Capital markets and structured investments

There are restrictions on offering and selling debt securities under both Spanish and EU law.

Unless certain exclusions or exemptions apply, it is unlawful to offer debt securities to the public in Spain or to request that they are admitted to trading on a regulated market operating in Spain unless an approved prospectus has been made available to the public.

The most common types of debt securities issued in Spain are bonds or notes issued on a stand-alone basis or under a program.

Many different types of debt securities are offered in Spain. Some common forms include:

• debt securities characterized by the type of interest or payment such as fixed-rate securities, floating-rate securities, variable-rate securities, zero-coupon securities and high-yield bonds;
• guaranteed securities, subordinated securities, perpetual debt securities (i.e. debt securities that have no specified redemption date);
• asset-backed securities;
• derivative securities such as securities linked to the value of one or more reference asset including shares, commodities, interest rate, currency rate or index, and credit-linked notes;
• hybrid securities (securities with both debt and equity features);
• equity-linked securities such as convertible bonds (debt securities convertible into the equity of the issuer);
• exchangeable bonds (debt securities convertible into the equity of a third party);
• depositary receipts (a security issued by a depositary conferring on the holders beneficial ownership of certain underlying assets held by the depositary for the holders); and
• warrants (securities giving the holders the option to purchase the equity of the issuer or a related company).

In Spain, the Real Decreto Legislativo 4/2015, de 23 de octubre, por el que se aprueba el texto refundido de la Ley del Mercado de Valores (Securities Market Law) considers as financial instruments all transferrable securities of public or private persons or entities and grouped in issues (an issuance of such securities is required). A transferable security is defined as any in rem right, regardless of its nature, which, due to its legal configuration and rights of transfer, is capable of being traded on a financial market.

In general, debt securities which are also considered transferable securities include (but are not limited to):

• internationally issued bonds (bonos de internacionalización);
• bonds, debentures and similar securities representing part of a debt claim, including those which are convertible or exchangeable;
• mortgage covered bonds, mortgage bonds and mortgage participations;
• asset-backed securities;
• money market instruments (which means all categories of instruments which are normally traded on the money market, such as treasury bills, certificates of deposit and commercial paper, except those issued on a unique basis and excluding instruments of payment deriving from preceding commercial transactions that do not involve the capture of repayable funds);
• preference shares;
• territorial covered bonds; and
• warrants and any other derivative transferable security giving the right to acquire or sell any other transferable security or giving the right to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities, credit risk or other indices or measures.

The legal regime on public offerings of securities in Spain is governed by the Regulation (EU) 2017/1129 of 14 June 2017 on the prospectus to be published when securities are offered to the public and admitted to trading on a regulated market (Prospectus Regulation), the Securities Market Law and Real Decreto 1310/2005, de 4 de noviembre, por el que se desarrolla parcialmente la Ley 24/1988, de 28 de julio, del Mercado de Valores, en materia de admisión a negociación de valores en mercados secundarios oficiales, de ofertas públicas de venta o suscripción y del folleto exigible a tales efectos (Royal Decree 1310/2005).

Definition of public offering

According to the provisions of Article 35 of the Securities Market Law and Article 38 of Royal Decree 1310/2005, an ‘offer of securities to the public’ or ‘public offering’ means a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe for those securities.

Any offer of securities in Spain which is deemed to be considered as ‘public’ under the terms of the above referred definition, would entail the obligation for the issuer to have approved by and filed with the Comisión Nacional del Mercado de Valores (Spanish Securities and Exchange Commission, CNMV), an informative prospectus (folleto informativo), comprising:

• a registration document (documento de registro) disclosing information about the issuer;
• a securities note (nota de valores) describing the main terms and conditions of the offering; and
• a summary note (resumen) thereto (the Prospectus) (the Prospectus should be published through the CNMV's website).

Exceptions to the definition of public offering

Notwithstanding the above, according to the provisions of Article 35 of the Securities Market Law and Article 38 of Royal Decree 1310/2005, the obligation to publish a prospectus would not apply to the following types of offerings (which, therefore, will not be considered as public offerings):

• an offer of securities exclusively addressed to qualified investors (as defined below);
• an offer of securities addressed to less than 150 natural or legal persons per EU member state, without including the qualified investors;
• an offer of securities addressed to investors who acquire securities for a minimum amount of €100,000 per investor, for each separate offer;
• an offer of securities the unit par value of which is not less than €100,000; and
• an offer of securities where the total consideration of the offer is less than €5 million within the EU, which limit shall be calculated over a period of 12 months.

Private placement

As opposed to a public offering, a private placement entails an offer to a relatively small number of selected investors as a way of raising capital. Every offer that does not qualify as a public offering will be considered a private placement. Thus, when any of the exceptions described above apply, the offer will not qualify as a public offering in Spain and, therefore, the issuer will not be required to complete any registration or filing or obtain any approval or consent from the CNMV, as Spanish competent authority, or from the relevant market, for making the offer available to investors in Spain.

Qualified investors

For the purposes of the exceptions referred to above, the principal categories of ‘qualified investors’ under Spanish law include:

• financial institutions and other entities which are required to be authorized or regulated to operate in the financial markets by a state, irrespective of whether it is a member state or a non-member state, including credit institutions, investment firms, insurance and reinsurance companies, collective investment schemes and their management companies, private equity funds, closed-ended investment schemes and their management companies, pension funds and their management companies, securitization funds and their management companies, commodity and commodity derivatives dealers and other institutional investors;
• national and regional governments, public bodies that manage public debt, central banks, international and supranational institutions such as the World Bank, the International Monetary Fund, the European Central Bank, the European Investment Bank and other institutions of a similar nature;
• companies meeting at least two of the following capacity requirements on an individual basis:
  • total balance sheet total equal to or above €20 million;
  • annual net turnover equal to or above €40 million; and
  • own funds equal to or above €2 million;
• institutional investors, beyond those specified in the bullet point above, whose main activity is to invest in securities and other financial instruments; and
• individuals and small- and medium-sized companies which request in advance to be treated as qualified investors and expressly waive their treatment as retail customers, and which are registered as such in the relevant client registries of the relevant entities providing investment services.

Under the Prospectus Regulation, unless an exemption applies, it is necessary to publish a prospectus where there is an offer of securities to the public or an application for the securities to be admitted to trading on a regulated market.

For more information, see Issuing and investing in debt securities – investor considerations.

If the offer is deemed not to be made to the public, a Prospectus Regulation compliant prospectus may still be required if an application is made for the securities to be admitted to trading on a regulated market. An exemption from both the offer to the public and the admission to trading on a regulated market is needed to avoid having to publish a prospectus.

The main exchanges on which debt securities are traded in Spain are:

• the AIAF Mercado de Renta Fija, S.A.U. (AIAF); and
• the Mercado Alternativo de Renta Fija’ (MARF).

AIAF

AIAF is the Spanish regulated market for corporate debt and private bonds integrated in Bolsas y Mercados Españoles (BME is the holding company of the Spanish regulated exchanges), the Spanish securities markets operator. AIAF is a regulated market and is under the control and supervision of the public authorities in respect of its operation, admission to trading and disclosure of information.

MARF

MARF is the Spanish alternative bond market and considered as an alternative funding resource where different solvent companies may raise funds through the issuance of bonds. MARF adopts the legal structure of a multilateral trading facility (MTF), hence, it is considered as non-official market, similar to those that may be found in other European countries. Thus, the access requirements of MARF are more flexible than the requirements for regulated markets and, as a consequence, MARF has a greater flexibility and lower costs throughout the issuance process.

Securities which may be admitted to trade in the MARF are those exclusively targeted to qualified investors and whose nominal value is of a minimum amount of €100,000 (i.e. they do not fall under the requirement to publish a prospectus).

There is no private placement market in Spain.

However, every offer that does not qualify as a public offering is considered a private placement (as stated in Issuing and investing in debt securities – investor considerations).

Issuing debt securities

Issuers are responsible for the information contained in the prospectus, and they may face both civil and criminal liability in respect of the inaccuracy of such information.

With respect to civil liability, the civil liability of the Issuer relates to the content of the prospectus and is contained in article 38 of the Securities Markets Law and articles 32 to 37 of the Royal Decree 1310/2005. However, this liability is only applicable when Spain is the home member state (i.e., when the Comisión Nacional del Mercado de Valores (Spanish Securities and Exchange Commission, CNMV) is the competent authority approving the prospectus).

In relation to criminal liability, the Spanish Organic Act 10/1995, dated 23 November, on the Criminal Code (the Criminal Code) includes a specific criminal offence which may affect issuers if the relevant securities are admitted to trading in a Spanish regulated market or multilateral trading facility. Article 282 bis of the Criminal Code provides that:

‘[T]hose who, as de facto or de jure managers of a company that issues securities admitted to trading on securities markets, falsify the economic-financial information contained in a prospectus used to issue any financial instruments or information that the company must publish and make known pursuant to securities market legislation, concerning its resources, activities and present and future business, in order to attract investor or depositors to place any kind of financial asset, or to obtain financing by any means, shall be punished with a sentence of imprisonment of one to four years. Should the investment, deposit, placement of asset or financing be eventually obtained, causing damage to the investor, depositor, acquirer of the financial assets or creditor, the punishment shall be imposed in its upper half. Should the damage caused be sufficiently serious, the punishment to be imposed shall be one to six years imprisonment and a fine to be paid within six to twelve months.’

Investing in debt securities

Issuance of debt securities will qualify as a public offer, if:

• their terms and conditions are governed by Spanish law or by a non-EU or non-OECD country; and
• they are offered in Spain or admitted to trading in a Spanish regulated market or multilateral trading facility requiring a bondholder's syndicate and the appointment of a commissioner, who will be the legal representative of the bondholders' syndicate (there is also a requirement to convene investor meetings at the request of bondholders which represent, at least, 5%. of bonds issued and not repaid).

The directors of the issuer and the commissioner may convene investors meetings. The investors meetings have to approve any modification to the terms and conditions of the bonds by majority. A reinforced majority is required to the amendment to the term redemption conditions of the bonds, and conversion or exchange of the bonds.

Generally

Establishing a fund, offering fund securities and operating a fund, among other things, are regulated activities under the Collective Investment Schemes Law (CIS) Law and the Close-ended Collective Investment Law and are therefore subject to regulation by the Comisión Nacional del Mercado de Valores (Spanish Securities and Exchange Commission, CNMV).

The CIS Law regulates open-ended collective investment schemes. The Close-ended Collective Investment Law regulates close-ended collective investment entities.

Open-ended collective investment schemes

The CIS Law defines CIS as entities whose corporate purpose is raising funds, assets or rights from the public in order to manage and invest in assets, rights, securities or other instruments, financial or otherwise, provided that the investor's yield is established in accordance with the collective results.

Close-ended collective investment entities

The Close-ended Collective Investment Law defines close-ended collective investment as the investment carried out by venture capital entities and other collective investment entities whose divestment policy fulfils the following requirements:

• such divestments are made simultaneously for all investors; and
• the yield obtained by each investor is in accordance with the rights which correspond to each investor, according to the terms set forth in the by-laws or regulations of the entity for each class of shares or units.

Open-ended collective investment schemes (open-ended CIS)

Open-ended CIS can have the form of investment company or investment fund (separated pool of assets with no legal personality, belonging to a number of investors, whose management and representation is carried out by a management company).

Open-ended CIS can also be of a financial nature or not, depending on the investments made. Open-ended CIS of a non-financial nature are those which invest in real estate assets.

Open-ended CIS may have restrictions in their investments. Therefore, open-ended CIS can qualify as UCITS or as non-UCITS, for the purposes of the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC). Non-UCITS open-ended CIS are also called hedge funds. Hedge funds can be pure hedge funds or funds of hedge funds.

Close-ended collective investment entities

Close-ended collective investment entities can also take the form of an investment company or an investment fund. Close-ended collective investment entities can take two forms, depending on the nature of their investments:

• venture capital entities – which have as their corporate purpose the investment in non-listed companies different from financial or real estate companies; and
• other close-ended collective investment entities – which can invest in all kind of assets, in accordance with a defined investment policy.

All close-ended collective investment entities qualify as alternative investment funds, as per the definition of the Alternative Investment Fund Managers Directive (2011/61/EU).

Definition of marketing and reverse solicitation

Under the Collective Investment Schemes (CIS) Law and the Close-ended Collective Investment Law, offering/marketing of funds means attracting clients through an advertising campaign, by the CIS/close-ended collective investment entity or any other entity acting on its behalf or on the marketing entity's behalf, in order to raise funds, assets or rights to the CIS/close-ended collective investment entity.

For these purposes, marketing of funds shall be understood as any form of communication addressed to potential investors in order to promote, either directly or through third parties acting on behalf of the CIS/close-ended collective investment entity or on behalf of the management company of the CIS/close-ended collective investment entity, the subscription or acquisition of units or shares of the CIS/close-ended collective investment entities. In any case, there is marketing of funds when the CIS/close-ended collective investment entities or their management company approaches the investors through phone calls, home visits, personalised letters, emails or any other electronic means, which are part of a marketing and promotional campaign.

A marketing of promotional campaign in Spain means any campaign addressed to investors resident in Spain. In case of email or any other electronic means, the offer is deemed to be addressed to investors resident in Spain when the CIS/close-ended collective investment entity or their management company, or any person acting on their behalf through the electronic means:

• proposes the purchase or subscription of the shares or units; or
• furnishes to residents in Spain all the necessary information regarding the characteristics of the offer and how they can subscribe to the offer.

In light of the above, in the event that Spanish resident investors are contacted for the purposes of offering units or shares in a fund, this will be considered as marketing. If, on the contrary, a Spanish resident investor has requested the investment upon his/her own initiative, this would not be deemed as an offer (ie this would be a reverse solicitation).

Offering of funds to retail and professional investors

Open-ended CIS qualifying as UCITS can be offered/marketed to retail investors without limitation. However, non-UCITS open-ended CIS and close-ended collective investment entities can only be offered/marketed to professional investors with the following exceptions:

• funds of hedge funds can be offered to retail investors;
• hedge funds and close-ended collective investment entities can be offered/marketed to retail investors if:
  • such investors undertake to invest at least €100,000; and
  • such investors make an statement in writing declaring they are aware of the risks inherent with such investment (this exception is not applicable to hedge funds which invest in invoices, loans, or hedge funds which grant loans (these can only be offered/marketed to professional investors);
• venture capital entities can also be offered/marketed to retail investors if:
  • the investors are managers, directors or employees of the manager of the venture capital entity;
  • the investors ordinarily invest in listed venture capital entities; and
  • the investors have experience in these types of investments, i.e., management or advisory experience regarding a similar venture capital entity to that in which they want to invest in. 

Establishing funds

Managing funds is a regulated activity under the Collective Investment Schemes (CIS) Law and Close-ended Collective Investment Law and therefore subject to authorization. For more information, see Managing and marketing debt and hedge funds – marketing restrictions.

Unless an exemption or exclusion applies, a person entering into a derivatives contract by way of business in Spain (such as a dealer) will ordinarily have to be authorized under the Securities Market Law, as such activity would be deemed as dealing on own account on financial instruments.

One of the key exclusions to the requirements above applies to persons who only deal in derivatives for risk management purposes.

The European Market Infrastructure Regulation applies to all derivative transactions and requires transactions to be reported to regulators, for transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

Derivative contracts are entered into in Spain for a range of reasons including hedging, trading and speculation.

Derivatives may be traded over-the-counter or on an organized exchange.

All of the main types of derivative contract are widely used in Spain:

• forwards;
• futures;
• swaps (such as interest rate or currency swaps); and
• options (call options and put options).

The value of the derivative contracts is based on the value of the underlying assets. The main classes of underlying asset seen in Spain are:

• interest rates;
• equity;
• fixed income instruments;
• commodities;
• foreign currency; and
• credit events.

Since the global financial crisis in 2007-to-2008, derivatives and particularly over-the-counter derivatives have attracted significant regulatory attention. The European Commission has sought in particular, to:

• enhance transparency by requiring the provision of comprehensive information on over-the-counter derivative position;
• reduce counterparty risk by increasing the use of central counterparty clearing; and
• improve the management of operational risk by increasing the standardization of derivatives contracts.

As a result, the derivatives market has seen and continues to see the introduction of a significant amount of new regulation and this has led to substantial compliance costs for market participants.

There has been a number of national courts decisions (even from the Spanish Supreme Court confirming the jurisprudence) within the last years in relation to derivatives entered into with non-institutional/professional borrowers (mainly, consumers) in which the hedge provider has been sentenced to pay large sums given that, pursuant to the decisions, there was an error of understanding and a lack of information on the side of the borrower and, therefore, it executed the derivative not being duly aware of its possible consequences and costs (the courts understand that the providers, inter alia, breached any information requirements, ignored the financial knowledge of the customer and/or made available complex documentation and contracts without the due explanation of the underlying products). As a result, the institutions offering derivatives are nowadays really keen on their duties of information and clear documentation (including several pre-signing processes) and have ceased to offer certain kinds of products which were contentious.