Law 7/2011 of 11 April amending Law 41/1999 on payment and securities settlement systems and Royal Decree-Law 5/2005 on urgent productivity reforms

OFFICIAL STATE GAZETTE
No. 87 Tuesday, April 12, 2011 Sec. I. Page 37491
I. GENERAL PROVISIONS
HEAD OF STATE
6549 Law 7/2011, of April 11, amending Law 41/1999, of November 12, on payment and securities settlement systems, and Royal Decree-Law 5/2005, of March 11, on urgent reforms to boost productivity and improve public contracting.
JUAN CARLOS I
KING OF SPAIN
To all who see and understand this,
Know: That the General Courts have approved and I hereby sanction the following law.
PRELIMINARY STATEMENT
Directive 2009/44/EC of the European Parliament and of the Council of 6 May 2009, amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements, as regards connected systems and credit claims, updates these two directives to adapt them to the recent evolution of financial markets. As explained in the preamble to Directive 2009/44/EC, one of the main changes since the drafting of Directive 98/26/EC is the growth of connections between payment and securities settlement systems. Therefore, it is necessary to provide that so-called interoperable systems establish common rules on the timing of the booking of orders and are coordinated to eliminate any type of legal uncertainty in the event of a failure by one of their participants. On the other hand, the Community legal framework for the cross-border use of financial collateral must be expanded and strengthened. Given that the European Central Bank has admitted credit claims as admissible collateral in the credit operations of the Eurosystem since January 1, 2007, nothing should prevent their more widespread use in the financial sector. This Law transposes Directive 2009/44/EC. Thus, Article 1 amends Law 41/1999, of November 12, on payment and securities settlement systems to recognize so-called interoperable systems and extend to them the rules on the firmness of settlements of transfer orders processed through such systems. On the other hand, Article 2 amends Royal Decree-Law 5/2005, of March 11, on urgent reforms to boost productivity and improve public contracting to include credit claims as part of the collateral that can be used in the context of financial operations. In addition, a review of the text is carried out to correct and clarify other aspects not related to the transposition of the directive, thereby resolving some problems of legal uncertainty. Likewise, Final Provision second amends Law 22/2007, of July 11, on the distance marketing of financial services intended for consumers. Finally, it should be noted that the entry into force of the rule is postponed until July 1, 2011, in compliance with Article 3 of Directive 2009/44/EC, except with regard to final provisions second and fourth, which will enter into force the day following their publication in the "Boletín Oficial del Estado". cve: BOE-A-2011-6549

OFFICIAL STATE GAZETTE
No. 87 Tuesday, April 12, 2011 Sec. I. Page 37492
Article 1. Amendment of Law 41/1999, of November 12, on payment and securities settlement systems.
Law 41/1999, of November 12, on payment and securities settlement systems, is amended as follows:
One.- Article 2 is worded as follows:
"This Law shall apply to:
a) Payment and securities clearing and settlement systems (hereinafter, systems), understanding by "securities" the financial instruments referred to in Article 2 of Law 24/1988, of July 28, on the Securities Market. b) Monetary policy operations carried out by the central banks of the Member States or by the European Central Bank in its capacity as central banks, or associated with the settlement of a system. c) Participants in a system and the counterparties to the operations referred to in letter b). For these purposes, participants shall be understood to mean credit institutions as defined in point (a) of paragraph 1 of Article 4 of Directive 2006/48/EC and investment firms as defined in paragraph 1 of Article 4 of Directive 2004/39/EC, authorized to operate in the European Economic Area, the Public Treasury and the equivalent bodies of the Autonomous Communities, and the entities belonging to the public sector listed in Article 3 of Regulation (EC) No 3603/93, of December 13, establishing definitions for the application of the prohibitions referred to in Article 104 and paragraph 1 of Article 104b of the Treaty, as well as any company whose head office is located outside the European Union and whose functions correspond to those of credit institutions or investment firms of the European Union, which are accepted as members of the system, in accordance with the regulations governing it and are responsible to it for assuming financial obligations arising from its operation. Also, participants in a system may be the European Central Bank, the Bank of Spain and the other central banks of the Member States of the European Union, as well as the international financial organizations of which Spain is a member. Likewise, participants in a system may be, provided they are accepted by it in accordance with its regulations:
1st. Manager of other systems. The manager of a system is understood to be the entity or entities legally responsible for its operation. The manager of a system may also act as a settlement agent, central counterparty or clearing house, as these are defined below.
2nd. Settlement agent of other systems. Such an agent shall be a Central Bank or another body or entity that provides participants in the system with accounts in which the transfer orders accepted by said system are settled or which are used by it for the deposit of securities funds.
3rd. Central counterparty. An entity interposed between participants in a system that acts as the exclusive counterparty to them in relation to their transfer orders; and 4th. Clearing house. Organization responsible for calculating the net positions of participants in a system.
An entity, central counterparty, settlement agent, clearing house or system manager that has a contractual relationship with a participant by virtue of which the former may process transfer orders through the system, provided that the system manager knows the indirect participant, shall have the status of indirect participant.
The existence of an indirect participant shall not limit the liability of the participant through whom it transmits the transfer orders to the system. d) The collateral constituted in the framework of a system and the operations mentioned in letter b).
For these purposes, collateral shall be understood to mean any realizable asset, including money, which has been subject to deposit, pledge, guarantee or right of retention, the financial collateral referred to in Article 7 of Royal Decree-Law 5/2005, of March 11, repurchase agreements, or any other legal transaction intended to guarantee the rights and obligations that may arise in relation to a system, or contributed to the central banks of the Member States or to the European Central Bank." Two.- Letter b) of Article 3 is worded as follows:
"b) That they have the participation of, at least, three entities that are credit institutions or investment service companies, as defined, respectively, in paragraph 1 of Article 4 of Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 on the taking up and pursuit of the business of credit institutions, including the entities listed in Article 2 of that Directive, and in paragraph 1 of Article 4 of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, excluding the entities listed in paragraph 1 of Article 2 of that Directive, as well as the system manager, a possible settlement agent, a possible central counterparty, a possible clearing house or a possible indirect participant, and provided that they are Spanish entities or authorized to operate in Spain, and, in addition, at least one of them has its head office in Spain." Three.- Two new paragraphs are added at the end of Article 3 with the following wording:
"For the purposes of this Law, interoperable systems are understood to be two or more systems whose managers have entered into an agreement entailing the execution between systems of transfer orders.
Agreements entered into between interoperable systems shall not constitute a system."
Four.- Article 5 is worded as follows:
"Article 5. Disciplinary regime.
Systems recognized in accordance with Article 4 shall be subject, depending on whether the Bank of Spain or the National Securities Market Commission is the authority responsible for the supervision of their managing body, to the intervention and sanctioning regime established in Law 26/1988, of July 29, on the Discipline and Intervention of Credit Institutions, or to that established in Law 24/1988, of July 28, on the Securities Market, without prejudice to the supervision, inspection and sanctioning powers corresponding to the Autonomous Communities in relation to clearing and settlement systems created in official secondary markets at the autonomous level or in trading venues or systems of the same scope that do not have that status." Five.- Article 10 is worded as follows:
"Article 10. Transfer orders.
For the purposes of this Law, a transfer order shall be considered:
a) any instruction from a participant to make an amount of money available to a recipient processed by means of an entry in the accounts of a credit institution, a central bank, a central counterparty or a settlement agent, or any instruction whose result is the assumption or cancellation of a payment obligation as defined in the system rules; or, b) an instruction from a participant to transfer ownership or any other right corresponding to one or more securities by means of an entry in a register or in any other way that evidences the transfer, understanding by securities the financial instruments referred to in Article 2 of Law 24/1988, of July 28, on the Securities Market." Six.- The second paragraph of paragraph 1 of Article 11 shall have the following wording:
"The orders referred to in the preceding paragraph, the clearing that may take place between them, the obligations resulting from such clearing, and those intended to settle any other commitments provided for by the system to ensure the proper completion of accepted transfer orders or of the clearing carried out, shall be firm, binding and legally enforceable against the participant obliged to comply with them and opposable against third parties, and may not be challenged or annulled for any cause." Seven.- A final paragraph is added to paragraph 1 of Article 11 with this wording:
"Each system shall determine in its own rules the time of irrevocability and firmness of transfer orders, and in the case of interoperable systems, the rules of each of them shall guarantee, as far as possible, coordination with the rules of the other affected systems regarding the determination of such times. However, unless the rules of all interoperable systems expressly so provide, the rules of each of them regarding the time of irrevocability and firmness shall not be affected by those of the others." Eight.- Article 12 is worded as follows:
"Article 12. Insolvency proceedings.
For the purposes of this Law, insolvency proceedings are understood to mean bankruptcy, as well as any measure of a universal nature, provided for by Spanish legislation or that of another State, for the liquidation of an entity or for its reorganization, which intends to have the effect of suspending transfer orders, or the payments that the participant may or should make, or imposing limitations on them." Nine.- Article 13 is worded as follows:
"Article 13. Effects on transfer orders and clearing.
In addition to what is provided in the preceding Article 11, the initiation of insolvency proceedings against a participant in a system, even interoperable, or against a manager of a system, shall not produce effects on the rights and obligations of said participant or said manager:
a) That derive from transfer orders received and accepted by the system prior to the moment when the said initiation has been communicated to the system or that, exceptionally, had been processed after the initiation of the insolvency proceedings and are cleared or settled on the same business day, provided that the managers of the system or of an interoperable system that is not a participant can prove that, at the moment when said orders became irrevocable, they had no knowledge and should not have had knowledge of the initiation of said proceedings. cve: BOE-A-2011-6549

OFFICIAL STATE GAZETTE
No. 87 Tuesday, April 12, 2011 Sec. I. Page 37495 b) That result from the clearing that, if any, is carried out between said orders on the same business day on which the communication was received. c) That are intended to settle on said business day any other commitments provided for by the system to ensure the proper completion of accepted transfer orders or of the clearing carried out. These obligations shall be settled, in accordance with the system rules, charged to the funds or securities available in the settlement account of said participant to meet the obligations of this participant in the system, even interoperable, as well as charged to the collateral and other assets and commitments established for these purposes by itself. For the purposes provided for in this article, business days shall be delimited for each system by its own rules, covering settlements carried out both during the daytime and nighttime periods, as well as all events that occur during the activity cycle of each system." Ten.- Paragraphs 1 and 2 of Article 14 are worded as follows:
"1. The rights of a system manager or a participant regarding the collateral constituted in their favor in a system or in any interoperable system shall not be affected by insolvency proceedings initiated against:
a) the participant in the system in question or in an interoperable system, b) a system manager of an interoperable system that is not a participant, c) a counterparty of the central banks of the Member States or of the European Central Bank, or d) any third party that has constituted the collateral.
Such collateral may be enforced to satisfy the cited rights.
2. Such right of separation shall also benefit the Bank of Spain regarding collateral constituted in its favor by any entity that is its counterparty or guarantor in monetary policy operations, or associated with the settlement of systems, even interoperable."
Eleven.- Paragraph 4 of Article 14 is worded as follows:
"4. In particular, neither the constitution or acceptance of the collateral referred to in the preceding paragraphs, nor the balance of the accounts or registers in which they are materialized, shall be challengeable on the grounds of restitution provided for in Law 22/2003, of July 9, on Insolvency. Collateral shall also not be subject to claim under the terms provided for in Article 324 of the Commercial Code for pledged securities." Twelve.- Paragraph 2 of Article 15 is worded as follows:
"2. Spanish legislation shall apply, as to its real legal effects, to collateral legally registered in a register with its seat in Spain in favor of a Spanish or foreign system, its participants, its manager or the Bank of Spain, the European Central Bank or other central banks of the Member States of the European Union, linked to their monetary policy operations or associated with the settlement of those systems. Collateral legally constituted and registered in a register with its seat in another Member State in favor of a Spanish system, its participants, its manager or the Bank of Spain linked to monetary policy operations or associated with the settlement of systems, shall be governed by the legislation of the corresponding Member State, as far as its real legal effects are concerned." cve: BOE-A-2011-6549

OFFICIAL STATE GAZETTE
No. 87 Tuesday, April 12, 2011 Sec. I. Page 37496 Thirteen.- Letter a) of paragraph 1 of Article 16 is worded as follows:
"a) According to Spanish legislation, an order declaring bankruptcy is issued, or."
Article 2. Amendment of Royal Decree-Law 5/2005, of March 11, on urgent reforms to boost productivity and improve public contracting.
Royal Decree-Law 5/2005, of March 11, on urgent reforms to boost productivity and improve public contracting, is amended as follows:
One.- A final paragraph is added to Article 2, with the following wording:
"The provisions of this Chapter shall be understood without prejudice to the applicable regulations on consumer credit."
Two.- Letter c) of paragraph 1 of Article 4 is worded as follows:
"c) Credit institutions; investment service companies; insurance undertakings; collective investment undertakings in transferable securities and their management companies; mortgage securitization funds, asset securitization funds and management companies of securitization funds; pension funds, and other financial entities, as defined in paragraph 5 of Article 4 of Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 on the taking up and pursuit of the business of credit institutions." Three.- Letter c) of paragraph 2 of Article 5 is worded as follows:
"c) Financial operations carried out on financial instruments provided for in paragraphs two to eight of Article 2 of Law 24/1988, of July 28, on the Securities Market, including spot currency sales, derivative instruments on all types of commodities, including precious metals, and derivative instruments on emission rights regulated in Law 1/2005, of March 9, regulating the regime for the trading of greenhouse gas emission rights, as well as any combination of the foregoing; whether settled by difference or by physical delivery of the underlying." Four.- Paragraph 1 and the first paragraph of paragraph 2 of Article 6 are worded as follows:
"1. Financial collateral transactions may be carried out by the transfer of ownership of the asset or credit right given as collateral or by the pledge of said asset or right.
2. A financial collateral arrangement with transfer of title is one by which the guarantor transfers full ownership of an asset or right subject to financial collateral to a beneficiary for the purposes of securing or providing other types of coverage for the main financial obligations."
Five.- Paragraph 3 of Article 6 is worded as follows:
"3. For the purposes of this Law, a pledge financial collateral arrangement is understood to be one by virtue of which the guarantor provides financial collateral in the form of a pledge instrument to a beneficiary or in their favor, retaining ownership of the asset or credit right subject to collateral." cve: BOE-A-2011-6549

OFFICIAL STATE GAZETTE
No. 87 Tuesday, April 12, 2011 Sec. I. Page 37497 Six.- A new letter c) is added to Article 7 with the following wording:
"c) Credit rights, understood as such the pecuniary rights derived from an agreement by virtue of which a credit institution grants credit in the form of a loan or credit contract.
However, credit rights in which the debtor is a consumer, a small enterprise or a micro-enterprise, as defined in current regulations, may not be subject to financial collateral, except in the case where the beneficiary or the provider of the collateral is one of the entities listed in letter b) of paragraph 1 of Article 4 of this Royal Decree-Law." Seven.- Article 8 is worded as follows:
"Article 8. Formalities.

1. The financial collateral agreements regulated in this Chapter must be in writing or in a legally equivalent form, without any other formality being required for their constitution, validity, effectiveness against third parties, enforceability or admissibility as evidence.
2. The constitution of the collateral right shall require, in addition to the agreement referred to in the preceding paragraph, the contribution of the asset subject to collateral and evidence thereof in writing or in a legally equivalent form. For these purposes:
   a) It shall be understood that a collateral has been validly contributed when the asset subject to collateral has been delivered, transferred, registered or evidenced in any other way so that it is in the possession or under the control of the beneficiary or the person acting on their behalf. The rights of substitution or of withdrawal of the excess financial collateral in favor of the guarantor or, in the case of credit rights, the rights to receive the proceeds thereof until further notice, shall be understood without prejudice to the financial collateral that has been contributed to the beneficiary in accordance with what is provided here. In the case of securities represented by book entries, it shall be understood that the collateral has been constituted and contributed from the registration in the accounting register of the new ownership or of the pledge collateral. b) The written evidence of the contribution of the financial collateral must permit