Circular 1/2016 of the National Securities Market Commission establishing requirements to exempt certain issuers of shares traded exclusively on a multilateral trading system from admitting them to trading on a regulated market

OFFICIAL STATE GAZETTE
No. 83 Wednesday, April 6, 2016 Sec. I. Page 24019
I. GENERAL PROVISIONS
NATIONAL SECURITIES MARKET COMMISSION
3276 Circular 1/2016, of March 16, of the National Securities Market Commission, establishing the requirements to exempt certain issuers of shares traded exclusively on a multilateral trading system from requesting their admission to trading on a regulated market.

Law 5/2015, of April 27, on the promotion of business financing, includes in Title IV a series of improvements in companies' access to capital markets. In particular, it introduced reforms into Law 24/1988, of July 28, on the Securities Market (currently repealed and its content integrated into the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23), to facilitate the transition of shares of companies traded on a multilateral trading system (MTS) to an official secondary market. This provision is complemented by the obligation for shares of admitted companies that reach a higher capitalization volume to request their admission to trading on a regulated market, in order to ensure they are subject to the more extensive regulations of official secondary markets. This obligation is justified by the potentially greater impact that companies of a certain size can have on the market.

In this regard, Law 5/2015, of April 27, included a new subsection two "Specialties in access to trading on an official secondary market" in Article 32 of Law 24/1988, of July 28 (currently Article 77 of the consolidated text of the Securities Market Law). Paragraph 3 of said article establishes that when the capitalization of shares being traded exclusively on an MTS exceeds five hundred million euros for a continuous period of more than six months, the issuing entity must request their admission to trading on a regulated market within nine months, and the governing entity of the multilateral trading system must ensure compliance with this obligation.

However, the aforementioned regulation provides that the National Securities Market Commission (hereinafter, CNMV) may set the terms under which the aforementioned obligation is waived for companies of a strictly financial or investment nature, such as those regulated by Law 35/2003, of November 4, on Collective Investment Institutions, Law 22/2014, of November 12, regulating venture capital entities, other closed-end collective investment entities and management companies of closed-end collective investment entities, and modifying Law 35/2003, of November 4, on Collective Investment Institutions, or Law 11/2009, of October 26, regulating Listed Real Estate Investment Companies (SOCIMI).

The requirements determining the applicability of the exception must be objective to eliminate any uncertainty for those companies wishing to benefit from the exception, so that those issuing companies meeting said requirements automatically benefit from the exception and are not subject to the obligation contained in Article 77 of the consolidated text of the Securities Market Law. If, on the other hand, the requirements implied a subjective assessment, the trading of the share on the market could be affected by uncertainty regarding the applicability of the exemption.

Since the purpose of the law is to oblige large companies to list on an official secondary market, subject to a broader catalog of requirements, it is considered appropriate to exempt from this obligation those companies that, despite reaching this size, do not achieve the required share diffusion to list on such markets. That is, by virtue of this exception, those companies will be exempted that, despite being large in terms of business and financial situation, are owned by a small number of shareholders, so the need to be bound by the requirements of official secondary markets, such as the application of corporate governance regulations, could impose a series of obligations disproportionate to their shareholding reality. This implies that, in the event that a company with five hundred million euros of capitalization reaches the minimum public diffusion provided for the regulated market (normally 25 percent of the shares), such entity must request admission to this market without being able to benefit from the exemption.

The 25 percent has been considered as the exception percentage because it is contemplated in Royal Decree 1310/2005, of November 4, which partially develops the Securities Market Law in matters of admission to trading on official secondary markets, in whose subsection 7 of Article 9 regarding suitability requirements for securities states that sufficient distribution of shares for admission to trading will be considered to exist if, at least, 25 percent of the shares for which admission is requested are distributed among the public.

Furthermore, it must be taken into account that if the aforementioned share diffusion requirement were not introduced, those companies meeting the capitalization amount established in Article 77.3 of the consolidated text of the Securities Market Law and not having a public distribution of at least 25 percent of their shares would be obliged to request their admission to trading on a regulated market without meeting the requirement generally exigible to access said market. The need to achieve the aforementioned share diffusion threshold of the issuing company could entail, in such cases, having to prepare and execute a public offer for the sale of shares within a relatively short period of time that could coincide with an unfavorable phase of the economic cycle, in addition to significant difficulties for the company's shareholders and for the company itself.

With regard to the specific case of investment companies regulated in Law 35/2003, of November 4, on Collective Investment Institutions, and in accordance with Royal Decree 1082/2012, of July 13, approving the Regulation for the development of Law 35/2003, of November 4, this Circular takes into account that these may have different procedures to provide liquidity to their shares, such as their trading on a stock exchange, their incorporation into a multilateral trading system, or their acquisition and sale by shareholders at a price equal to the liquidation value calculated in accordance with Article 78 of the aforementioned Regulation.

In the case of incorporation into a multilateral trading system, if this allows contracting to be carried out not only by the price fixing system through the convergence of supply and demand, but also by the contracting system at liquidation value, the existence of a fair and objective price for investors will be guaranteed by the contracting system at liquidation value itself (since the price calculation is determined by regulation). Therefore, when contracting at liquidation value is predominant, the guarantees that might result from listing on an official secondary market are unnecessary. On the contrary, when the price derives predominantly from the typical contracting mechanisms of multilateral trading systems (convergence between supply and demand) and, additionally, there is a noticeable difference between such prices and the liquidation value corresponding to the day of contracting, it is advisable that the company trade with the guarantees proper to an official secondary market.

For these reasons, in the case of investment companies regulated in Law 35/2003, of November 4, the described specialties regarding their contracting modalities in a multilateral trading system have been taken into account to contemplate additional scenarios for exemption from the obligation to request admission to trading on a regulated market.

cve: BOE-A-2016-3276
Verifiable at http://www.boe.es

OFFICIAL STATE GAZETTE
No. 83 Wednesday, April 6, 2016 Sec. I. Page 24020

Since subsection 3 of Article 77 of the consolidated text of the Securities Market Law establishes that the governing entity of the multilateral trading system must be responsible for ensuring compliance with the obligation contained in said subsection, it is considered that it also corresponds to the governing entity to verify compliance with the necessary requirements for a company to benefit from the exemption.

In accordance with the above, this Circular consists of four rules and a final provision. In virtue of the above, the Council of the CNMV, under Article 77.3 of the consolidated text of the Securities Market Law, after report from its Advisory Committee and in accordance with the Council of State, in its meeting on March 16, 2016, has disposed as follows:

First Rule. Object.
This Circular aims to establish the requirements to exempt certain issuers of shares traded exclusively on a multilateral trading system from requesting their admission to trading on a regulated market.

Second Rule. Requirements.

1. The entities meeting the following requirements shall be exempt from the obligation to request their admission to trading on a regulated market contemplated in Article 77.3 of the consolidated text of the Securities Market Law:
   – Being companies of a strictly financial or investment nature, for these purposes those regulated by Law 35/2003, of November 4, on Collective Investment Institutions, by Law 22/2014, of November 12, regulating venture capital entities, other closed-end collective investment entities and management companies of closed-end collective investment entities, and modifying Law 35/2003, of November 4, on Collective Investment Institutions, and by Law 11/2009, of October 26, regulating Listed Real Estate Investment Companies (SOCIMI), whose shares are traded exclusively on a multilateral trading system domiciled in Spain. – That the capitalization value of the shares admitted to trading on a multilateral trading system exceeds five hundred million euros for a continuous period of more than six months. – That the percentage of shares distributed among the public at the close of the market on the day of completion of the six-month period referred to in the previous paragraph is less than 25 percent of the shares comprising its share capital.

2. For the purposes of calculating the 25 percent referred to in subsection 1, shares held by shareholders who hold 3 percent or more of the shares of the issuing company, nor shares held by members of its board of directors, nor, if applicable, treasury shares held in self-ownership, shall not be taken into account.

3. The exemption will remain in effect as long as the distribution among the public of the shares of the issuing company continues to be less than 25 percent of the shares comprising its share capital.

Third Rule. Additional scenarios for certain entities.
Investment companies regulated in Law 35/2003, of November 4, shall also be exempt from the obligation provided in Article 77.3 of the consolidated text of the Securities Market Law when, alternatively to what is provided in the Second Rule of this Circular, any of the following circumstances occur:
– That during the continuous six-month period in which the capitalization volume of five hundred million euros is exceeded, the trading of shares through the price fixing system through the convergence of supply and demand has represented a percentage less than 50 percent of the total trading volume, the rest of the trading corresponding to operations contracted at the liquidation value of the CII (provided that such contracting is provided for in the multilateral trading system.) For these purposes, the total trading volume will be measured based on the total effective volume in euros corresponding to executed buy and sell orders, both in the price fixing system through the convergence of supply and demand, and in the contracting system at liquidation value. – That during the aforementioned six-month period, the operations carried out in the price fixing system through the convergence of supply and demand have not been executed at a weighted average exchange rate differing by more than 3 percent from the liquidation value of the CII corresponding to the day of contracting in more than 50 percent of the sessions where there was trading through the indicated system.

Fourth Rule. Verification of compliance with the obligation.
In accordance with the provisions of subsection 3 of Article 77 of the consolidated text of the Securities Market Law, it will be the responsibility of the governing entity of the multilateral trading system to ensure compliance with the obligation established in said subsection.

Single Final Provision. Entry into force.
This Circular will enter into force the day following its publication in the "Official State Gazette".

Madrid, March 16, 2016.–The President of the National Securities Market Commission, María Elvira Rodríguez Herrer.

cve: BOE-A-2016-3276
Verifiable at http://www.boe.es http://www.boe.es OFFICIAL STATE GAZETTE D. L.: M-1/1958 - ISSN: 0212-033X