Discretionary treasury stock transactions under suspicion

The Criteria were recommendations issued by the CNMV on trading conditions and transparency, in order to prevent or mitigate potential risks of market abuse arising from discretionary treasury stock transactions. The CNMV set out certain parameters related to, among others, the total daily volume of trades in treasury stock, the adequate price range, periods in which the trading orders were acceptable to be placed or executed or the recommended disclosing practices. The Criteria did not constitute a safe harbour for market abuse purposes but they aimed, when followed, to proper price discovery and to enhance market transparency and investor protection. In this sense, they were not legislation or mandatory provisions but the rules and requirements that the CNMV would follow in its supervision activities. 

However, the CNMV considers that, once Regulation 596/2014 on market abuse (MAR) entered into force, the Criteria are hardly compatible with such Regulation. Since transactions on treasury stock entail a risk for market integrity, the CNMV has decided to adopt a restrictive approach: from now on, only stabilisation transactions or buyback programs (considered safe harbours under MAR) are protected transactions against market abuse. In addition, transactions under liquidity contracts in conformity with CNMV Circular 1/2017 are accepted market practices that do not imply market manipulation either. Any other trading on treasury stock will be subject to the measures that may be adopted by the CNMV to verify compliance with the market abuse provisions under MAR.

This may have a serious impact on some extended market practices related to issuers’ own shares, in particular, derivatives or collaterals on treasury stock. This decision will apply to those transactions conducted after 13 January 2020. However, there will be some cases that may need to be carefully analysed, in particular, transactions executed in accordance with agreements entered into before 13 January 2020, where the Criteria were considered a standard for market abuse compliance, but whose trade execution will continue after the Criteria are no longer valid. In this sense it is advisable to review and adapt those agreements to include an appropriate risk assessment for this type of transactions.

In any case, discretionary trading on treasury stock is not forbidden although transactions will be subject to a more intense scrutiny by the Spanish regulator in order to detect any indicator of market manipulation or insider dealing. Flagging market manipulation indicators, in accordance with the manipulative behaviours specified under MAR (art. 12), along with, for example, the implementation of black-out periods for the execution of orders over treasury stock could be relevant precautionary measures to adopt for this kind of transactions.