Royal Decree 878/2015, of 2 October: reform of the securities clearing, settlement and recording system and of the transparency regulations

Royal Decree 878/2015, on the clearing, settlement and recording of transferable securities represented in book-entry form, on the legal regime of the central securities depositaries and central counterparties, and on the transparency requirements for issuers of securities admitted to trading in a regulated market (“Royal Decree 878/2015”), which was published in the Spanish Official Gazette on 3 October 2015, meets the need to develop the latest amendments introduced in the Securities Market Act in matters of book-entries and clearing and settlement of securities, in addition to the need to adapt our legal system to a number of EU Law provisions.

The post-trading system is one of the key elements of the financial system. Its adequate functioning provides the indispensable legal certainty that is required to ensure the efficiency, competitiveness and stability of said financial system, as well as the protection of the investors. The reform of our post-trading system seeks to improve its efficiency and stability, in addition to equating the securities clearing, settlement and recording activities to those of the European markets, thus helping to reduce operational costs and improve the competitiveness of our markets, entities and infrastructures and, consequently, of the financial sector.

Royal Decree 878/2015, the larger part of which will come into effect on 3 February 2016, develops, on the one side, the reform of the securities markets initiated by Act 32/2011, of 4 October, which amended the Securities Market Act (“SMA“), by regulating and determining the elements upon which the new Spanish post-trading system is based, and, on the other, completes the transposition into the Spanish legislation of the EU Parliament and Council’s Directive 2013/50/EU, of 22 October 2013, on issuers’ transparency and information requirements (“Directive 2013/50/EU“).

The different elements of this Royal Decree shall be progressively applied as the regulations of market infrastructures itemizing the most technical and operational aspects of the securities clearing, settlement and recording Spanish system are approved. 

Reform of the post-trading systems. Royal Decree 878/2015 develops the SMA in the following aspects:

• the representation of the securities through book-entries, thus defining the structure and operation of the Spanish securities system which is structured by way of a two-level system;

• the clearing and settlement of securities, setting out common provisions applicable to central counterparties and central securities depositaries, as well as special provisions concerning the centralized clearing of transactions and the subsequent settlement of securities; and

• the legal regime of market infrastructures, that is, central counterparties and central securities depositaries. 

Royal Decree 878/2015 will replace Royal Decree 116/1992, of 14 February, on the representation of securities through book-entries and the clearing and settlement of stock exchange transactions, whose legal regime will remain virtually unaffected, as the main change will focus on the reversibility of securities’ representation through book-entry and the requirements to be complied with regarding the issuance delivery document. 

Reform of the transparency regulations. Royal Decree 878/2015 completes the transposition into the Spanish legislation of Directive 2013/50/UE, which was already initiated with the amendment of article 53.3 of the SMA implemented by the first final provision of Law 11/2015, of 18 June.

The reform focuses on:

• the review, among other issues, of the periodicity and content of the reports to be prepared by the issuers of securities admitted to trading in European regulated markets (e.g.: an increase, from 5 to 10 years of the period allowing the public to access the annual financial report and biannual reports; an the increase from 2 to 3 months of the term to disclose the first biannual report, which shall be applied to all reports published after 20 December 2015, or the inclusion, starting from 4 October 2015, of the report on any payments to the public administrations referred to in the tenth additional provision of the Audit Act, as part of the regulated information to be provided by some issuers);

• amendment of part of the definition of Spain as home Member State so as to provide it with a more thorough description;

• broadening of the definition of financial instruments subject to notification, by including those instruments that have a similar financial effect to that of shareholding, regardless of whether these shall be liquidated by means of a tangible delivery of shares or in cash;

• a new criterion to calculate the thresholds that make it mandatory to file a notification of major holding, according to which the number of voting rights corresponding to shares and the number of voting rights relating to any financial instruments that upon their maturity date confer an unconditional right to acquire shares with voting rights, must be aggregated, setting a specific formula for the accurate calculation of the latter; and

• the introduction of two new exemptions to the obligation of submitting the notification of major holding, so that there is no need to notify the voting rights held by an entity in a trading portfolio, provided that these do not exceed 5% of the voting rights and are not used to intervene in the issuer’s management, or those acquired in order to stabilize financial instruments.

The fourth transitory provision of Royal Decree 878/2015 sets out a 15-day term starting from the date these amendments come into effect, that is, 27 November 2015, for any individual who is under the obligation to notify major holdings to inform the National Securities Market Commission (CNMV) of their percentage of voting rights.