Circular 7/2011 of the National Securities Market Commission on Information Brochures on Tariffs and Content of Standard Contracts

OFFICIAL STATE GAZETTE
No. 309 Saturday, December 24, 2011 Sec. I. Page 141676
I. GENERAL PROVISIONS
NATIONAL SECURITIES MARKET COMMISSION
20107 Circular 7/2011, of December 12, of the National Securities Market Commission, on information brochures on tariffs and content of standard contracts.

Statement of Reasons
This Circular regulates the content and control by the CNMV of the information brochures on tariffs established by entities and the minimum content of the standard contracts they draw up to regulate their relationships with retail clients. The Circular does not regulate the tariffs applied to non-retail clients nor the information brochures on tariffs that entities may draw up for them, nor the contracts that may be signed with them, which shall be governed by what is established between the parties; without prejudice to the fact that the Additional Provisions modifying other Circles do include data on professional clients. It is, therefore, a basic rule in the relationships between entities providing investment services and auxiliary services and their retail clients, which must necessarily be based on trust and high levels of transparency.

The Circular completes a new regulatory framework in this area as a result of changes in the relationships between clients and entities following Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (MiFID), repealing Circular 1/1996, on rules of conduct, transparency and identification in securities market operations and Circular 2/2000, on standardized models of standard contracts for discretionary and individualized management of investment portfolios and other developments of the Order of October 7, 1999 developing the general code of conduct and rules of conduct for the management of investment portfolios, which were still in force.

The Circular makes use of the authorizations contained in 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 tariffs and standard contracts (hereinafter, Order EHA 1665/2010) to develop the transparency regime with clients, in aspects such as the following:

In the area of information brochures on tariffs, since this refers exclusively to tariffs applicable to retail clients, the method of preparation and electronic submission has been established. This submission system, extended to this area, has proven to significantly speed up the processing, control, and publicity of the information received by the CNMV, but also allows for the electronic processing of data received from entities, facilitating their comparability.

Precisely to facilitate this comparability for retail investors, Article 2.3 of Order EHA 1665/2010 has been developed to specify the calculation bases and concepts of some of the most common operations provided to retail clients, such as intermediation in national and foreign markets, custody and administration of financial instruments, portfolio management, and investment advice. To this end, the proposed brochure model consists of a fixed part in which the tariffs applicable to the aforementioned operations are collected and a variable part in which each entity will collect the tariffs for other operations or services it may provide.

With this determined push for transparency, it is intended that investors have sufficient elements of judgment to assess that the tariffs adjust to the principle of proportionality with the quality of the service provided. For entities, it is configured as an incentive for maximum tariffs to actually and effectively adjust to those generally applied to retail clients.

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OFFICIAL STATE GAZETTE
No. 309 Saturday, December 24, 2011 Sec. I. Page 141677 Commissions applicable to professional investors, not included in the scope established in Order EHA 1665/2010, shall be freely determined between the parties without having to be subject to the regime regulating information brochures on tariffs.

In the area of standard contracts, once there is no prior control by the CNMV on their content, without prejudice to the power to demand their rectification or termination in accordance with Article 8 of Order EHA 1665/2010, their mandatory contents are developed in the matters established in Article 6 of said Order, expressly regulating those aspects that supervisory practice and client complaints and inquiries have shown to require greater transparency and were not adequately understood by investors.

Regarding advertising, it is established that the information brochures on tariffs and standard contracts in all their versions must be made available to clients or potential clients in all their customer service offices, including external agents and on their website, in an easily accessible location.

The first Additional Provision adds a new state to those provided for in Circular 1/2010, of July 28, of the CNMV on reserved information of entities providing investment services, in order to know the tariffs actually applied to clients in the most common operations, for which information is requested on the average and most frequent value of the commissions actually charged to clients as well as the maximums and minimums of the extreme intervals.

Finally, a second Additional Provision is added by which the states containing the complementary information necessary for the determination of the contribution to Fogain of the Management Companies of Collective Investment Institutions and Investment Service Companies, contained in Circular 7/2008, of November 26, of the CNMV, on accounting rules, annual accounts and reserved information states of Investment Service Companies, Management Companies of Collective Investment Institutions and Management Companies of Venture Capital Entities; are modified, in order to incorporate certain modifications introduced by Royal Decree 749/2010, of June 7, modifying the Regulation of Law 35/2003, of November 4, and other regulations in the tax field.

By virtue thereof, the Council of the National Securities Market Commission, in its meeting of December 12, 2011, after a report from its Advisory Committee, has ordered:

CHAPTER I
Scope of Application
Rule 1. Scope of Application.
This Circular shall apply to operations and activities carried out with retail clients within the scope of Law 24/1988, of July 28, on the Securities Market (hereinafter LMV), which have been carried out in Spain by the following entities:
a) Investment service companies mentioned in Article 64 of the LMV, including natural persons who have the status of financial advisory companies. b) Entities mentioned in Article 65 of the LMV authorized to provide certain investment services and auxiliary services. c) The following foreign entities:
1) Branches of investment service companies and credit institutions.
2) Investment service companies and credit institutions from Member States of the European Union operating under the freedom to provide services in Spain through agents established in Spain.
3) Investment service companies and credit institutions from non-Member States of the European Union providing investment services in Spain without a branch.

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OFFICIAL STATE GAZETTE
No. 309 Saturday, December 24, 2011 Sec. I. Page 141678 Retail clients shall be understood as those defined as such in Article 78 bis of the LMV.

CHAPTER II
Information Brochures on Tariffs
Rule 2. General Rules on the Preparation of the Information Brochure on Tariffs.

1. The Information Brochure on tariffs applicable to services and operations with retail clients must include the maximum commission and recoverable expense tariffs freely established by the entities.
2. The brochures must include the tariffs for all operations and services that the entity carries out with its retail clients in accordance with what is provided in its activity program.
3. Operations and services of a singular nature may be excluded from the information brochures on tariffs. The following shall be considered as such, among others, regardless of whether the entity carries them out habitually:
   a) Those in which the credit or counterparty risk of the client intervenes appreciably, in the judgment of the entity providing the service, such as credit for the purchase or sale of securities or the lending of securities. b) Those relating to operations not included in Article 36.1 of the LMV or that are not carried out in a multilateral trading facility.
4. Without prejudice to what is stated in the previous paragraphs, entities must provide their clients or potential clients with all information on current tariffs when requested by them. For clients who maintain a contractual relationship with the entity, requests regarding current tariffs throughout their contractual relationship must also be attended to.

All of this without prejudice to their duty to inform about the total price. When the exact price cannot be indicated, the calculation basis of the total price, which the client must pay for the financial instrument or service provided, including all fees, commissions, costs and associated expenses and all taxes to be settled through the entity in accordance with what is provided in Article 66 of Royal Decree 217/2008, must be communicated.

Rule 3. Model of the Information Brochure on Tariffs.

1. The information brochures on tariffs must be preceded by the complete identification of the entity with its registration number in the body that granted its authorization and the identity of the competent supervisor in this matter, as well as the date of its entry into force.
2. The brochures must be drafted in a clear, concrete and easily understandable manner for the clientele, avoiding the inclusion of irrelevant or unnecessary concepts.
3. The brochure must indicate:
   a) The activities, operations and services for which tariffs are charged, clearly and precisely establishing the concept and, if necessary for better understanding, the type of instruments to which they refer, the market or trading system in which they are traded and the type of issuer and if any distinction is made between them, the type of clients. b) The commissions and expenses applicable to each concept referred to in the previous letter, which shall be expressed as a percentage applicable, or alternatively, in the monetary amount in euros, indicating in both cases the periodicity with which it is applicable and the base or tranches on which it is calculated. The minimum or maximum amounts, if any, shall also be indicated.

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OFFICIAL STATE GAZETTE
No. 309 Saturday, December 24, 2011 Sec. I. Page 141679 c) The method of determining commissions and expenses of a singular nature, adjusting in form to Annex II of this Circular. However, entities may include indicative commissions and expenses for these in the brochure without prejudice to what the parties finally agree. Such agreement must be formalized on a durable medium as defined in Article 2.b of Royal Decree 217/2008. d) The cross-reference of the different concepts of the brochure when a specific operation or contract may give rise to the application of commissions or expenses included in more than one. Such references shall refer exclusively to investment and auxiliary services and shall not contemplate commissions generated by banking services or other services not included in the brochure or that are not essential for the provision of the service from which the cross-reference arises. e) Express mention of the intervention of several entities if such intervention were to occur for the carrying out of an operation. In this case, the entity may opt, except in the cases established in the following Rule 4, between establishing the full cost for the client, indicating the concepts it includes, or the cost due solely to its intervention, adding in this case an indicative reference to the cost due to the participation of other entities. In the absence of the aforementioned mention, it shall be understood that the tariff refers to the full cost for the client. f) In each section of the brochure, explanatory notes shall be placed that are necessary to inform clients of the matters cited in the previous letters as well as the need to apply the exchange rate in effect at each moment and costs applicable to operations in foreign currency and, if applicable, taxes to be settled by the entity.

Rule 4. Form of presentation in the information brochure of the tariffs for certain operations and services.
Entities intending to provide the services indicated below must present the tariffs applicable to them in their brochures with the following requirements and in the form established in the fixed part of Annex I of this Circular:

1. When the services provided in Article 63.1.a) and b) of the LMV on equity securities in national markets are provided, whether they are organized secondary markets or multilateral trading facilities, regardless of the extent of the entity's intervention, whether receiving and transmitting orders to another intermediary for execution, executing them or settling the operation.
   a) The tariffs shall be expressed as a percentage of the effective value of the operation, a minimum per operation may be indicated. b) For the purposes of applying the tariffs, an operation shall be understood as each one carried out for each class of value, understood as such, the set of values of an issuer of the same characteristics and identical rights, and regardless of whether their origin corresponds to a single order from the client. c) The tariff established in the brochure shall include the full amount to be paid to the intermediary, recoverable expenses derived from the intervention of other entities cannot be indicated as such, except for market fees and compensation and settlement services. For equity securities traded abroad, the entity may opt between establishing a tariff that reflects the full cost for the client or reflecting the cost due solely to its intervention, in which case it will include an indicative reference to the cost due to the participation of third entities in execution and settlement. As an alternative, entities may establish a fixed tariff for Spanish and foreign markets expressed in monetary terms per monthly period for clients with whom this option has been agreed. In the case of foreign markets,

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OFFICIAL STATE GAZETTE
No. 309 Saturday, December 24, 2011 Sec. I. Page 141680 if the tariff of the entity itself is indicated, an indicative reference to the cost passed on by other entities must be added. For billings lower than the period established in the tariffs, the proportional part to the number of natural days the service has been provided shall be applied.
2. The custody and administration service of financial instruments.
a) Entities shall establish the tariff for custody and administration of national or foreign equity securities, expressed as an annual percentage on the average of the effective daily balances of the deposited securities, calculated at the end of the period. In the case of fixed income securities, the nominal value shall be taken as the calculation base. The minimum applicable expressed in an annual period may also be indicated. For billings lower than the ordinary settlement period agreed upon, the proportional part to the number of natural days the service has been provided shall be applied. All of this without prejudice to what the parties may agree regarding its accrual and settlement in the corresponding contract. b) This concept shall include the maintenance of the securities account as well as the maintenance of the instrumental cash account in the event that it is exclusively linked to the securities account. c) The tariffs that the entity may establish for the exercise of rights relating to the deposited instruments, such as collection of dividends, coupons, attendance premiums, payment of passive dividends, fund contributions, establishment of liens and other similar ones, shall not be included in this section, and must be expressly established in the corresponding section of the brochure model of Annex I of this Circular. d) The tariff established in the brochures must reflect the full amount to be paid to the custodian, recoverable expenses specifically derived from the intervention of other entities for these operations cannot be indicated. e) When the entity providing the custody service intends to apply a tariff for the transfer of securities from the same holder to another entity, it must establish in the brochure a fixed maximum tariff for each class of value expressed in monetary terms.
3. Portfolio management and investment advice services.
a) Entities shall establish the tariffs for discretionary portfolio management and advice based on the amount of the managed portfolio or advised assets or on their revaluation, or on both. It must be expressly indicated whether both commissions are complementary or substitutive. If not indicated, it shall be understood that they are substitutive and the maximum shall be understood as the most beneficial for the client. b) The tariff shall be expressed as an annual percentage on the managed or advised assets and/or on their annual revaluation, a minimum annual percentage on the managed or advised assets may be indicated, without prejudice to what the parties may agree regarding its accrual and settlement in the corresponding contract. For billings lower than the ordinary settlement period agreed upon, the proportional part to the number of days the service has been provided shall be applied. c) In the provision of the advice service, as an alternative to the tariffs collected in letters a) and b), a tariff for the time necessary for the analysis of the portfolio may be established. The tariff shall be expressed in euros per hour and in the event that there are hourly fractions, the corresponding proportional part shall be applied.
4. Entities may not include in their brochures tariffs or commissions for the provision of these services in different sections nor in format or with concepts or calculation bases different from those indicated in the fixed part of Annex I of this Circular. Cross-references between the fixed and variable parts of the information brochure model collected in Annex I of this Circular may not be established either.

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OFFICIAL STATE GAZETTE
No. 309 Saturday, December 24, 2011 Sec. I. Page 141681 Rule 5. Control of Information Brochures on Tariffs.

1. The brochures and their modifications must be presented to the CNMV via telematic transmission with the technical specifications that it determines at each moment.
2. The brochure shall be presented in the format established in Annex I. The chapters containing the tariffs applicable to the most common operations and services shall consist of two sections, a fixed part, with the requirements of Rule 4 as well as those of Rule 3 in everything that does not contradict what is provided in Rule 4, and another, variable with the requirements of Rule 3.
3. The date of entry into force indicated in the brochure shall be at least 30 natural days after the date of its presentation to the CNMV.
4. In the event that the CNMV expresses objections or recommendations for rectification of the presented brochure, the submission and control procedure must be repeated in the manner indicated in the previous points without thereby extending the deadline for its control.
5. Modifications to registered brochures require the submission of a new complete tariff brochure in which the modified tariffs or commissions are incorporated, applying the previous procedure to the submitted brochure.
6. The CNMV may express objections or recommendations on the contents of registered brochures at any time, taking into account justified circumstances when this contributes to improving transparency with investors. Such objections or recommendations shall be made in writing and with a clear description of the circumstances that advise the change in the brochure.
   When as a result of this the entity must modify the brochure, the modification shall comply with what is established in the previous paragraphs, maintaining the application of the tariffs collected in the brochure subject to modification until the entry into force of the modified one, such entry into force may be established for each case by the CNMV if this contributes to improving transparency with clients.

Rule 6. Publicity of Tariffs.

1. The CNMV will make the information brochures on tariffs available to the public on its website, on the date indicated by the entity for its entry into force.
   The CNMV may disseminate the data contained in the fixed part of the proposed information brochure model on tariffs in Annex I in order to facilitate comparability for investors.
2. Entities must make available to the public, on any durable medium, at their registered office, in all branches and at the domicile of their agents, the information brochures on tariffs currently in force and registered with the CNMV. They must also make them available on their website, in an easily accessible location.
3. The tariffs made available to the public by entities subject to this Circular must coincide with those communicated to the CNMV, in accordance with the previous paragraphs. Tariffs that are made public on the occasion of advertising campaigns or widespread dissemination, regardless of the medium used for them, must coincide in their concepts and contents with the information brochures on tariffs, and must not exceed them. When the campaign refers to activities or services referred to in Rule 4, the concepts and calculation bases applicable in accordance with said Rule must be expressed literally.

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CHAPTER III
Standard Contracts
Rule 7. General Content of Standard Contracts.

1. Standard contracts must contain