• The objective is to comply with international standards on transparency, efficiency and stability
  • The sanctions are raised to a maximum of five million euros or 10% of the turnover for very serious cases
  • Commissions on regulated markets must be transparent, fair and non-discriminatory

The Council of Ministers has approved the Royal Decree-Law on measures for the transposition into Spanish law of the European Directive on Markets and Financial Instruments, known as MIFID II, regarding trading venues. With this decision, the operation of the financial markets in Spain is standardized with international standards, which implies improvements in aspects such as transparency, efficiency and stability of the markets. New corporate governance requirements are also introduced for the governing bodies of these markets in matters such as appointments and conflicts of interest. The penalties for non-compliance with the new regulations amount to a maximum of five million euros or 10% of the annual turnover in the case of very serious ones. It takes effect on January 3, 2018.

The RDL of urgent measures for adaptation to Spanish law to EU regulations on the securities market It contains a first part divided into three titles that include the rules for the organization and operation of regulated markets, multilateral trading systems (SMN) and organized contracting systems (SOC), as well as some provisions relating to the powers of the National Stock Market Commission (CNMV) that affects all types of markets. In a second part, the new sanctioning regime is included.

Regarding regulated markets, the operating and organization requirements imposed by MIFID II for the markets themselves and the governing bodies are included. These markets are what are known today as official secondary markets, for example, the Stock Exchanges, AIAF (fixed income), and MEFF (derivatives). The governing bodies will be responsible for ensuring compliance with the new requirements imposed under the supervision of the CNMV. In addition, they must have an appointments committee.

These markets will have to comply with new obligations in order to make them more transparent and efficient. Specifically, they must implement systems and procedures that allow the detection of conflicts of interest between its members, the market and the governing body; ensure orderly negotiation; ensure that there are enough market makers, which facilitates the depth and liquidity of the market; and allow the management of the operational risks to which they are exposed, such as the possible anomalies caused by algorithmic trading (that is, in which investment decisions are made by machines according to algorithms) or episodes of excessive volatility.

Commissions on regulated markets must be transparent, fair and non-discriminatory. Incentives will not be created to place, modify or cancel orders or to execute operations in a way that contributes to disturbing trading conditions or encourages market abuse practices.

Regarding trading on regulated markets, the governing bodies will have to comply with additional obligations to communicate the suspensions and exclusions to the competent authorities, aimed at guaranteeing the full effectiveness of the measure in different trading venues and different jurisdictions. They must also notify the CNMV of significant infringements of its rules, anomalies in the trading conditions or possible actions prohibited by the regulations on market abuse.

The RDL also includes the operating and organization requirements imposed by MIFID II on Multilateral Trading Systems (SMN) and Organized Procurement Systems (SOC), a newly created figure. The SMN are multilateral systems in which shares or fixed income are exchanged fundamentally between different agents. They function as alternative markets with lower requirements for issuers, and therefore, more accessible for smaller companies. In Spain they are the Alternative Stock Market (MAB) and the Alternative Fixed Income Market (MARF). SOCs are a multilateral system, which is not a regulated market or a multilateral trading system, in which the various interests of buying and selling bonds and obligations, securitizations, emission rights or derivatives of multiple third parties interact to give rise to to contracts.

The standard approved today allows investment services companies to establish SOCs; the rules that have been in force up to now only for the NMS also apply to the SOC; and the rules for access and operation of these two types of centers derived from MIFID II are determined. In general, SMN and SOC are enforced with some relevant obligations that are now imposed on regulated markets. In this way, certain operating requirements are applied such as: the obligation of systems resistance, the implementation of volatility management mechanisms, the provisions that regulate electronic trading and the obligation of synchronization of clocks, all of which are foreseen for the governing bodies from regulated markets. It also highlights the application in SMN and SOC of the rules on suspension and exclusion of financial instruments that must be met by regulated markets, and on monitoring compliance with the rules of these trading venues. Lastly, information obligations are added to the CNMV on the operation of SMN and SOC.

Also specific and new to the MIFID II are the specific requirements for SMN and the specific requirements for SOCs that are organizational in nature and adequately resourced. Likewise, the name “expanding SME market” is incorporated into our legal system for those in which SME shares are listed and meet certain requirements. These trading centers will have favorable regulatory treatment in European regulations and will allow them to promote SMEs' access to the capital market, improving their financing possibilities.

Finally, some articles are also included with the preventive measures that the CNMV may impose in relation to markets in other Member States when they operate cross-border in Spain and they do not comply with the regulations and the authority of the home Member State does not take sufficient measures .

The last part of the RDL develops the sanctioning regime. First, it is clarified that the provisions common to all sanctions that regulate aspects such as the instruction or prescription of sanctions continue to apply. Subsequently, the offenses are classified as very serious and serious and the penalties are established. The maximum limit of very serious penalties is raised following the provisions of the directive. Currently, this limit is 600,000 euros, five times the profit obtained, 5% of own resources, or of the funds used in the activity that gave rise to the offense, whichever is greater. It rises to 5,000,000 euros or 10% of the total annual turnover, whichever is greater. The same procedure is followed with serious infringements (2,500,000 or 5% of the annual turnover, compared to 300,000 or twice the profit obtained or 2% of the own resources or of the funds used in the current regime).

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