Agreement of 18 October 2012 by the National Securities Market Commission extending the precautionary prohibition on short selling of Spanish shares and initiating notification to ESMA

OFFICIAL STATE GAZETTE
No. 257 Thursday 25 October 2012 Sec. III. Page 75562

III. OTHER REGULATIONS
NATIONAL SECURITIES MARKET COMMISSION
13284 Agreement of 18 October 2012 of the National Securities Market Commission, extending the precautionary prohibition on carrying out transactions on securities and financial instruments that involve the establishment or increase of net short positions in Spanish shares, and initiating the procedures to notify ESMA of the intention to impose restrictions on short selling and similar operations in view of the exceptional circumstances prevailing.

The National Securities Market Commission (CNMV) has been evaluating the individual and overall market impact of the restrictive measures on net short positions in Spanish shares adopted last July 2012, for which it has taken into consideration the exceptional situation faced by the Spanish financial system.

In this regard, 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 conditions the granting of aid to the compliance with a series of conditions, including the identification of individual capital needs, the recapitalization of entities, and the segregation of toxic assets into a Management Company for Assets.

This banking restructuring process is not yet finalized, which generates a series of uncertainties regarding the Spanish financial system that could affect financial stability. In this context, the lifting of the prohibition on short selling operations 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.

Likewise, certain facts or circumstances that motivated the agreement of last July persist at present, which could threaten the integrity of the Spanish financial markets.

The aforementioned considerations therefore advise against lifting the temporary restrictions on transactions that constitute or increase net short positions in Spanish shares.

Taking the above into account, the Executive Committee of the CNMV, in its session of 18 October 2012, by virtue of the delegation of powers conferred by the Board of Directors through Agreement of 12 September 2012 ("BOE" of 18 September), agrees:

1. To extend the precautionary agreement, adopted on 23 July 2012 under Article 85.2(j) of Law 24/1988 of 28 July on the Securities Market, prohibiting the carrying out of transactions on securities or financial instruments that involve the establishment or increase of net short positions in shares admitted to trading on an official secondary market in Spain 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.

The extension of the prohibition extends from 24 October until the market close on 31 October 2012, both dates inclusive.

The precautionary prohibition affects any transaction on shares or indices, including spot transactions, derivatives in organized markets, or OTC derivatives, that involves creating a net short position or increasing a pre-existing one, even if done intraday. A net short position shall be understood as that which results in a positive economic exposure to a fall in the share price.

The precautionary prohibition excludes transactions carried out by entities performing market-making functions. Such entities shall be understood as financial institutions or investment firms that, in response to customer orders or as a result of quoting bid and ask prices continuously in their capacity as members of official secondary markets or multilateral trading systems, temporarily incur, especially intraday, in net short positions.

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 infringement.

2. Furthermore, taking into consideration that from 1 November onwards 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 shall apply, it also agrees:

To immediately initiate the procedures to notify ESMA and the rest of competent authorities of the intention to impose, on 1 November 2012 and for a period of 3 months, under Article 20 of Regulation (EU) No 236/2012 and in view of the exceptional circumstances prevailing, the precautionary prohibition on the carrying out by any natural or legal person of 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 such natural or legal person in the event that the price or value of shares admitted to trading on an official secondary market in Spain 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. This measure could be lifted before the expiry of the period if circumstances so permit.

Madrid, 18 October 2012.–The President of the National Securities Market Commission, María Elvira Rodríguez Herrer.

cve: BOE-A-2012-13284

OFFICIAL STATE GAZETTE
No. 257 Thursday 25 October 2012 Sec. III. Page 75563

cve: BOE-A-2012-13284 http://www.boe.es OFFICIAL STATE GAZETTE D. L.: M-1/1958 - ISSN: 0212-033X