Order ECC/1556/2013 Authorizing MEFF to Separate Trading, Clearing, and Settlement Functions

OFFICIAL STATE GAZETTE No. 194 Wednesday, August 14, 2013 Sec. III. Page 59818

III. OTHER REGULATIONS MINISTRY OF ECONOMY AND COMPETITIVENESS

8986 Order ECC/1556/2013, of July 19, authorizing "MEFF Sociedad Rectora de Productos Derivados, SAU" to separate the trading, counterparty, clearing, and settlement functions currently carried out by it.

Having reviewed the documentation submitted by MEFF Sociedad Rectora de Productos Derivados, S.A.U. (hereinafter, MEFF) requesting authorization to separate into two companies the trading functions, on the one hand, and the counterparty, clearing, and settlement functions, on the other, which MEFF currently carries out in a single company, under the provisions of Articles 44 ter and 59 of Law 24/1988, of July 28, on the Securities Market (LMV).

Finding that, according to the submitted request, it is directed to the fact that MEFF's current trading functions will be exercised by a new Market Governing Body for the derivatives market - provisionally named "MEFF Exchange" - under the terms provided for in the aforementioned Article 59 of the LMV; while the current MEFF - which will provisionally be named "MEFF Clearing" - will continue to provide its current counterparty, clearing, and settlement functions, governed by the also cited Article 44 ter of the LMV.

Finding that, to achieve this objective, the appearing entity requires that the requested authorization extends to the following points: • The aforementioned separation of the functions for which MEFF was authorized in the past. • The creation of a new Market Governing Body for the market that MEFF currently manages, which would replace MEFF in its trading functions. • The Regulations of the aforementioned market and the Bylaws of its Governing Body. • The conversion of MEFF into a central counterparty entity governed by Article 44 ter of the LMV. • The authorization for MEFF to act as a central counterparty entity with respect to the financial instruments for which it currently performs counterparty, clearing, and settlement functions. • The Regulations of MEFF and its Bylaws as a central counterparty entity. • The General Conditions of the contracts subject to MEFF's action as a central counterparty entity.

Considering that Article 59 of the LMV "Official Secondary Markets for Futures and Options" establishes in paragraph 2 that "the governing body will organize the trading, clearing, and settlement of the aforementioned contracts, either by carrying out all or only some of these functions." And also that "The market's governing body will provide, itself or ensure through another entity, with prior approval of the CNMV, the counterparty in all contracts it issues."

Considering that Article 44 ter of Law 24/1988, of July 28, on the Securities Market (LMV), as amended by Law 32/2011, of October 4, states in its first paragraph that it corresponds to the Minister of Economy and Competitiveness, prior to the report of the National Securities Market Commission and the Bank of Spain, to authorize central counterparty entities to perform intermediation functions on their own account, with respect to the clearing and settlement processes of obligations arising from the participation of member entities in clearing systems for securities or financial instruments recognized in accordance with Law 41/1999, of November 12, on payment systems and securities settlement systems, as well as with respect to operations not carried out in official markets. The entity or entities thus authorized will develop their activities subject to what is established in the corresponding internal Regulation, which must be approved by the Minister of Economy and Competitiveness, prior to the report of the National Securities Market Commission, the Bank of Spain, and the Autonomous Communities whose Statutes of Autonomy recognize them with competencies in the regulation of securities trading centers.

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and settlement of securities or financial instruments recognized in accordance with Law 41/1999, of November 12, on payment systems and securities settlement systems, as well as with respect to operations not carried out in official markets. The entity or entities thus authorized will develop their activities subject to what is established in the corresponding internal Regulation, which must be approved by the Minister of Economy and Competitiveness, prior to the report of the National Securities Market Commission, the Bank of Spain, and the Autonomous Communities whose Statutes of Autonomy recognize them with competencies in the regulation of securities trading centers.

Considering that the aforementioned Article 44 ter of the LMV establishes in its third paragraph that central counterparty entities "must have the minimum capital and own resources appropriate to their activity as determined by regulation and which will guarantee sufficient solvency of the entity and the system it can manage and a solid capacity for managing situations of default by its members" and that since the regulatory development to which the legal provision refers has not yet taken place, the share capital figure appearing in the draft bylaws of "MEFF Clearing" corresponds to MEFF's current capital (18,030,000 euros). Additionally, the management of the Bolsas y Mercados Españoles (BME) Group, within which the entity is framed, has committed to maintaining MEFF's current resources – once the minimum own funds attributable to the new Market Governing Body for the derivatives market "MEFF Exchange" are deducted – as own funds of the central counterparty entity, which means that the own funds of this entity would initially stand at around 45 million euros. All this is without prejudice to carrying out the necessary calculations at the appropriate time to determine the minimum capital requirements for "MEFF Clearing" based on what is provided in Regulation (EU) No 648/2012 of the European Parliament and of the Council, of July 4, 2012, on OTC derivatives, central counterparties and trade repositories (EMIR) and Delegated Regulation (EU) No 152/2013, of December 19, 2012.

Considering that paragraph 1 of Article 17 of Royal Decree 1282/2010, of October 15, regulating official secondary markets for futures, options, and other financial derivative instruments, after establishing that the own resources of the governing body of these markets must not be less than 18 million euros nor the sum of the guarantees provided by the governing body, allows the Minister of Economy and Competitiveness or, with their express authorization, the CNMV to determine a minimum amount of own resources lower than indicated, taking into account the characteristics of the market in question and the sufficiency of such own resources and their degree of liquidity, in accordance with the risks assumed at each moment and stress tests and other similar techniques used. In this regard, the CNMV report considers the amount of own resources required for the new Market Governing Body for the derivatives market "MEFF Exchange," proposed by the BME Group, to be adequate and reasonable, amounting to at least €7,980,000, considering that the Governing Body will cease to be subject to risks arising from counterparty activity, assuming exclusively the risks associated with its activity of managing an official secondary market for financial derivative instruments.

Considering that a Collaboration Agreement has been provided between "MEFF Exchange" (Governing Body of an Official Secondary Market for Futures and Options) and "MEFF Clearing" (central counterparty entity of Article 44 ter of the LMV) in which the necessary coordination between both entities is foreseen; as well as separate Risk Reports for "MEFF Exchange" and "MEFF Clearing," with updated information on own resources, liquidity, guarantees, and risk control to which they will be exposed in their respective activities.

Considering that "MEFF Clearing" will be subject to Regulation (EU) No 648/2012 of the European Parliament and of the Council, of July 4, 2012, on OTC derivatives, central counterparties and trade repositories (EMIR) and its implementing regulations. However, the effectiveness of its entry into force was conditioned on the approval of its regulatory and implementing technical standards (Article 89.3 EMIR), which were published on February 23, 2013, and entered into force on March 15 of the following year, activating from that date the six-month period in which central counterparty entities (CCPs) located in the European Union must submit an authorization application in accordance with EMIR. Consequently, "MEFF Clearing" must submit a new authorization application, with a deadline of September 15, 2013, for the purpose of obtaining the corresponding authorization as a Central Counterparty Entity. In this regard, the BME Group has indicated that compliance with this Community regulation has already begun and will be completed once the authorization included in this Order is obtained.

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Finding that in the mandatory report of the Bank of Spain, it is indicated that "The considerations pointed out by the Bank of Spain in its prior report have been taken into account, except those relating to references to Regulation (EU) No 648/2012 of the European Parliament and of the Council, of July 4, 2012, on OTC derivatives, central counterparties and trade repositories (EMIR) and its regulatory technical standards, which, according to the documentation, will be subject to consideration at the time MEFF Clearing applies for authorization to act as a CCP in accordance with EMIR" and that "Taking into account the above, the Bank of Spain gives a favorable report on the separation of the trading, clearing, and settlement functions that MEFF currently performs."

Finding that the Council of the National Securities Market Commission (CNMV), in its session of July 9, 2013, approved a complementary report to the mandatory report approved in its previous session of May 22, in which it is considered adequate and sufficient the new documentation provided by MEFF in substitution for the previously presented, to understand that its observations had been satisfactorily addressed and to issue a favorable report regarding the request for authorization presented by MEFF to separate the trading functions – on the one hand – and the counterparty, clearing, and settlement functions – on the other – which it currently carries out.

Finding that the Autonomous Communities of Catalonia, the Basque Country, and the Valencian Community, whose Statutes of Autonomy recognize them with competencies in the regulation of securities trading centers, have pronounced themselves favorably regarding the authorization requested by MEFF.

Considering that the request and documentation presented, as well as the requirements demanded, comply with the provisions in force of Articles 59 and 44 ter of the Securities Market Law and their implementing regulations.

This Minister – prior to the favorable report of the National Securities Market Commission, the Bank of Spain, and the Autonomous Communities of Catalonia, the Basque Country, and the Valencian Community – has resolved to authorize:

1. MEFF Sociedad Rectora de Productos Derivados, S.A.U to separate the trading, counterparty, clearing, and settlement functions it currently carries out.
2. The creation of a new Market Governing Body for the market that MEFF currently manages, provisionally named "MEFF Exchange," which would replace MEFF in its trading functions. Likewise, it is determined that the own resources of this Society cannot be less than the figure of 7,980,000 euros.
3. The Regulations of the aforementioned market and the Bylaws of its Governing Body, copies of which are attached sealed.
4. The General Conditions of the Group of Contracts of Underlying Assets of a financial nature, subject to the action of "MEFF Exchange," a copy of which is attached sealed.
5. The current MEFF to act as a central counterparty entity governed by Article 44 ter of the LMV, with respect to the financial instruments for which MEFF currently performs counterparty, clearing, and settlement functions. It will provisionally be named "MEFF Clearing."

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6. The Regulations of "MEFF Clearing" and its Bylaws, copies of which are attached sealed.
7. The General Conditions of the Group of Contracts of Underlying Assets of a financial nature, subject to the action of "MEFF Clearing," a copy of which is attached sealed.
8. The General Conditions of the Group of Contracts of Underlying Assets of an Energy nature, subject to the action of "MEFF Clearing," a copy of which is attached sealed.
9. The General Conditions of the Group of Contracts of Fixed Income Securities Operations, subject to the action of "MEFF Clearing," a copy of which is attached sealed.

This Order and its annexes must be published in the "Official State Gazette."

Madrid, July 19, 2013. – The Minister of Economy and Competitiveness, P. D. (Order ECC/1695/2012, of July 27), the Secretary of State for Economy and Support for Business, Fernando Jiménez Latorre.

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ANNEX I Regulations of the Official Secondary Market for Futures and Options "MEFF Exchange" INDEX

CHAPTER 1. General Provisions Article 1: Scope of Application Article 2: Functions of MEFF Exchange

CHAPTER 2. Market Members Article 3: Access to Member Status Article 4: Rights and Obligations Article 5: Minimum Content of Contracts between MEFF Exchange and Members

CHAPTER 3. Contracts and Market Register Article 6: General Rules of Contracts Article 7: Market Register

CHAPTER 4. Trading Article 8: Contracts Admitted to Trading Article 9: General Trading Criteria Article 10: Dissemination of Trading Information Article 11: Suspension of Contract Trading Article 12: Removal of Contract Trading

CHAPTER 5. Clearing, Settlement, and Central Counterparty of Contracts Article 13: Central Counterparty Entity

CHAPTER 6. Default Article 14: Causes of Default Article 15: Measures to be Adopted in Case of Default Article 16: Temporary Suspension of the Member Article 17: Declaration of Member Default Article 18: Measures to be Adopted in Case of Declaration of Member Default Article 19: Liquidation of Costs, Expenses, and Balances Derived from Default Article 20: Loss of Member Status in Case of Declaration of Default

CHAPTER 7. Supervision and Claims Article 21: Supervision and Surveillance Commission Article 22: Market Supervision Article 23: Resolution of Incidents with Members Article 24: Claims of Members against MEFF Exchange Article 25: Claims of Clients against Members and MEFF Exchange 25 cve: BOE-A-2013-8986

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CHAPTER 1. GENERAL PROVISIONS

ARTICLE 1. SCOPE OF APPLICATION

1. These Regulations, under the provisions of Article 59 of Law 24/1988, of July 28, on the Securities Market, and Royal Decree 1282/2010, of October 15, regulating official secondary markets for futures, options, and other financial derivative instruments, regulate the composition, operation, transactions, and rules of conduct of the Official Secondary Market for Futures and Options MEFF Exchange of the financial instruments provided for in paragraphs 2 to 8 of Article 2 of Law 24/1988, of July 28, on the Securities Market ("Securities Market Law"). The General Conditions of the Contracts will develop these Regulations, forming an integral part of them.

2. The Market is governed and managed by MEFF Sociedad Rectora del Mercado Secundario Oficial de Futuros y Opciones, S.A.U. ("MEFF Exchange")

3. The complementary regulations of these Regulations, which will be mandatory for Market Members and, in general, users of the services provided by MEFF Exchange, will be established in the Circulars and Instructions that MEFF Exchange approves in accordance with the Regulations.

4. The terms used in these Regulations and their complementary regulations will have the meaning attributed to them below, unless a different scope or meaning is expressly established in any of the cases where they are used:

Underlying Asset: Asset or index that is the object of a Contract. Competent Authority: Authority or Authorities that have legally assigned powers regarding the authorization and supervision of the conduct of Members, and of MEFF Exchange. Class of Contracts: Futures and Options contracts and other contracts of financial derivative instruments related in paragraphs 2 to 8 of Article 2 of the Securities Market Law, referred to the same Underlying Asset. Circular: Rule approved by MEFF Exchange, of a general and mandatory nature, which develops the Regulations and the General Conditions. General Conditions: Rules that describe the specific characteristics of each Contract, developing these Regulations and forming an integral part of them. The General Conditions may establish specific conditions regarding the activity of Members concerning the Contract to which they refer. Contract: Generic term that includes all Futures and Options and other financial derivative instruments subject to these Regulations. Futures Contract or Future: Forward contract by which the buyer is obliged to purchase the Underlying Asset and the seller to sell it at an agreed price on a future date. Option Contract or Option: Contract by which the buyer acquires the right, but not the obligation, to purchase (CALL) or sell (PUT) the Underlying Asset at an agreed price on a future date. These contracts may be exercisable only on the Expiration Date (European Style Option) or at any time before the Expiration Date (American Style Option), or on various dates, as established by the General Conditions of each Contract. Account: Accounting record in which Transactions on Contracts carried out by a Member are noted. Business Day: That day established as such in the calendar that MEFF Exchange will publish before the start of each natural year for each Class of Contract. Execution of a Buy or Sell Order: Act by which the Buy or Sell Order transmitted by a Member to the Market's trading system is fulfilled. For a Buy or Sell Order to be executed, there must be another Buy or Sell Order in the opposite direction, referring to the same Series, which coincides in premium or price, as appropriate, or improves it.

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Central Counterparty Entity: Entity with which MEFF Exchange has signed the corresponding agreements and which is responsible for the counterparty, clearing, and settlement of the Contracts issued by MEFF Exchange. Group of Contracts: Those Classes of Contracts considered jointly for the purposes of applicable regulations. The General Conditions of each Contract will establish the Group of Contracts to which each Class of Contract belongs. Instruction: Rule approved by MEFF Exchange, of a specific and mandatory nature, which develops or applies the General Conditions and the Circulars. MEFF Exchange: MEFF Sociedad Rectora del Mercado Secundario Oficial de Futuros y Opciones, S.A.U. Market: Official Secondary Market for Futures and Options MEFF Exchange where the trading function is carried out, with respect to the Contracts subject to these Regulations, as detailed in these Regulations. Member: Entity that participates in the Market in accordance with what is established in Chapter 2 of these Regulations. Order: Generic term encompassing Buy or Sell Orders of Contracts and Exercise Orders of Options. Register: Act by which MEFF Exchange notes the data of a Transaction in the corresponding Accounts of the Market Register. Market Register: Accounting register system, managed by MEFF Exchange, of the Contracts admitted to trading in the Market and of the Transactions that Members carry out regarding these Contracts. Regulations: These Regulations, which constitute the rule of order and discipline of the Securities Market, being mandatory for all participants in the Market. Series: Within each Class of Contract, those Options that, being of the same type, have the same style, the same liquidation method, the same exercise price, the same size, and the same expiration date, and those Futures that have the same liquidation method, the same size, and the same expiration date. General Market Supervisor: Person appointed by MEFF Exchange who performs the function of supervising the orderly development of Market activities, applying the Regulations and other applicable rules. Market Supervisor: Person who performs the function of supervising the orderly development of Market activities, applying the Regulations and other applicable rules, by delegation of the General Market Supervisor. Transaction: Generic term encompassing any operation on Contracts admitted to trading in MEFF Exchange, carried out by Market Members in accordance with what is provided in these Regulations and their complementary regulations, whether they are operations negotiated in the Market's trading system or agreed directly between Market Members and which determines the production of annotations in the Market Register.

ARTICLE 2. FUNCTIONS OF MEFF EXCHANGE

1. In its capacity as the Governing Body of the Market, it corresponds to MEFF Exchange to organize and manage the trading that takes place in the Market. The functions of MEFF Exchange will be: a) Define the specific characteristics of each Contract admitted to trading in the General Conditions of the Contract in question. b) Organize, direct, order, manage, and supervise trading, striving for maximum efficiency in its operation. c) Take all those decisions that lead to an improvement in the operation of trading. d) Disseminate information related to trading. e) Conclude the appropriate agreements, which must be approved by the National Securities Market Commission, with central counterparty entities in which Transactions related to Contracts negotiated in MEFF Exchange are cleared and settled.

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2. In the exercise of the func