Back to Securities Law Committee publications

Gabriel Núñez
Uría Menéndez, Madrid
gabriel.nunez@uria.com

Enrique Nieto
Uría Menéndez, Madrid
enrique.nieto@uria.com

Álvaro López
Uría Menéndez, Madrid
Alvaro.lopez@uria.com

In 2020, several regulatory developments relating to capital markets were approved in Spain. Some of these changes have already entered into force this year, while other will do so in early 2021.

This article will focus on the following regulatory developments:

• the procedure to report inside information and other relevant information to the Spanish National Securities Exchange Commission (Comisión Nacional del Mercado de Valores or CNMV);
• the amendment of certain provisions established by the CNMV affecting the regulation of liquidity agreements subscribed by Spanish listed companies;
• the proposal submitted by the CNMV for the amendment of the Good Governance Code of listed companies; and
• other general amendments related to market abuse and offering and admission prospectuses applicable to all issuers.

Disclosure of inside and other relevant information

Traditionally, issuers of securities listed on the Spanish regulated markets have reported both inside and other relevant information through the so called hechos relevantes (relevant fact announcements or HSR), by means of the HSR procedure available for issuers in the CNMV’s electronic platform. Content of these announcements varied significantly, from information with a true impact on the relevant share trading price to other information absolutely superfluous from this perspective.

The approval and entry into force of the European Market Abuse Regulation (MAR), which broadly regulates the implications and consequences of classifying an information as inside information (in relation, for instance, to reporting obligations, delayed disclosure, market soundings, insider lists and so on), led to an amendment in November 2018 of the Spanish Securities Markets Act to distinguish between:

• the disclosure of inside information, as this concept is defined in MAR (as per Articles 226 of the Spanish Securities Markets Act and 17 of MAR); and
• disclosure of other relevant information, defined as financial or corporate information relating to the issuer or its securities that the issuer is obliged to publish pursuant to a legal provision or that, due to its special interest, its disclosure among investors is deemed necessary (as per Article 227 of the Spanish Securities Markets Act).

Other relevant information includes:

• changes to rights associated to classes of shares or securities;
• calls for shareholder meetings;
• reporting related-party transactions;
• information relating to total number of voting and capital rights;
• approval of the regulations of the general shareholders meeting and the board of directors; and
• other relevant information which may be of interest to investors.

Notwithstanding the referred amendment of the Spanish Securities Markets Act, the channels and procedures available for issuers to submit relevant fact announcements was not modified. Therefore, issuers continued submitting both inside information and other relevant information through the HSR procedure. The legal framework and the procedures available for its implementation were not entirely coordinated.

It was not until 8 February 2020 when the update of the list of procedures before the CNMV’s electronic platform was implemented. As a consequence of the implementation of this measure, the procedure to submit the broadly used hechos relevantes is generally no longer available.

In turn, as from the referred date, the CNMV’s electronic platform includes a new comunicación de información privilegiada (CIP) procedure, through which issuers must report inside information – pursuant to Articles 226 of the Spanish Securities Markets Act and 17 of MAR – if it is disclosed as soon as possible or, if its disclosure has been delayed, without prejudice to the fulfilment of the requirements that allow for this delay.

This measure also introduces the new Comunicación de otra información relevante, regulada y corporative (DIS) procedure, through which issuers must report all other financial or corporate information that any provision requires them to disclose or that, due to its special interest, its disclosure among investors is deemed necessary.

The implementation of this measure has an important impact from a practical perspective. Whereas issuers had been disclosing any kind of information through the HSR procedure until 8 February 2020, as from this date the market will be able to clearly identify the information that the issuer considers to be inside information as it will be disclosed by a specific and differentiated channel.

These new procedures emphasise the importance of complying with MAR and Implementing Regulation (EU) 2016/1055, when disclosure of inside information is delayed, as it relates to:

• observing the requirements contained in Article 17.4 of MAR;
• keeping records of dates and times when the inside information first existed, when the decision to delay was adopted and when the issuer is likely to disclose the inside information;
• keeping records of the identity of the persons making the decision to delay disclosure of the inside information, ensuring the monitoring of the conditions for the delay, making the decision to disclose the inside information and providing information to the regulator about the delay; and
• keeping evidence of the fulfilment of the conditions referred to in Article 17.4 of MAR.

In this regard, the new CIP procedure for the disclosure of inside information provides for the obligation to indicate:

• whether such disclosure has been delayed or not;
• the type of information and its reference number;
• the date on which the inside information first existed;
• the date on which the decision to defer reporting was made; and
• the person or body responsible for the decision to defer reporting.

These details will not be made public. According to Article 229 of the Spanish Securities Markets Act, records in relation to explanation of the fulfilment of the conditions referred to in Article 17.4 of MAR shall only be provided to the CNMV upon its request.

Amendment of the regulation of liquidity agreements

The CNMV has enacted Circular 2/2019 of 27 November 2019. This modifies CNMV Circular 1/2017 of 26 April 2017 on liquidity contracts effective as of 30 March 2020, in order to establish a new maximum limit for the daily trading volume under liquidity agreements entered into by companies that have an illiquid market (as defined under Regulation (EU) No 600/2014 on Markets in Financial Instruments (MiFIR)) whose shares are traded either under a fixing trading system or on a multilateral trading facility (such as the Spanish Alternative Market or Mercado Alternativo Bursátil (MAB) in Spain).

According to the new rule established in Circular 2/2019, the referred maximum daily trading limit under said liquidity agreements is now equivalent to the higher of:

• 25 per cent of the average daily volume traded in the preceding 30 trading sessions; and
• €20,000 per trading session in which the liquidity contract operates.

From a formal perspective, it is not necessary for companies having subscribed liquidity agreements before 30 March 2020 according to the template provided by the CNMV under the previously mentioned Circular 1/2017 to amend them in order to reflect this new trading volume limit, since such standardised template regulates this matter by reference to the regulation in force.

Proposal for the amendment of the Good Governance Code for listed companies

During the first quarter of 2020, the CNMV submitted to public consultation a proposal for the amendment of the current Spanish Good Governance Code for listed companies (Código de Buen Gobierno or CBG). According to the referred proposal, the CNMV intends to implement, among others, the following amendments into the CBG.

There are a number of changes intended to reinforce control mechanisms and provide listed companies with tools that allow them to better handle situations affecting their reputation and that of their directors and officers. Thus, companies’ boards would be encouraged to act immediately in potential situations of irregular practices affecting a director which could damage the company's reputation, rather than waiting for formal prosecution to start.

The functions of the listed companies’ audit committees would be reinforced in order to assign them the task of supervising the preparation of non-financial information, responsibility over the systems of control and management of non-financial risks, and the duty to implement internal control policies and systems.

Directors resigning before the end of their term in office would now be encouraged to provide the board with sufficient details of the reasons for their resignation. Listed companies would be encouraged to make this information (or the reasons behind a director’s removal from office) public as soon as possible if this information is relevant to investors.

Likewise, a number of changes are also proposed in order to further regulate and promote the diversity in the composition of listed companies’ boards of directors. A direct recommendation for directors of the least represented sex to be represented by a minimum of 40 per cent of the total number of directors is proposed. Additionally, a company’s director selection policies would be encouraged to promote the appointment of an appropriate number of women to senior management positions (with a view to them potentially becoming executive directors in the future).

Provided that the proposed amendments are formally approved, they could become applicable for the first time to the annual corporate governance reports to be drawn up in 2021 in relation to the 2020 financial year.

General amendments related to market abuse and offering and admission prospectuses

Finally, it is necessary to note that there are certain amendments affecting all EU jurisdictions’ issuers in Regulation (EU) 2019/2115 of the European Parliament and of the Council of 27 November 2019 as regards the promotion of the use of SME growth markets. These amend MAR and Regulation (EU) 2017/1129 of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the Prospectus Regulation).

The amendments to the MAR, which will come into effect on 1 January 2021, involve Articles 11 and 18. Article 11 of MAR, which regulates market sounding processes, will establish that the reporting of inside information in the context of bond issuances addressed to qualified investors does not need to follow the market sounding process when such disclosure is made for purposes of negotiating the contractual terms and conditions of the investors' involvement in the issuance. This notwithstanding, the issuer will still need to ensure that the recipients of the information know and acknowledge in writing the obligations that receiving the information entails, as well as the related sanctions, so that the communication is deemed to be made in the normal exercise of a person’s employment, profession or duties.

The language of Article 18 of MAR, which regulates insider lists, has been amended in order to clarify that the obligation to draw up and maintain insider lists also applies to persons acting in the name and on behalf of the issuers (such as, external advisors).

The referred amendments to the Prospectus Regulation, which are already in effect, intend to avoid the abusive use of the exemption to the obligation of publishing a prospectus in the case of securities:

• offered in an acquisition through an exchange offer, or
• offered or allotted in connection with a merger or spin-off.

The amended Prospectus Regulation clarifies and emphasises that such exemptions are only applicable to companies that were already listed before the acquisition or transaction, provided an equivalent document has been published. Therefore, unlisted companies wishing to request the admission to listing of their shares on a regulated market are still obliged to publish a prospectus in accordance with the provisions of the Prospectus Regulation, even if the admission takes place as a result of any of the said exceptions.