitcoin, to so-called digital tokens issued through Initial Coin Offerings (ICOs)'.33
The new market of cryptoassets and their registration in the public blockchain has raised the possibility of the clearing, settlement and registration of transferable securities occurring on the blockchain. Banco Santander recently launched the first end-to-end blockchain bond,34 which attracted widespread attention, both from traditional market participants and the digital innovation community. Supporters of DLT and blockchain infrastructure argue that this new form of settling and registering securities has great advantages over the traditional market infrastructure.
Interest and attention in cryptoassets has been echoed by national legislatures. France, Luxembourg and, very recently, Germany have all approved their own legislation concerning cryptoassets, allowing the registration of transferable securities in the blockchain. At present, a blockchain bond cannot be admitted to trading on a trading venue, because this would mean that a CSD would have to register those securities, but this has not put off market participants from exploring this avenue. The general consensus is that registration of transferable securities in the blockchain may ultimately be permitted for securities admitted to trading in a trading venue once EU legislators are more confident about the reliability of that form of registration.
Outlook and conclusions
The capital markets continue to provide an important source of liquidity for Spanish issuers. That has been particularly important during the covid-19 pandemic. In line with many jurisdictions, the Spanish capital markets are highly regulated and a significant amount of that legislation is driven by the desire to protect retail investors. EU legislation continues to drive much of this regulation and will continue to be the key source of regulation in future. Going forward, there will also be continued developments though the guidance of regulators such as the CNMV, the resolution of judicial proceedings, the development of market practice and the adoption of new technologies in the capital markets.
1 Charles Poole-Warren, Salvador Ruiz Bachs and Juan Hormaechea are partners, Teresa Méndez is a counsel, and Alfonso Gutiérrez and Álvaro Rojo are senior associates at Allen & Overy. The authors gratefully acknowledge the assistance of Fernando Torrente (partner), Ishtar Sancho (counsel), Katie Steval and Cristina de Zavala (associates) and Mónica Represa (head of knowledge) at Allen & Overy.
2 Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC.
3 Royal Decree 878/2015, of 2 October.
4 Royal Decree 1362/2007, of 19 October, implementing Securities Market Act 24/1988, of 28 July, with regard to the transparency requirements of issuers whose securities are listed on an official secondary market or on another regulated market of the European Union.
5 Law 10/2014, of 26 June, on the organization, supervision and solvency of credit institutions.
6 Royal Legislative Decree 1/2020, of 5 May that approves the consolidated text of the insolvency law.
7 Regulation 596/2014, of the European Parliament and of the Council of 16 April 2014 on market abuse.
8 Regulation 575/2013, of the European Parliament and of the Council, of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation 648/2012.
9 Regulation 648/2012, of the European Parliament and of the Council, of 4 July 2012 on OTC derivatives, central counterparties and trade repositories.
10 Regulation 909/2014, of the European Parliament and of the Council, of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation 236/2012.
11 21 July 2019.
12 Commission Delegated Regulation 2019/979, of 14 March 2019 supplementing Regulation 2017/1129 of the European Parliament and of the Council with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus.
13 Source: ESMA recommendations to financial market participants for covid-19 impact of 11 March 2020.
14 Royal Decree-Law 8/2020, of 17 March (subsequently amended by Royal Decree-Law 11/2020, of 31 March), of extraordinary urgent measures to tackle the economic and social impact of covid-19.
15 Law 19/2003, of July 4, on the legal regime of capital movements abroad and foreign economic transactions abroad and on certain measures to prevent money laundering.
16 Royal Decree-law 25/2020, of 3 July of urgent measures to support economic reactivation and employment.
17 Regulation 2016/1011, of the European Parliament and of the Council, of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds.
18 Royal Legislative Decree 1/2010, of July 2, which approves the revised text of the Capital Companies Law.
19 Directive 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement.
20 Directive 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issue of covered bonds and covered bond public supervision.
21 Regulation 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation.
22 'Simple, Transparent and Standardised', or STS, criteria as set out in the Securitisation Regulation.
23 Article 40 of Royal Decree 1362/2007 sets out that the percentage of voting rights held by a listed company when it acquires own shares conferring voting rights (either directly or indirectly through an interposed party) where the acquisition reaches or exceeds 1 per cent of the total share capital carrying voting rights of the company, without discounting any sales, shall be reported to the CNMV. 'Interposed party' is defined as 'any person which in their own name, acquires, transfers or holds shares on behalf of another legal or natural person'. In addition, Article 24(2)(b) sets out that a person shall be deemed to be an interposed party unless proven otherwise where the risks inherent in the acquisition, transfer or holding of the shares by that person are covered in full or in part by another person.
24 Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund.
25 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.
26 Under the First Additional Provision of Law 10/2014.
27 Royal Decree 1065/2007, of 27 July, as amended.
28 Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements.
29 Royal Legislative Decree 1/2020.
30 Directive 2019/1023, of the European Parliament and of the Council, of 20 June 2019 on restructuring and insolvency.
31 Directive 2014/65/EU of the European Parliament and of the Council, of 15 May 2014, on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU; of Directive 2016/1034 of the European Parliament and of the Council, of 23 June 2016, amending Directive 2014/65/EU on markets in financial instruments.
32 A study commissioned by the European Parliament of Policy Department for Economic, Scientific and Quality of Life Policies Directorate-General for Internal Policies https://www.europarl.europa.eu/RegData/etudes/STUD/2020/648779/IPOL_STU(2020)648779_EN.pdf.
33 ESMA, Advice: Initial Coin Offerings and Crypto-Assets, 9 January 2019 | ESMA50-157-1391 https://www.esma.europa.eu/file/49978/download?token=2IZhcbeI.