Royal Decree 827/2017, of September 1, amending Royal Decree 878/2015 on compensation, clearing, and registration of negotiable securities represented by book-entry, central securities depositories, central counterparties, and transparency requirements

OFFICIAL STATE BULLETIN
No. 211 Saturday, September 2, 2017 Sec. I. Page 86629
I. GENERAL PROVISIONS
MINISTRY OF ECONOMY, INDUSTRY AND COMPETITIVENESS 10141 Royal Decree 827/2017, of September 1, amending Royal Decree 878/2015, of October 2, on the compensation, clearing and registration of negotiable securities represented by book-entry, on the legal regime of central securities depositories and central counterparties and on transparency requirements for issuers of securities admitted to trading on a regulated secondary market.
I
Royal Decree 878/2015, of October 2, established the basis for the reform of the Spanish system for the compensation, clearing and registration of securities with the dual objective of adapting it to European legislation and to the standards most widely used by countries in our environment, and of allowing its integration into the pan-European platform for the clearing of securities transactions, TARGET2-Securities. This platform, driven by the Eurosystem, will contribute to the achievement of a true single market for post-trade financial services in the European Union, which will have a positive impact on the financial system as a whole. With the implementation of the aforementioned reform in the field of equity securities transactions completed, it is now necessary to establish the legal framework for the adaptation of the compensation and clearing system for fixed-income securities transactions, which constitutes an indispensable condition for the incorporation of the Spanish central securities depository (Iberclear) into TARGET2-Securities. II The objective of this regulation is multiple. On the one hand, it aims to extend the application of the compensation and clearing system implemented by Royal Decree 878/2015, of October 2, to fixed-income securities. To this end, its Additional Provision 2 is repealed, and the date and terms under which this will take place are determined. On the other hand, it is necessary to flex certain rules regarding the holding of securities and the use of certain procedures and to advance in the reduction of administrative burdens. Finally, specific provisions are included regarding the legitimacy certificates issued in favor of the General Depository and regarding the authorization to establish deposits in said Depository for the payment of certain public fees. Responding to these objectives, three types of modifications are identified. First, those aimed at recognizing and regulating the specific characteristics of fixed-income securities, such as the particularities of the issuance document and the elimination of a procedure relating to certain transactions involving the purchase and sale of annotated Public Debt with a repurchase agreement, since they can no longer be carried out on the TARGET2-Securities platform, as they do not have the necessary protocols for this purpose. The aforementioned procedure, known as the "Spanish repo," is regulated in Article 8.2 of Royal Decree 505/1987, of April 3, which establishes the creation of a book-entry system for State Debt, and which relates to the matters regulated in this Royal Decree insofar as State Debt securities are fixed-income securities. It must be specified in any case that the urgency with which this Royal Decree must be approved has not allowed for a complete review of said Royal Decree for its total adaptation to the new regime for the compensation and clearing of fixed-income securities transactions. This task will be undertaken in the near future, in
parallel with the reform of the legal regime of the securities markets in Spain, which will take place with the transposition of Directive 2014/65/EU of the European Parliament and of the Council of May 15, 2014, on markets in financial instruments and amending Directives 2002/92/EC and 2011/61/EU. Secondly, modifications are introduced to achieve a more flexible interpretation and application of certain rules that prevented efficient management of securities clearing operations at the central securities depository by participating entities and their clients. This concerns, for example, the rule according to which all participating entities must always maintain in their own securities accounts in the central register managed by the Spanish central securities depository the securities of which they are holders. Following the reform of the Spanish compensation, clearing and registration system, the use of several types of accounts is allowed, not only own accounts and third-party omnibus accounts, but also individual accounts. These accounts allow an entity to open them on behalf of one of its clients to manage their operations, with their securities fully segregated and having access to all information relating to their securities. This facilitates the activity of entities by allowing them to be participating entities and to deposit the portion of their ownership securities in individual accounts and not necessarily in own accounts. Additionally, the use of the special clearing procedure for financial intermediaries is flexed; it is no longer characterized by the type of clients or the type of operations cleared in it, but by the transitory nature of the use of this account. This special procedure has functioned satisfactorily in the first phase of the reform and is considered beneficial for the system as a whole. Therefore, its use should not be restricted to transactions with retail or professional clients, but should be allowed for all types of operations provided that the clearing in that account is transitory. This achieves an additional element that adds efficiency in the operational management of entities. Thirdly, a series of technical improvements are introduced into the text. The update of the provision relating to the registration of foreign securities to the current European regulatory framework stands out, which allows an issuer to freely choose the clearing system it prefers, without the choice of one market or another for the trading of the securities it issues predetermining or interfering with the choice of the clearing system. Furthermore, it is necessary to clarify that, regardless of the fact that the incorporation of foreign securities into the Spanish central securities depository necessarily implies that these are represented by book-entry, nothing prevents the foreign securities in question from continuing to be represented by certificates for the purposes corresponding to their legislation of origin. On the other hand, the
registration of securities lending is repealed since Regulation (EU) 2015/2365 of the European Parliament and of the Council of November 25, 2015, on the transparency of securities financing transactions and securities reuse and amending Regulation (EU) No 648/2012, has harmonized this issue at the European level. Another of the adaptations considered convenient to improve the functioning of our system for the compensation and clearing of fixed-income securities transactions is the elimination of the requirement to communicate certain information to the so-called Information System for the supervision of the trading, clearing, settlement and registration of securities. In the case of this type of securities, it is not necessary to report to said system the information relating to the identification and detail of the operations carried out, nor to the securities concerned and affected ownership. The reporting of this information is excessively costly for entities, and its elimination does not negatively interfere with the achievement of the objectives pursued by the information system at the central securities depository. It should be noted that the operational adaptation to TARGET2-Securities also affects the certificates that accredit the guarantees established at the General Depository. Therefore, this Royal Decree includes the appropriate modifications so that the incorporation to said platform is carried out with full legal and operational security for the users of said General Depository. Specifically, it concerns adapting the regime of the legitimacy certificates that must be presented to the General Depository to accredit the ownership of the securities, their immobilization and the registration of the guarantee in the accounting register in which said securities are annotated, for the purpose that the guarantee can be established in favor of said Depository. It is added that from the entry into force of this Royal Decree, the General Depository will exclusively admit legitimacy certificates for the immobilization and registration of the guarantee established in securities represented by book-entry. Therefore, the legitimacy certificates deposited in the General Depository constituting guarantees will remain valid until their replacement by the aforementioned legitimacy certificates issued by the participating entities, replacement that must be made within the established period. It has been considered convenient to regulate these certificates and the establishment of guarantees through said certificates in Royal Decree 878/2015, of October 2, by adding an additional provision, since the reform of Royal Decree 161/1997, of February 7, which would have required an in-depth review of it, could have put at risk the timely adaptation to TARGET2-Securities of the regime of the certificates that allow the establishment of guarantees at the General Depository. An additional provision is also incorporated relating to the establishment of certain
deposits for the purposes of Order ITC/3066/2011, of November 10, establishing the public fees for the provision of services and the performance of activities by the Directorate General of Commerce and Investments. By virtue of said Order, public fees are established for the provision of services and performance of activities by the current Directorate General of Commercial Policy and Competitiveness (specifically, issuance of conformity certificates, test reports and taking of samples in accordance with a standardized procedure, as well as verification of quality standards and issuance of reports on production conditions pre-established in Collaboration Agreements that are formalized). It should be noted that Article 3.1.c) of Royal Decree 161/1997, of February 7, provides for the establishment of deposits by individuals at the disposal of the Public Administration, when so provided by a law or a Royal Decree. The payment of these public fees is materialized through a deposit in favor of the Directorate General of Commerce and Investments. Such deposit has the character of "on account" when the interested party requests the service, until the definitive invoice is issued for the same once provided, proceeding, if necessary, to return to the interested party the surplus amount. For such operation to be possible, it is necessary that said deposits be made at the General Depository. On the other hand, a transitional provision is included to specify the treatment that must be given to legitimacy certificates on fixed-income securities issued before the entry into force of the Royal Decree. In this regard, they will receive the same treatment as in the case of legitimacy certificates on equity securities, since Transitional Provision 2 of Royal Decree 878/2015 will remain in force, which with the entry into force of this Royal Decree will also be applicable to fixed-income securities. This Royal Decree is issued in exercise of the powers contained in Articles 9, 45, 98, 100, 101, 107, 108 and in the second final provision of the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 3, and in the tenth additional provision of Law 42/1994, of December 30, on fiscal, administrative and social order measures. The norm is adapted to the principles of good regulation in accordance with Article 129 of Law 39/2015, of October 1, on the Common Administrative Procedure of Public Administrations. By virtue thereof, on the proposal of the Minister of Economy, Industry and Competitiveness, having received the reports from the Bank of Spain and the National Securities Market Commission, in accordance with the Council of State and after deliberation by the Council of Ministers in its meeting on September 1, 2017,

I HEREBY ORDER:
Sole Article. Modification of Royal Decree 878/2015, of October 2, on the compensation, clearing and registration of negotiable securities represented by book-entry, on the legal regime of central securities depositories and central counterparties and on transparency requirements for issuers of securities admitted to trading on a regulated secondary market.
Royal Decree 878/2015, of October 2, on the compensation, clearing and registration of negotiable securities represented by book-entry, on the legal regime of central securities depositories and central counterparties and on transparency requirements for issuers of securities admitted to trading on a regulated secondary market, is modified as follows:
One. The title of Royal Decree 878/2015, of October 2, is modified, which shall now read as follows:
"Royal Decree 878/2015, of October 2, on the registration, clearing and settlement of negotiable securities represented by book-entry, on the legal regime of central securities depositories and central counterparties and on transparency requirements for issuers of securities admitted to trading on a regulated secondary market."
Two. The normative reference contained in Article 1 is adapted, which shall read as follows:
"This Royal Decree aims to develop Royal Legislative Decree 4/2015, of October 23, approving the consolidated text of the Securities Market Law, insofar as it refers to the representation of securities by means of book-entry, to the clearing, settlement and registration of securities, to the legal regime of central counterparties and central securities depositories and to the transparency obligations of issuers whose securities are admitted to trading on a regulated secondary market."
Three. The normative references contained in Article 2 are adapted, which shall read as follows:
"1. The representation of negotiable securities, understood as those mentioned in Article 2.1 of the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23 (hereinafter, securities) by means of book-entry, shall be governed by the provisions of the aforementioned consolidated text, and by this Royal Decree.
2. Central counterparties shall be governed by 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 and their corresponding implementing and delegated acts, as well as by Royal Legislative Decree 4/2015, of October 23, and by this Royal Decree and its corresponding implementing acts and Royal Legislative Decree 1/2010, of July 2, approving the Consolidated Text of the Capital Companies Law, without prejudice to the special provisions provided in the cited provisions, as well as any other applicable legislation from the legal order or European Union Law.
3. Central securities depositories shall be governed by Regulation (EU) No 909/2014, of July 23, 2014, on improving securities settlement in the European Union and central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 and their corresponding implementing and delegated acts, as well as by Royal Legislative Decree 4/2015, of October 23, and this Royal Decree and its corresponding implementing acts and Royal Legislative Decree 1/2010, of July 2, approving the Consolidated Text of the Capital Companies Law, without prejudice to the special provisions provided in the cited provisions, as well as any other applicable legislation from the legal order or European Union Law."
Four. Paragraph 3 of Article 4 shall read as follows:
"3. The deadline for the submission of titles for transformation shall be fixed in the agreement referred to in paragraph 1 and published in the "Official Bulletin of the Mercantile Registry" and on the website of the issuer, when it is legally obliged to maintain such website, and shall not be less than one month nor more than one year."
Five. The normative reference contained in paragraph 3 of Article 5 is adapted, which shall read as follows:
"3. Once the reversal is authorized, the entity in charge of the accounting register in accordance with Articles 8.1 of the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23, and 31 of this Royal Decree, shall deliver to the holders the corresponding titles, holding the status of custodian with respect to them."
Six. The normative reference contained in paragraph 1 of Article 7 is adapted, which shall now read as follows:
"1. The representation of securities by means of book-entry shall be recorded in the issuance document in accordance with Article 7 of the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23."
Seven. The normative reference contained in paragraph 2 of Article 8 is adapted, which shall now read as follows:
"2. Before such first registration, the issuer shall deposit another copy of the issuance document with the National Securities Market Commission, which shall proceed to incorporate it into the public register contemplated in Article 238.c) of the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23."
Eight. Paragraph 2 of Article 10 shall read as follows:
"2. Without prejudice to its possible publication in the "Official Bulletin of the Mercantile Registry", the modification shall be made public on the website of the issuer, when it is legally obliged to maintain such website."
Nine. Paragraph 1 of Article 11 shall read as follows:
"1. In the case of State debt issuances, those of the Autonomous Communities, of local entities and their public bodies and affiliated or dependent entities, the publication of the characteristics of the issuance in the corresponding official bulletins shall exempt from the obligations relating to the issuance document contemplated in the previous articles.
Such publication in the official bulletins shall have the status of issuance document for the purposes of this Royal Decree."
Ten. The normative reference contained in paragraph 3 of Article 12 is adapted, which shall read as follows:
"3. The registered securities shall be subject to the rules provided in Chapter II of Title I of the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23."
Eleven. The normative reference contained in paragraph 6 of Article 13 is adapted, which shall read as follows:
"6. The provisions of this article shall be understood without prejudice to compliance with the requirements, regarding the transfer of financial assets, established by tax legislation, as indicated in Articles 314 and 315 of the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23."
Twelve. The normative reference contained in paragraph 2 of Article 20 is adapted, which shall read as follows:
"2. When the entity in charge of the accounting register is a central securities depository in accordance with Article 8.3 of the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23, the certificates shall be issued:
a) By the central securities depository with respect to the securities of the accounts referred to in Articles 32.1.a), 32.1.c) and 32.2.
In the case of securities of the accounts referred to in Article 32.1.c), the issuance by the central securities depository shall be at the request of the participating entity managing said account prior to the request of the client holder or beneficiary. b) By the participating entities of the central securities depository with respect to the securities of the detail register accounts referred to in Article 33."
Thirteen. Article 30 shall read as follows:
"Securities admitted to trading on a regulated secondary market for securities or on a multilateral trading facility shall necessarily be represented by means of book-entry."
Fourteen. The last paragraph of paragraph 1 and paragraph 2 of Article 32 shall read as follows:
"In the scope of clearing and settlement procedures, specialities applicable to this type of accounts may be established when used by certain financial intermediaries who transitorily clear operations for their subsequent transmission to the definitive account. Such specialities shall be subject to regulation in the regulations and internal rules of the central counterparties, central securities depositories and, where applicable, markets and multilateral trading facilities."
"2. The Minister of Economy, Industry and Competitiveness shall establish the entities that may request an individual direct custody account at the central securities depository in which their securities shall be annotated in a segregated manner in the central register and the conditions under which this shall be carried out. These entities shall be public administrations in accordance with Article 2.3 of Law 40/2015, of October 1, on the Legal Regime of the Public Sector."