OFFICIAL STATE GAZETTE

No. 104 Saturday, April 30, 2016 Sec. I. Page 28975

I. GENERAL PROVISIONS

NATIONAL SECURITIES MARKET COMMISSION

4142 Circular 3/2016, of April 20, of the National Securities Market Commission, modifying Circular 7/2011, of December 12, on fee brochures and content of standard contracts.

One of the objectives of Circular 7/2011, of December 12, of the National Securities Market Commission, on fee brochures and content of standard contracts, was to facilitate the comparability of maximum commissions and expenses to be charged by investment service providers (ISPs, SGIICs, Credit Entities) by investors. To this end, the calculation bases and concepts for some of the most common operations provided to retail clients were specified, such as intermediation in national and foreign markets, custody and administration of financial instruments (which includes the transfer of negotiable securities to another entity), portfolio management, and investment advice.

The standardization carried out has enabled the analysis of commission fees contained in the fixed part of the brochures (which covers the fees applicable to the most common operations provided to retail clients), as well as their comparability by investors. The conclusions drawn from these analyses, together with the information obtained from investor complaints submitted to the National Securities Market Commission, lead to the conclusion that there are inefficiencies in certain situations related to commission fees set by entities for the transfer of securities, and consequently, the cited Circular has not fully achieved its objectives regarding this particular fee.

The high amounts in some cases of the fees communicated by entities for the aforementioned commission, with amounts up to 5,000 euros per class of transferred security, as well as their heterogeneity, indicate that they do not comply with the principle of proportionality with the quality of the service provided, potentially hindering competition in some cases by retaining clients who are not willing to assume a high cost for the transfer.

This disproportion is also evident if one compares, for a typical portfolio, the cost the client would have to bear for intermediation, custody, and transfer of securities services. Thus, it is very common for the transfer cost for the investor to exceed several times the cost of selling the portfolio (in the most extreme cases, the transfer commission is equivalent to 50 times the cost of selling the portfolio). The same occurs if the transfer commission is compared with the custody fee, where it is widespread to find fees where the transfer cost would be several times the annual custody commission (in some cases, it would represent the cost of custody for more than 40 years). Such circumstances lack economic logic, insofar as it is significantly less burdensome for the investor (ignoring tax aspects) to liquidate their portfolio and transfer the resulting cash to another entity than to order the transfer of their securities to another custodian. They also do not respect the principle of proportionality, insofar as the cost to the investor for the transfer of their portfolio exceeds several times the cost of the annual custody service, given that the transfer is a one-off and highly standardized service.

It is important to highlight that the transfer of securities constitutes the only possibility for the investor to see their assets "in custody" from a third party restored, given the impossibility of physical delivery as they are book entries. In this circumstance, the National Securities Market Commission has highlighted in some of its annual reports on investor complaints that the existence of significantly high transfer fees could constitute a violation of consumer rights, as such fees could represent an obstacle to the investor's right to terminate the service provision contract, and could even be identified as unfair terms, although its hypothetical unfair character cannot be decreed by the CNMV.

In short, the transfer fee must never have a punitive and/or deterrent character, but its purpose, like that of the rest of the concepts included in the fee brochures, should only be to remunerate proportionally the service provided by the entity.

Considering the described situation and its effects on investor protection and the proper functioning of the market, the CNMV deems it necessary to modify Circular 7/2011, of December 12, regarding transfer fees, so as to avoid the identified problems without undermining the principle of fee freedom. To this end, the calculation base is modified in this Circular, so that henceforth it becomes a percentage of the value of the transferred securities, accompanied by the establishment of a maximum amount (in euros), which will guarantee the reasonable application of the principle of proportionality. Additionally, the possibility of passing on the taxes and fees for transfers charged by the settlement and registration systems is included.

In virtue thereof, in accordance with the authorization contained in Article 2.3 of Order EHA/1665/2010, of June 11, developing Articles 71 and 76 of Royal Decree 217/2008, of February 15, on the legal regime of investment service companies and other entities providing investment services regarding fees and standard contracts, the Council of the National Securities Market Commission, after a report from the Advisory Committee, in its meeting on April 20, 2016, has ordered:

Single Provision. Modification of Circular 7/2011, of December 12, of the National Securities Market Commission, on fee brochures and content of standard contracts.

Circular 7/2011, of December 12, of the National Securities Market Commission, on fee brochures and content of standard contracts, is modified as follows:

One. Section 2.e) of Rule 4th is drafted as follows:

"e) When the entity providing the custody service intends to apply a fee for the transfer of securities of the same holder to another entity, it must establish in the brochure a fee for the transfer of national or foreign securities, expressed as a percentage of the value of the transferred securities, with the obligation to establish a maximum amount and without the possibility of establishing a minimum amount. In the case of equity securities, the effective value on the date the transfer is carried out shall be taken as the calculation base; in the case of fixed-income securities, the nominal value shall be taken as the calculation base."

Two. The fixed part of section 2 of Annex I of Circular 7/2011, of December 12, is modified in accordance with the Annex of this Circular.

Final Provision. Entry into force.

1. This Circular shall enter into force the day following its publication in the "Official State Gazette".
2. Fee brochures adjusted to what is established by this Circular must be sent to the CNMV before September 1, 2016, with the deadline for their entry into force being October 1, 2016.
3. From the moment an entity adapts its fee brochure, and in any case, from October 1, 2016, the transfer commission to be applied must be calculated as a percentage of the transferred amount (nominal or effective, as appropriate) and without exceeding the maximum amount, and contracts signed with clients regarding this must be adjusted before that date, if necessary.

Madrid, April 20, 2016.–The President of the National Securities Market Commission, P. S. (Royal Legislative Decree 4/2015, of October 23), the Vice President of the National Securities Market Commission, Lourdes Centeno Huerta.

ANNEX I

2. Custody and Administration of Securities Operations Fixed Part

Fee

Minimum Percentage

2.1 Maintenance, custody and administration of securities represented by book entries:

• Of negotiable securities in Spanish markets.
• Of negotiable securities in foreign markets.

2.2 Transfer of securities to another entity:

• Of negotiable securities in Spanish markets.
• Of negotiable securities in foreign markets.

Note 1: Scope of fees:

2.1 Maintenance, custody and administration of securities represented by book entries.

The fees in this section will apply to each class of security (set of securities from the same issuer with the same characteristics and identical rights). They include the opening and maintenance of the securities account and the keeping of the accounting register of securities represented in account and/or the deposit of securities represented in physical titles that the client has entrusted to the entity.

Fees for acts corresponding to the administration of securities, such as collection of dividends, attendance premiums, etc., which appear in this Brochure, are not included.

2.2 Transfer of securities to another entity.

The fees in this section will apply to each class of security (set of securities from the same issuer with the same characteristics and identical rights).

Note 2: Application of fees:

1. The fees in section 2.1 are expressed as a percentage on an annual basis. For securities deposited for a period shorter than the full period, the applicable commission will be the proportion resulting from the general fee according to the number of days they have been deposited. The minimum amount will be applied proportionally to the number of days the securities have been deposited.

The fees in section 2.2 are expressed as a percentage, and must also establish a maximum amount and cannot establish a minimum per operation.

2. The base for calculating the commission in the fees in section 2.1 will be the average of the daily effective balances of equity securities deposited during the accrual period. For fixed-income securities, their nominal value will be taken as the calculation base.

The base for calculating the commission in the fees in section 2.2 will be, in the case of equity securities, the effective value of the transferred securities on the date the transfer is carried out. For fixed-income securities, their nominal value will be taken as the calculation base.

3. The fee regime for negotiable securities in foreign markets will also apply to national securities when these are deposited under the custody of a custodian abroad at the request of the client or due to the requirements of the operations carried out.

4. In the case of securities issued in currencies other than the euro, and for the purpose of calculating the base on which the administration commission will be charged:

The exchange rate of the currency will be that of the last business day of the month in which the custody calculation is made.

The quotation of the effective value (international markets) will be the last available, provided it does not exceed 2 months.

Note 3: Reimbursable expenses:

Additionally, the entity may, where applicable, pass on the following expenses to the client:

The taxes and fees for transfer charged by the settlement and registration systems.

Transport and insurance expenses when operations involve the physical transfer of securities.

Note 4: Application of taxes:

The corresponding taxes will be charged on the fees corresponding to this section.