Agreement of 1 November 2012 of the National Securities Market Commission imposing restrictions on short selling and similar transactions

OFFICIAL STATE GAZETTE No. 265 Saturday, 3 November 2012 Sec. III. Page 77704

III. OTHER REGULATIONS NATIONAL SECURITIES MARKET COMMISSION 13683 Agreement of 1 November 2012 of the National Securities Market Commission, imposing restrictions on short selling and similar transactions.

The National Securities Market Commission (CNMV) has been evaluating the impact of the restrictive measures on net short positions in Spanish shares adopted last July 2012 and extended on 18 October, both individually and across the market as a whole, taking into consideration the exceptional situation facing the Spanish financial system.

In this regard, and as announced on the occasion of said extension, it is worth highlighting the restructuring process in which the Spanish financial sector is currently immersed to cover the capital needs of the banking sector as a whole. This process is being carried out within the framework of the Memorandum of Understanding (MOU) signed on 23 July by the European Commission, the Kingdom of Spain, and the Bank of Spain. This MOU makes the granting of aid conditional upon compliance with a series of requirements, including the identification of individual capital needs, the recapitalization of entities, and the segregation of non-performing assets into a Management Company.

This banking restructuring process is not yet complete, which generates a series of uncertainties regarding the Spanish financial system that could affect financial stability. In this context, the non-prohibition of short selling transactions would add uncertainty through its probable impact on the market. The completion of this process is considered absolutely necessary to ensure the stability of the financial system and the Spanish capital market. Furthermore, based on available empirical evidence, it is observed that certain facts or circumstances that motivated the agreement last July and its extension persist, which could threaten the integrity of the Spanish financial markets.

The above considerations therefore advise maintaining the temporary restrictions on transactions that constitute or increase net short positions on Spanish shares and imposing the prohibition as provided for in Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps, which has been applicable since today.

Additionally, it is informed that today ESMA, in accordance with Article 27 of the aforementioned Regulation, has issued its opinion regarding the measures agreed upon by the CNMV, considering that the measure is appropriate and proportionate to address the threats persisting in Spain and that its duration is justified.

Taking into account the foregoing, in particular the persistence of adverse facts or circumstances that could threaten financial stability or market confidence, the President of the CNMV, by virtue of the delegation of powers conferred by the Board of Directors through Agreement of 12 September 2012 (BOE of 18 September), agrees:

To impose, with immediate effect under Article 85.2(j) of Law 24/1988 of 28 July on the Securities Market and Article 20 of Regulation (EU) No 236/2012, and considering the concurrent exceptional circumstances, a precautionary prohibition on any natural or legal person from carrying out transactions that create a financial instrument or are linked to a financial instrument, the effect, or one of whose effects, is to confer a financial advantage to said natural or legal person in the event that the price or value of shares admitted to trading on the official secondary Spanish market decreases, for which the National Securities Market Commission is considered the competent authority for the purposes of Article 9 of Commission Regulation (EC) No 1287/2006.

cve: BOE-A-2012-13683

OFFICIAL STATE GAZETTE No. 265 Saturday, 3 November 2012 Sec. III. Page 77705

The prohibition shall remain in force for a period of 3 months from the moment of its publication today until the close of trading on 31 January 2013 inclusive, and may be extended in accordance with Article 24 of Regulation (EU) No 236/2012 or lifted if deemed necessary.

The precautionary prohibition excludes market-making activities as provided for in Regulation (EU) No 236/2012. The CNMV will carry out supervision of the market-making activities contemplated in said exception, in the Spanish securities markets.

The following transactions are also excluded from the prohibition:

– The creation or increase of net short positions derived from transactions whose main purpose is not the generation of a positive economic exposure to a fall in the price of a share, but which fall within the practice of corporate transactions aimed at an industrial or business objective. In this case, the execution of such transactions will require prior authorization by the CNMV.

– The creation or increase of net short positions within the framework of a stabilization process as provided for in Chapter III of Commission Regulation (EC) No 2273/2003 of 22 December 2003, implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buyback programs and stabilization of financial instruments.

– The creation or increase of net short positions when the investor acquiring a convertible bond has a delta-neutral position between the position in the equity component of the convertible bond and the short position taken to hedge said component.

– The creation or increase of net short positions when the creation or increase of the short position in shares is covered by an equivalent purchase in terms of proportion in subscription rights.

It is recalled that Article 99.z quinquies of Law 24/1988 of 28 July on the Securities Market classifies the non-compliance with the precautionary measures provided for, among others, in letter j) of Article 85.2 of the Law as a very serious offense.

Madrid, 1 November 2012.–The President of the National Securities Market Commission, María Elvira Rodríguez Herrer.

cve: BOE-A-2012-13683 http://www.boe.es OFFICIAL STATE GAZETTE D. L.: M-1/1958 - ISSN: 0212-033X