The year in review: capital markets in France

An extract from The Worldwide Capital Markets Assessment, eleventh Version

The yr in assessment

i Impression of the covid-19 pandemic

As a consequence of the covid-19 pandemic, a state of well being emergency was declared in France by Legislation No. 2020-290 of 23 March 2020 for a interval of two months, which was then prolonged till 10 July 2020.

On this context, a number of ordinances had been adopted by the French authorities to adapt the French authorized framework to the pandemic. Among the many measures adopted had been the extension of sure deadlines and the suspension of termination clauses, together with the next:

1. extension of authorized and contractual deadlines: sure deadlines (for authorized actions, formalities, registrations, declarations) have been prolonged through the state of well being emergency;
2. suspension of termination and penalty clauses through the state of emergency: penalty clauses, termination clauses and forfeiture clauses sanctioning contractual non-performance are rendered ineffective through the state of well being emergency;
3. extension of sure administrative or judicial deadlines: varied administrative or jurisdictional delays whose time period expires through the state of well being emergency have been mechanically prolonged till the expiry of a two-month interval on the finish of the state of well being emergency;
4. extension of the discover interval for renewable contracts: the discover interval for renewable contracts (i.e., contracts that could be terminated solely throughout a specified interval or mechanically renewed if not rejected inside a specified interval) expiring through the state of well being emergency is prolonged till after the tip of the state of well being emergency. Thus, the notification of non-renewal of a contract could also be given inside two months of the tip of the state of well being emergency interval; and
5. modification of the French insolvency regime (see Part II.v).

ii Latest developments affecting debt and fairness choices

Latest developments primarily relate to the implementation of the Prospectus Regulation on 21 July 2019 and to the emergence of a brand new regulation concerning cryptocurrencies, tokens and associated transactions (preliminary coin choices (ICOs)).

Modification of the French authorized and regulatory framework following the entry into power of the Prospectus Regulation on 21 July 2019

Geared toward facilitating entry to the market by firms with out compromising on the knowledge communicated to traders, the Prospectus Regulation (and two delegated rules) totally entered into power on 21 July 2019. The Prospectus Regulation offers, inter alia, that:

1. Member States can exempt gives of securities to the general public with a complete consideration within the European Union of between €1 million and €8 million (calculated over a 12-month interval) from the requirement to publish a prospectus; on this respect, France determined to exempt gives of securities under the brink of €8 million from the publication of a prospectus;
2. a common registration doc detailing the issuer’s enterprise and monetary place could also be filed with a reliable authority yearly. This doc could then be integrated by reference into the prospectus. This mechanism (which has existed in France for a few years) would allow issuers to have their prospectuses accredited extra shortly by a reliable authority; and
3. the prospectus abstract is to be shortened to a most size of seven A4 pages. A set format might be required, primarily based on the important thing data doc for packaged retail and insurance-based funding merchandise (PRIIPS), with 4 most important sections specifying the next:
   • introductory warning language;
   • key details about the issuer;
   • key details about the securities; and
   • key details about the supply of securities to the general public and admission to buying and selling.

The entry into power of the Prospectus Regulation resulted in a revamping of the French public providing regime. This reform has been formalised by Ordinance No. 2019-1067 of 21 October 2019, Decree No. 2019-1097 dated 28 October 2019 and an order dated 7 November 2019. Moreover, a number of amendments to French regulation and the RG-AMF had been crucial for the proper ‘adverse’ implementation below French regulation of the Prospectus Regulation. The rationale behind these modifications was as follows:

1. to stipulate the results below French regulation of the change within the definition of the general public providing of securities as it’s now conceived by the Prospectus Regulation. The Prospectus Regulation really extends the definition of gives to the general public to incorporate gives not beforehand thought-about to be gives to the general public below French regulation (reminiscent of personal placements). Given this new definition, French rules need to be tailored with the target particularly of permitting, with out extra constraint, the continuation of personal placements and crowdfunding gives; and
2. to make sure the adverse transposition of the Prospectus Regulation: this adverse transposition entails, particularly, deleting or modifying quite a few articles of the M&FC and of the RG-AMF which have now been changed by straight relevant provisions of the Prospectus Regulation. As well as, French rules have additionally been tailored to implement into home regulation the choices left to the discretion of Member States and, particularly, the brink under which no prospectus is required. France has chosen to exempt issuances of lower than €8 million from the requirement for publication of a prospectus.

On June 2020, the AMF issued a brand new handbook entitled ‘Information to getting ready prospectuses and knowledge to be supplied within the occasion of a public providing or admission to buying and selling of economic securities’. This information is split into three sections: data to be supplied in prospectuses; data to be supplied if no prospectus is required; and AMF positions and proposals concerning the several types of transactions (reminiscent of IPOs and mergers).

It must be famous that in response to the extreme financial disaster ensuing from the covid-19 pandemic, the European Fee proposed a laws package deal that might, inter alia, modify the Prospectus Regulation to create a brand new ‘EU Restoration Prospectus’ – a sort of short-form prospectus – to facilitate the elevating of capital in public markets.

Registration of securities via the usage of blockchain

France was the primary nation to introduce the obligatory and normal dematerialisation of securities as early as 1984. In view of ongoing initiatives in Europe geared toward strengthening the combination of securities markets and at adopting a typical method to securities regulation, Ordinance No. 2009-15 was revealed on 8 January 2009. Via the enactment of this reform, the French legislature sought to modernise French securities regulation and reinforce its attractiveness, competitiveness and safety. Tendencies on transfers of possession, pledges, repurchased transactions, securities loans and safety for monetary obligations are introduced collectively in Ebook II, Title I, Chapter I. A distinction is made in respect of economic devices between securities (together with each fairness and debt devices issued by inventory firms, and participations in collective funding undertakings, all of that are prone to being credited to a securities account) and monetary contracts (which correspond in essence to derivatives and ahead monetary devices). Key modifications concentrate on strengthening possession rights over securities credited to a securities account and defending bona fide acquirers of securities.

Ordinance No. 2017-1674 of 8 December 2017 launched a major change to the laws regarding the possession and switch of securities by permitting and recognising the validity of transfers of non-listed securities via a shared digital recording machine, which refers back to the blockchain know-how additionally known as distributed ledger know-how. This digital registration has acquired the identical authorized worth as a book-entry registration, and the kind of registration is chosen by the issuer. Decree 2018-1226 dated 24 December 2018 supplied implementing provisions for this new regime. This authorized innovation made France a pioneer nation within the acknowledgment and use of blockchain-based providers.

ICOs

The PACTE Legislation launched into French laws a brand new authorized framework for fundraising through the issuance of tokens (ICOs) that aren’t labeled as monetary devices. Beforehand, no particular guidelines utilized to fundraising via the issuance of tokens. The PACTE Legislation offers the initiators of a venture the choice to submit an data doc to the AMF to acquire an optionally available visa, topic to the token challenge assembly the necessities outlined under.

A token is outlined by the PACTE Legislation as any intangible property representing, in digital type, a number of rights that could be issued, registered, retained or transferred via a shared digital recording machine that identifies, straight or not directly, the proprietor of that property (i.e., blockchain).

An ICO consists of proposing to the general public, in any type in any respect, subscription to those tokens. An ICO that’s open to subscription by a restricted circle of fewer than 150 traders, appearing on their very own behalf, just isn’t thought-about a public supply of tokens.

Token issuers who want to perform an ICO could apply for an approval from the AMF, which can confirm whether or not the providing offers the next ensures:

1. the token issuer is integrated as a authorized entity established or registered in France;
2. an data doc (generally known as a white paper) has been drawn up in accordance with Article 712-2 of the RG-AMF and with AMF Instruction DOC-2019-06;
3. the issuer has carried out a process enabling the monitoring and safeguarding of the funds raised by the ICO; and
4. the token issuer has put in place a system to make sure compliance with its obligations regarding anti-money laundering and combating the financing of terrorism.

In March 2020, the AMF launched its authorized evaluation of the principles making use of or more likely to apply to safety token transactions (STOs) reminiscent of issuances of safety tokens, acquisitions of safety tokens by funds, and settlement and supply of safety tokens; the evaluation discusses whether or not such transactions adjust to present rules (each EU and French) or whether or not modifications to the rules are required to permit a harmonised improvement of STOs. The AMF concluded that STOs had been typically compliant with present laws however the laws may very well be improved to extend authorized certainty. The AMF was one of many first authorities throughout Europe to conduct such an evaluation.

Following this report, the AMF additionally issued a place to supply some clarification concerning the excellence between the idea of a buying and selling venue (relevant particularly to monetary securities registered in a distributed ledger) and that of a bulletin board (used to promote shopping for and promoting pursuits). This clarification was awaited by sure platforms and different members within the monetary sector searching for to develop STO alternate interfaces in compliance with present rules however with out the requirement to acquire monetary service supplier authorisation from the ACPR and the AMF.

Digital asset service suppliers

The PACTE Legislation introduces a brand new regulatory framework making use of to digital asset service suppliers (DASPs): it creates an optionally available licence for DASPs, which represent a brand new class of regulated service suppliers licensed and positioned below the supervision of the AMF.

The time period ‘digital property’ encompasses tokens issued via an ICO and digital currencies, as outlined by European regulation (reminiscent of bitcoin). Monetary devices are excluded from this regime.

Particularly, the next actions could also be carried out by DASPs:⁷

1. custody of digital property for third events;
2. buy or sale of digital property towards authorized tender or different digital property (broker-dealers);
3. operation of a digital property buying and selling platform (inventory alternate); and
4. different digital property providers such because the reception and transmission of third-party orders, third-party portfolio administration, recommendation, underwriting and inserting on or with out a agency dedication foundation.

Licensed service suppliers might be topic to a set of core guidelines widespread to all providers (e.g., insurance coverage or fairness, inner management procedures, resilient IT system and clear pricing coverage) in addition to a sure variety of guidelines particular to the service provided.

As an exception to the above, service suppliers that want to present digital asset custody providers to 3rd events or to buy or promote digital property in alternate for authorized forex are topic to obligatory registration with the AMF. Decree No. 2021-446 of the 15 April 2021 specified that for digital property, suppliers who present a custody service or service of shopping for and promoting digital property should submit their organisation and inner process towards cash laundering, for the aim of their registration, to the French ACPR.

Extra not too long ago, The AMF launched Article 721-1-1 in its normal regulation, which defines the situations below which a digital asset service is taken into account to be supplied in France. Thus, a digital asset service is taken into account to be supplied in France when it’s supplied by a digital asset service supplier with services in France or on the initiative of the digital asset service supplier to clients residing or established in France. Such specification permits the willpower of whether or not a given digital property service supplied shall be regulated and supervised below French regulation.

Transposition below French regulation of the Directive No. 2020/1504 of seven October 2020 on the regulation of the actions of European suppliers of crowdfunding providers

Ordinance No. 2021-738 of 9 June 2021 transposed the aforementioned directive below French regulation. The aim of this directive is to harmonise the principles relevant to suppliers of crowdfunding providers. Thus, present platforms that want to proceed to supply crowdfunding providers can have till 10 November 2022 to acquire authorisation as a European supplier of crowdfunding providers. In France, this regime will largely change that of crowdfunding advisers and crowdfunding intermediaries.

Transposition of the Lined Bonds Directive

The Ordinance of 30 June 2021 transposes Directive (EU) No. 2019/2162 of 27 November 2019, generally known as Lined Bonds, below French regulation. The ordinance ensures the flexibility of French establishments the next:

1. to combine several types of property within the cowl pool;
2. to mobilise claims between the originating establishment and the establishment issuing the lined bonds by means of pledge or promissory observe moderately than by excellent sale; and
3. to challenge lined bonds with extendable maturities.

Sustainable finance

A decree of 27 Might 2021 was adopted to specify the brand new data necessities for asset managers and traders to proceed the trouble to combine and disseminate data associated to local weather change and biodiversity erosion in funding methods. The decree specifies the areas of the combat towards local weather change. Within the space of biodiversity preservation and restoration, every entity should present a technique for alignment with the long-term biodiversity targets set for 2035 and each 5 years thereafter. The entity should additionally contribute to the discount of the principle pressures and impacts on biodiversity. To attain this, the entity should use a biodiversity footprint indicator to measure compliance with worldwide biodiversity targets.

Latest overseas funding regime modifications

The PACTE Legislation goals at strengthening the sanction regime regarding overseas funding screening by offering the Minister of Financial system with a wider scope of sanctions and enforcement powers.

Particularly, as soon as a overseas investor fails to file for and acquire an funding authorisation when required by French rules, along with civil sanctions of nullity, the Minister could, below the brand new guidelines, challenge an injunction requiring the investor to file an utility for funding authorisation, abandon the transaction and restore the earlier state of affairs at his or her personal bills or modify the transaction.

Moreover, new powers are vested with the Minister of Financial system in instances the place situations linked to a overseas funding authorisation are usually not fulfilled or are breached by an investor. Remedial measures embrace the revocation of an preliminary authorisation, the imposition of recent situations to be complied with inside a specified timeframe or the duty to fulfill preliminary situations.

In instances the place nationwide pursuits are more likely to be jeopardised, the Minister has the precise to take provisional, conservatory measures to guard nationwide pursuits. These could embrace:

1. a suspension of voting rights;
2. a prohibition or limitation on the distribution of dividends or different remuneration connected to shares;
3. a restriction on the free disposal of all or sure property; or
4. the appointment of a consultant authorised to veto any resolution of a company physique whose bills are lined by an organization involved.

Upfront of the PACTE Legislation, the federal government adopted a decree in November 2018 that got here into power on 1 January 2019. This decree expands the prior authorisation regime to new strategic sectors reminiscent of these involving area operations, digital and laptop techniques required for public safety functions and knowledge storage actions, and analysis and improvement within the fields of cybersecurity and synthetic intelligence.

Extra not too long ago, a decree dated 31 December 2019 additional strengthened the French overseas funding management regime. Inter alia, the decree expanded the listing of strategic sectors (i.e., sectors during which overseas investments require authorisation) to incorporate vitality storage, quantum applied sciences, and media and agriculture. It additionally amended the prior discover process to permit traders to ask the French authority whether or not the actions carried out by the goal entity fall into the strategic sector class. As well as, the brink for triggering the authorisation process has been lowered from 33 per cent to 25 per cent of the goal’s voting rights for traders established exterior the EU or EEA. The ideas of ‘investor’ and ‘chain of management’ have additionally been clarified.

As a response to the covid-19 pandemic, Decree No. 2020-892 dated 22 July 2020 lowered the brink under which prior authorisation was required in respect of listed firms, from 25 per cent to 10 per cent however solely till 31 December 2020.

iii Developments affecting derivatives, securitisations and different structured productsDerivatives and the Netting Legislation

The French netting regime of derivatives (i.e., the Netting Legislation) is ruled by the provisions of Article L211-36 to L211-40 of the M&FC, which transposed into French regulation the EU Collateral Directive, as amended. It’s relevant, inter alia, to monetary obligations ensuing both from transactions on monetary devices (throughout the that means of Articles L211-1-I and D211-1A of the M&FC) if at the least one of many events to the transactions is a qualifying get together (credit score establishments, funding providers suppliers, and many others.), or from any contract giving rise to money settlement or to supply of economic devices if each events to the contract are qualifying events.

So far as transactions involving monetary devices are involved, Article L211-1 of the M&FC defines monetary devices (which embrace monetary securities reminiscent of shares and different securities issued by inventory firms; debt devices, aside from fee devices and mortgage notes; and models or shares in collective funding undertakings) and monetary contracts (often known as ahead monetary devices, that are additional outlined in Article D211-1-A of the M&FC)).

If each events are qualifying events below the Netting Legislation, the scope of qualifying transactions is wider and contains any monetary obligations that consequence from any contract giving rise to money settlement or to supply of economic devices. Accordingly, all monetary obligations ensuing from transactions on monetary devices are included within the scope of qualifying transactions in that case.

Article L211-36-II of the M&FC extends the scope of utility of the Netting Legislation to devices that won’t fall throughout the scope of the definition of economic devices below MiFID II.⁸ Article L211-36-II of the M&FC offers that, for the only real functions of the Netting Legislation, choices, futures, swaps and any ahead contracts aside from these talked about in Article L211-1-III of the M&FC (i.e., MiFID-qualifying ahead monetary devices) are thought-about as ahead monetary devices supplied that they provide rise, within the context of buying and selling, to registration by a recognised clearing home or to periodical margin claims.

Word that the Banking Reform contemplates that when exercising rights accessible below the decision instruments vested within the ACPR, the ACPR could order the switch of a number of enterprise models by operation of regulation below the regime of common switch of patrimony to a 3rd get together, or of asset rights and obligations to a bridge establishment. It’s specified that, however any authorized or contractual provision on the contrary, contracts associated to transferred actions are continued, and no termination or set-off could happen solely on account of a switch or project.

It’s additional specified that transactions ruled by contracts lined by Article L211-36-1 of the M&FC (which covers transactions on monetary devices, together with derivatives, repos and securities lending transactions), when transferred below the decision software regime to a 3rd get together or to a bridge establishment, could solely be transferred as a complete. Termination rights (close-out netting) might not be exercised solely primarily based on a decision measure having been executed, except a switch carried out in accordance with the train of decision powers doesn’t make provision for such contracts. Moreover, within the train of its decision authority, the ACPR could elect to droop the train of termination and shut treatments below contracts ruled by Article L211-36-1 in respect of all or a part of the related contract concluded with the entity below decision till midnight on the enterprise day following the publication of the ACPR’s motivation for the suspension.

When contracts have been transferred as acknowledged above, throughout the scope of the train by the ACPR of its decision authority, in our view this may allow the train of termination rights post-transfer within the occasion of the incidence of a post-transfer default.

Preparations are additionally stipulated to make sure that such a switch could not have an effect on the operation of techniques ruled by Article L330-1 et seq. of the M&FC (overlaying interbank fee techniques and supply versus fee designated techniques the place solely a part of however not all property, rights and obligations are transferred to a different individual on this manner).

The French netting and collateral regime has not too long ago been modified by the Sapin II Legislation, which prolonged the French close-out netting regime to monetary obligations between a CCP, a clearing member and a consumer; permits third events to submit collateral; and offers an efficient segregation of collateral posted as preliminary margin pursuant to Article 11 of the European Market Infrastructure Regulation (EMIR).

The collateral alternate necessities apply to monetary entities dealing in derivatives and to non-financial companies whose derivatives positions exceed the clearing threshold. They apply to all OTC spinoff contracts that aren’t centrally cleared. They’re progressively taking impact, following an agreed schedule that began in February 2017.

The PACTE Legislation introduces new measures particularly regarding derivatives:

1. the PACTE Legislation extends the fabric scope of the Netting Legislation provisions described above to numerous operations, together with, inter alia, models talked about at Article L. 229-7 of the Surroundings Code, overseas alternate spot transactions and transactions on valuable metals (together with gold and silver);
2. in view of an anticipated termination of the passport rights of UK credit score establishments after Brexit, the PACTE Legislation offers a mechanism of ‘replication’ of the grasp agreements executed with UK credit score establishments which are at present in power; this mechanism will permit, below sure situations, the events to such grasp agreements to terminate the prevailing agreements and execute comparable agreements with an EU (non-UK) credit score establishment; and
3. it offers a derogation to Article 1343-2 of the French Civil Code regarding the compounding of curiosity (pursuant to which the capitalisation of curiosity is permitted solely the place stated curiosity has accrued for at the least one yr); this derogation permits the compounding of pursuits on intervals shorter that one yr when calculated pursuant to a market grasp settlement.

Implementation of EMIR

EMIR was revealed in 2012. It impacts all entities energetic within the EU derivatives market whether or not they use derivatives for buying and selling functions, to hedge themselves towards a selected threat or as a part of their funding technique.

EMIR imposes three most important obligations on market members, specifically:

1. clearing through a CCP of sure OTC derivatives entered into between sure market members;
2. reporting of all spinoff transactions to a commerce repository that had been entered into since, or that had been excellent on, 16 August 2012; and
3. subjecting OTC derivatives that aren’t cleared through a CCP to threat mitigation obligations, which embrace, particularly:
   • the well timed affirmation of transactions;
   • performing of day by day mark-to-market valuations of transactions;
   • having dispute decision processes in place;
   • participating in portfolio reconciliation;
   • contemplating portfolio compression; and
   • exchanging collateral.

The ultimate stage of implementation of EMIR (i.e., collateral necessities for non-centrally cleared derivatives) has progressively taken impact from February 2017.

Necessary central clearing is a threat mitigation approach. When a contract is cleared, a CCP is interposed between the 2 events to an OTC spinoff contract. The intention of clearing is to advertise monetary stability by lowering counterparty credit score threat (as events develop into uncovered to the CCP’s credit score threat as an alternative of one another’s) and operational burdens, in addition to growing transparency and standardising the default administration course of. The clearing obligation below EMIR will solely apply if the related OTC spinoff is of a category that has been declared topic to the clearing obligation by the European Fee and the European Securities and Market Authority (ESMA) and is entered into between any mixture of economic counterparties (FCs) and non-financial counterparties (NFCs) which are above sure thresholds (NFC+s) (or sure entities established exterior the European Union that might be an FC or NFC+ in the event that they had been established throughout the EU).

Notably, in a choice of 24 January 2020, the enforcement committee of the AMF sanctioned for the primary time an funding service supplier for failing to adjust to its skilled obligations below EMIR. It outcomes from the choice that the AMF strictly controls the compliance with the shape and procedures supplied by EMIR by CCPs and, particularly, it’s anticipated that they keep sturdy compliance operate. An efficient compliance operate should be capable of perform common checks and correct assessments and detect compliance dangers. The compliance operate should guarantee an intensive and traceable in concreto evaluation of every EMIR relevant requirement and may alert administration to present deficiencies, in order that they’ll take acceptable motion to treatment them.

Cryptocurrency derivatives

On March 2018, the AMF launched a authorized evaluation that it had carried out on cryptocurrency derivatives. On account of this evaluation, in sure instances, cryptocurrency derivatives could also be labeled as monetary devices pursuant to Article D211-1 A I of the M&FC, and due to this fact are topic to the associated regulation thereof, particularly the requirement for members who market these merchandise to be regulated and to be authorised to supply funding providers, compliance with EMIR and a ban on promoting on sure monetary contracts.

Securitisation and the skin-in-the-game rule

Within the wake of the 2008 monetary disaster, rules concerning the calculation of capital necessities of credit score establishments and funding companies have been amended to incorporate a 5 per cent retention requirement for originators of securitisations.

This retention requirement, sometimes called the skin-in-the-game rule, was initially set out in two separate units of amendments to the Capital Requirement Directive (known as CRD II and CRD III), and transposed below French banking rules by means of an modification to an Order dated 20 February 2007.

The provisions of Regulation (EU) 2017/2402 of 12 December 2017 lay down a normal framework for securitisation and creating a particular framework for easy, clear and standardised securitisation, which entered into power on 1 January 2019. This Regulation establishes, inter alia, harmonised due diligence and transparency necessities for traders. It additionally prohibits resecuritisations and creates a label and a authorized framework for easy, clear and standardised securitisations, which permits preferential prudential therapy. Extra importantly, it establishes a brand new direct obligation to retain a 5 per cent materials internet financial curiosity. Implementing and delegated acts of this textual content are nonetheless awaited.

The duty for the originator, sponsor or unique lender to retain a 5 per cent stake is a cloth consideration for establishments resorting to securitisation, and one which will affect the urge for food of market members for the acquisition of securities in such a securitisation.

Creation of financing autos and modernisation of securitisation laws

In Ordinance No. 2017-1432, of 4 October 2017, which entered into power on 3 January 2018, the French legislature created a broad class of debt funds named ‘financing autos’, regrouping the prevailing securitisation autos (OT) and a brand new class of regulated funds named specialised financing autos falling throughout the scope of the AIFMD which will profit from the European long-term funding fund label.

This Ordinance additionally launched the chance for French securitisation funds to grant loans to non-financial firms and to enter into mortgage sub-participations. These funds may profit from the Dailly Legislation project regime, which is a simplified manner of transferring skilled receivables that was previously reserved to credit score establishments.

Moreover, as a response to the covid-19 pandemic, the European Fee has proposed encouraging a broader use of securitisation within the restoration part, by liberating up financial institution capital and supporting banks of their efforts to boost lending to households and companies. The amendments would lengthen the ‘easy, clear and standardised’ framework to on-balance-sheet artificial securitisation and take away regulatory obstacles to the securitisation of non-performing exposures.

Excessive-frequency buying and selling

The Banking Reform regulates high-frequency buying and selling (HFT) by specifying that any individual utilizing computerized buying and selling techniques should:

1. report back to the AMF the use that has been fabricated from such techniques to generate, purchase and promote orders of securities issued by firms which have their head workplace in France;
2. be sure that the order directed to a regulated market or a multilateral buying and selling facility is traceable;
3. preserve a file of any aspect permitting a hyperlink to be established between a given order and the algorithms used to find out that order; and
4. preserve a file of the algorithms used to elaborate the orders transmitted to the markets, and transmit these algorithms to the AMF upon request.

As well as, the Banking Reform offers for brand spanking new duties relevant to market operators or individuals who function multilateral buying and selling services to make sure that their techniques have the capability to deal with the variety of orders generated by computerized buying and selling techniques, in order to allow orderly buying and selling below extremely risky market situations. There should be mechanisms in place to allow the suspension or rejection of orders exceeding set thresholds or in any other case within the occasion of manifestly faulty trades. There should be procedures instead of such a nature as to take care of the orderly functioning of the markets.

New guidelines on algorithm buying and selling: MiFID II

Algorithm buying and selling and HFT have been regulated by the M&FC since MiFID II was transposed into French regulation on 23 June 2016. The entry into power of the Directive, which was delayed till 3 January 2018, offers for:

1. the implementation of a harmonised regime of minimal tick sizes primarily based on the value and liquidity of shares, deposit certificates and alternate traded funds traded on European buying and selling platforms;
2. the strengthening of the organisational necessities of market actors utilizing algorithm buying and selling to make sure their buying and selling techniques’ resilience. These necessities embrace imposing on funding firms the duty to inform the competent authority and take a look at the algorithms they use, and for buying and selling platforms to implement the mandatory measures to allow the realisation of those exams, the identification of the algorithms utilized by their members by marking orders or the suspension of the availability of direct digital entry by a member. Market actors utilizing HFT are topic to the duty to take care of and ship, on request, to the competent authority their order knowledge;
3. the supervision of the market-making exercise with the introduction of widespread minimal necessities relevant to anybody wishing to train this exercise, and necessities to make sure that machine platforms are truthful and non-discriminatory and supply for incentive mechanisms throughout stress intervals; and
4. the supervision of the price buildings of buying and selling platforms that must be clear, truthful and non-discriminatory.

Buying and selling of agricultural commodities

The Banking Reform introduces new rules with a view to combating extreme hypothesis in relation to buying and selling of agricultural commodities. The AMF is vested with the authority to set, as from 1 July 2015, thresholds of positions {that a} single individual could maintain in monetary devices, the underlying property of which embrace an agricultural commodity. In 2017, it issued a number of positions setting the place limits for sure commodities traded on Euronext (Place 2017-12) and Powernext (Place 2017-11). The AMF can even be accountable for specifying exemptions to the thresholds the place positions are taken for hedging functions.

Moreover, individuals whose positions exceed thresholds specified within the RG-AMF for monetary devices that embrace underlying property of an agricultural commodity might be topic to particular day by day reporting to the AMF. Aggregated positions might be revealed weekly by the AMF.

iv Circumstances and dispute settlementNon bis in idem

The French Constitutional Council, in a landmark resolution following the jurisprudence of the European Courtroom of Human Rights in its Grande Stevens resolution, dominated on 18 March 2015 that the identical individual might now not be prosecuted and sentenced twice for a similar info by the AMF, the enforcement committee and a French felony courtroom.⁹

In its resolution, the Constitutional Council thought-about the authorized provisions setting out felony prosecution for insider buying and selling offences and people offering for administrative prosecution for insider buying and selling breaches to be unconstitutional on the grounds that the felony and administrative definitions of insider buying and selling are comparable, intention at punishing the identical info and defend the identical public curiosity.

Till this resolution, and in accordance with beforehand well-established jurisprudence, cumulating each administrative and felony sanctions was deemed per the French Structure, supplied, nevertheless, that the overall penalties didn’t exceed the utmost attainable quantity below both offence.

The 18 March 2015 Constitutional Council resolution was deemed to have a right away impact, together with on people who had already been sentenced or prosecuted by the AMF or a French felony courtroom.

Questions remained as to how and when felony courts would align their case regulation; in two selections dated 6 and 18 Might 2015, the Paris Legal Courtroom utilized this new precept to cumulative prosecutions below market abuses the place the AMF had already prosecuted the case, even when defendants had not been sanctioned by the AMF (this was notable within the EADS case). These selections concern insider buying and selling instances however also needs to cowl market manipulation and false information-spreading offences.

The censored provisions had been amended by a regulation dated 21 June 2016 that reorganised the M&FC regarding market manipulation. The brand new provisions keep a duality of procedures with administrative and felony prosecutions however create a referral mechanism to make sure that an individual just isn’t prosecuted and condemned twice for a similar acts. Subsequently, a prosecutor can not convey a felony prosecution for insider buying and selling when the AMF has already began an administrative prosecution towards the identical individual and for a similar offence. Equally, the AMF can not begin an administrative sanction process when the prosecutor has already began a felony prosecution for a similar market manipulation. Nevertheless, each the AMF and the felony courts can begin prosecutions after mutual session. Within the absence of an settlement, each events are heard by the Common Prosecutor of the Paris Courtroom of Attraction, who renders a choice on permitting the felony proceedings.

You will need to level out that this regulation additionally modifies the sanctions relevant for market manipulation by elevating them to 5 years’ imprisonment and as much as €100 million in fines. This quantity could also be elevated as much as 10 instances the quantity of the profit derived from the manipulation, with out the advantageous being inferior to this profit.

Derivatives: liabilities of economic intermediaries

Quite a lot of instances have additionally addressed the difficulty of the responsibility of a monetary middleman to tell its counterparty of the way in which will probably be remunerated in respect of hedging preparations regarding commodities. In a single case, the difficulty at stake was the establishing by a financial institution, on the request of its consumer, of hedging transactions towards a decline within the nickel value within the type of zero-premium choices. The consumer was difficult the underwriting and implementation situations of those transactions. The Paris Courtroom of Attraction, in a choice dated 26 September 2013, dominated that the financial institution had the responsibility to tell its consumer of the way in which it was going to be remunerated and ordered the financial institution to pay damages (US$8 million) to its consumer for breach of its responsibility of data.

In its resolution dated 17 March 2015, the French Supreme Courtroom quashed the Courtroom of Attraction resolution and referred the events earlier than the identical, however in another way composed, Courtroom of Attraction.

The Supreme Courtroom dominated particularly that the Courtroom of Attraction breached Article 1147 of the Civil Code by contemplating that the financial institution was certain by an obligation to tell its consumer of the strategies it was utilizing to attract profit from the transactions.

On 4 Might 2010, the Supreme Courtroom dominated on a matter arising from Lehman-related prime brokerage transactions, during which Lehman Brothers Worldwide (Europe) (LBIE) acted as prime dealer for a French different funding fund (AIF) and a French credit score establishment acted as a depository.¹⁰ Following the LBIE insolvency, the funding fund requested that the credit score establishment act as a depository to redeliver the property to fund traders below prime brokerage with LBIE. The credit score establishment had filed an attraction towards an AMF injunction to redeliver these property. The Paris Courtroom of Attraction upheld the AMF injunction and the Supreme Courtroom confirmed that call, all primarily based on overriding public coverage concerns. It additionally dismissed on the identical grounds defences raised below the provisions of Article 5.2 of the EU Collateral Directive concerning resort by the collateral taker to the treatment of set-off the place the safety collateral association so offers. The Supreme Courtroom disapplied the provisions of the prime brokerage settlement in respect of the precise of use that prohibited the resort to setting-off the worth of equal collateral towards the discharge of economic obligations.

The legal responsibility of a depository within the context of a French AIF utilizing prime brokerage providers is ruled by the provisions of Ordinance No. 2013-676, of 25 July 2013,¹¹ which transposes the AIFMD into French regulation.¹²

Margin disclosure obligations making use of to funding service suppliers

The problem of whether or not an funding service supplier is required to reveal its remuneration and revenue margins to its counterparty contracting get together has been topic to a number of judicial selections in France. In a choice dated 26 September 2013, the Paris Courtroom of Attraction thought-about that an funding service supplier ought to inform shoppers of banks’ margins regarding the hedging transaction they’d entered into. Nevertheless, this resolution was overruled by the Supreme Courtroom in a judgment dated 17 March 2015, the place the judges thought-about that the funding service supplier, as a celebration to a hedging settlement towards the chance of fluctuation in commodity costs, was not required to reveal the anticipated revenue to the opposite get together.

UBS case: solicitation on the French territory

One notable case in 2018 and 2019 within the French judicial panorama was the UBS case. On this case, UBS AG was discovered responsible by the French Courtroom of First Occasion of Paris of illegal solicitation of shoppers on the French territory and serving to them to implement tax evasion schemes, and was sentenced to pay €3.7 billion in penalties and €800 million in damages. The Courtroom additionally discovered the French department of UBS responsible of complicity in the identical unlawful conduct, ordering it to pay €15 million in penalties.

These penalties might represent a turning level within the judicial repression of banking and monetary establishments concerned in illicit actions. Moreover, penalties of this quantity are with out precedent in France. As a comparability, in the identical case, the French Prudential and Management Authority¹³ imposed a €10 million penalty on UBS France,¹⁴ and in a case just like UBS, to settle a long-running investigation into costs of the identical type, HSBC agreed in 2017 to pay €300 million via a judicial public curiosity settlement, which is the French equal of a US deferred prosecution settlement, launched by the Sapin II Legislation.

Though UBS lodged an attraction, the Courtroom of First Occasion resolution may be an indication that illegal monetary solicitation in France might be repressed judicially in future.

Reverse solicitation

In an attention-grabbing resolution of the 30 April 2021, the enforcement committee of the AMF offers a whole evaluation of the notion of reverse solicitation that outcomes from the implementation of Article 42 of the MIFID 2 below French regulation, pursuant to which funding providers suppliers from a 3rd nation could present funding providers to clients situated within the European Union/European Financial Space, if the solicitation for the availability of the service comes from them. On this resolution, the AMF specifies that the requests for data from shoppers and regarding AIF shares are synthetic and formal in nature, and that they don’t make it attainable to characterise a reverse solicitation: these requests had been formulated as normal letters of data requests that had been despatched by the monetary funding advisor to its shoppers. It additional specifies that ‘the character of the reverse solicitation, by nature unpredictable and on the sole initiative of the consumer, just isn’t appropriate with the usage of such a doc, supplied upfront.’

Euro medium-term notes qualification

Euro medium-term notes (EMTNs) are debt devices which have a shorter maturity than bonds and that bear a set or floating rate of interest or a yield linked to an index or a system, and a reimbursement quantity that’s mounted, variable or linked to a system or index. Though EMTNs are usually not straight regulated by French regulation, it’s generally admitted that they fall throughout the class of debt securities throughout the that means of Article L 211-1 of the French Financial and Monetary Code.

In a case introduced earlier than the Paris Courtroom of Attraction, it was argued by an investor who purchased an EMTN via its life insurance coverage contract {that a} structured EMTN doesn’t qualify as a bond (obligations) since its reimbursement quantity may very well be for lower than its nominal quantity and thus was not a monetary instrument eligible to life insurance coverage contracts. The Courtroom of Attraction adopted this reasoning and condemned the insurer to pay damages to the investor. This resolution was quashed by the French Courtroom of Cassation in a choice of 23 November 2017 on the grounds that the qualification of a safety as a bond (obligations) just isn’t topic to the complete reimbursement of the related safety.

This resolution clarified a debated authorized challenge in a manner that brings extra authorized certainty as to the authorized and tax regime concerning EMTNs in France.

Market data and insider dealing

In 2018, the sanction board of the AMF rendered a number of selections concerning insider dealing.

Particularly, in a choice of the AMF enforcement committee of 24 October 2018, the AMF dominated that data of the forthcoming publication of a press article giving substance to a hearsay could represent inside data, supplied that this data meets the situations of precision, non-publicity and vital affect on the inventory value. These situations had been met within the case at hand in view of the fame of the journalist and the precision of the hearsay, and the context of the market made this hearsay credible and due to this fact delicate for the market. Nevertheless, the hearsay itself was not deemed to be inside data.

With the data of a hearsay being thought-about inside data, a journalist on the supply of such data would due to this fact be thought-about an insider and couldn’t disclose such data aside from for the aim of journalism. By disclosing this data to a single individual, the journalist within the case at hand breached the duty to chorus from disclosing or utilizing inside data and dedicated a market abuse.

On account of this case, and in accordance with Article 21 of the Market Abuse Regulation (MAR) concerning disclosure or dissemination of data within the media, for an authority to evaluate whether or not a journalist has dedicated a market abuse, the authority should assessment the code of conduct making use of to the journalist and assess whether or not it prohibited the way in which the journalist handled the monetary data that she or he had produced or disseminated.

In a choice dated 11 December 2019, the press company Bloomberg LP was fined €5 million by the enforcement committee of the AMF for having disseminated, with out verification, data that it ought to have recognized to be false and more likely to set the value of the shares of a listed firm (Vinci) at an irregular or synthetic degree. This resolution implies that the safety afforded to journalists below the MAR is conditional upon them appearing in good religion to supply data that’s precise and credible.

Extra not too long ago, in an necessary resolution of 1 April 2020, the felony chamber of the Courtroom of Cassation dominated in an insider dealing case that French authorities have jurisdiction to prosecute and decide an inside deal the place not one of the shares involved within the underlying transactions had been admitted to buying and selling on a French regulated market (the issuer within the case was listed in New York). This resolution implies that the reference to the ‘regulated markets’ within the French provision prohibiting insider dealing just isn’t restricted to French regulated markets and extends to all regulated markets, due to this fact permitting an expansive interpretation of the scope of the offence of insider dealing below French regulation.

Market manipulation

Over the previous few years, the AMF enforcement committee has additionally rendered a number of selections concerning market manipulation.

Provisions concerning market manipulation had been supplied within the RG-AMF which have now been changed by equal provisions of the MAR. In a case dated 16 July 2018, the enforcement committee of the AMF had the chance to make clear how MAR provisions might solely apply to market manipulations that occurred earlier than the MAR’s entry into power if the provisions are extra lenient in accordance with the precept of retroactivity in mitius.

The market manipulation that was sanctioned on this case was carried out on the MATIF, which is the regulated marketplace for derivatives merchandise in France, and resulted particularly from promote orders positioned by an organization on a futures contract ‘within the final 10 seconds earlier than closing, at a distance very near the final purchaser restrict . . . on the smallest attainable quantity and having a interval of validity restricted to the identical day’. This method was repeated every day for greater than 4 months with just a few exceptions, and had the impact of lowering the bid ask unfold.

Though promoting orders weren’t cancelled, they’d little probability to be executed, and due to this fact the AMF assimilated the low likelihood of the promote orders to the cancellation of an order. The market manipulation was due to this fact evidenced as, in accordance with Article 12.1(a) of MAR, the transactions consisted in inserting an order to commerce or every other behaviour ‘which provides, or is probably going to provide, false or deceptive alerts as to the provision of, demand for, or value of, a monetary instrument’.

In a choice dated 4 December 2019, the enforcement committee of the AMF dominated that it had jurisdiction over a market manipulation case that came about exterior France (in London). The market manipulation involved the large acquisition by Morgan Stanley Worldwide of futures in OATs (French bonds) and, a couple of minutes later, the sale of OATs (not the futures from the preliminary acquisition, however the bonds straight). French regulation offers that the AMF enforcement committee could have jurisdiction the place the market manipulation issues monetary devices traded on a regulated market supervised by the AMF and monetary devices associated to such monetary devices traded on such a regulated market. Subsequently, the truth that the sale transaction in query came about in London was irrelevant in figuring out the jurisdiction of the AMF enforcement committee because the French bonds had been traded on a French regulated market. Concerning the acquisition of futures, there remained doubt about whether or not the 2 monetary devices (i.e., the futures and the underlying OAT) had been ‘associated’ throughout the that means of the French regulation. The enforcement committee clarified that the time period ‘associated’ shall imply a factual (and never a authorized) hyperlink or relation between the 2 monetary devices. In consequence, because the futures had been factually associated to a monetary instrument (the OATs) admitted to buying and selling on a French regulated market, the enforcement committee had jurisdiction to sanction the market manipulation.

v Insolvency regulation

Insolvency, composition or rehabilitation proceedings in France are proceedings of judicial reorganisation and judicial liquidation ruled by the chapter provisions contained within the Business Code. Since 2006, these proceedings have been supplemented by a safeguard continuing on account of the enactment of Ordinance No. 2010-1249 of twenty-two October 2010 (the Safeguard Legislation), efficient from 1 March 2011. Pursuant to the Safeguard Legislation, the judicial reorganisation continuing, the judicial liquidation continuing and the safeguard continuing are supplemented by an accelerated monetary safeguard process, which permits a debtor to succeed in a voluntary restructuring settlement with its major monetary collectors (monetary establishments and bondholders) on an accelerated foundation. This corresponds roughly to the equal of a US Chapter 11 prepackaged reorganisation plan.

Ordinance No. 2014-326 of 12 March 2014 launched an accelerated safeguard continuing. Extra not too long ago, on account of the covid-19 pandemic, the French legislature collectively with the federal government enacted a number of acts to mitigate the consequences of the disaster on French firms. In that respect, Ordinance No. 2020-318 of 25 March 2020 launched a number of modifications to the French insolvency regime. Inter alia, this Ordinance offers that an organization in reorganisation, judicial liquidation or safeguard proceedings could profit from a full postponement or a staggering of its rents and its payments (water, fuel and electrical energy) for its skilled and business premises. The fee deadline should be between 12 March 2020 and 10 September 2020. No monetary penalty, suspension, interruption or discount of provides will apply throughout this era.

vi Position of exchanges, CCPs and ranking agenciesCCPs

Article L440-1 et seq. of the M&FC offers that clearing homes guarantee monitoring of positions, margin calls and, if want be, obligatory liquidation of positions. A clearing home is required to have the standing of a credit score establishment, and its working guidelines are accredited by the AMF, the French markets and the securities regulator.

The Banking Reform modifies the authorized regime relevant to French clearing homes, with specific consideration to the situations below which, within the occasion of default by a participant, a clearing home could switch the place and collateral of the participant’s shoppers to a different participant.

Relations between the clearing home and members are ruled by contract. Banque Centrale de Compensation is an LCH SA entity licensed as a financial institution via which clearing operations are carried out, working below the LCH commerce identify.

LCH SA immediately is an entirely owned subsidiary of LCH Group Holdings Ltd, of which 57.8 per cent of the shares are owned by the London Inventory Alternate.

LCH SA has been designated by the Minister of Finance as a system below the EU Settlement Finality Directive as transposed in France below Article L330-1 et seq. of the M&FC.

To cut back the systemic threat posed by derivatives in compliance with G20 commitments regarding clearing standardised OTC derivatives, EMIR was adopted and got here into power on 16 August 2012. It lays down clearing and bilateral threat administration necessities for OTC spinoff contracts, reporting necessities for spinoff contracts and uniform necessities for the efficiency of the actions of CCPs and commerce repositories.

LCH SA, below its Rule Ebook, ensures efficiency with regard to its members. The ACPR assimilates a clearing home to a fee infrastructure.

As talked about above, Banque Centrale de Compensation is licensed as a financial institution or credit score establishment for the needs of the EU Banking Directive. As such, it is usually topic to obligatory reserve obligations below the European Central Financial institution (ECB) Regulation.¹⁵

Beneath the provisions of the M&FC, it’s obligatory for a clearing home to be licensed as a credit score establishment, and this has been confirmed by the Banking Reform.

Being topic to order necessities additionally entitles Banque Centrale de Compensation to ECB cash.¹⁶

Though already topic to EMIR, a CCP can also be topic to complete necessities, together with within the areas of capital and compliance. These necessities fall brief, nevertheless, of requiring {that a} CCP be licensed as a credit score establishment. Authorisation as a CCP is granted by the competent authority of the Member State during which it’s established.

Ranking companies

The French regulatory setting regarding ranking companies is ruled by Regulation (EC) No. 1060/2009 on credit standing companies of 16 September 2009, as modified by Regulation (EU) No. 513/2011 issued on 11 Might 2011, which reinforces the direct supervision and management powers restricted within the first model (the Ranking Regulation).

The Ranking Regulation imposes the next duties on ranking companies:

1. to keep away from conflicts of curiosity and to require an more and more excessive diploma of independence from stakeholders throughout the ranking course of;
2. to enhance ranking high quality by attaining increased requirements in respect of methodology;
3. to enhance governance and inner controls of ranking companies; and
4. to introduce guidelines to enhance the transparency of the ranking course of concerning the rated entity as a sine qua non situation to advertise public confidence in monetary markets.

On 30 Might 2012, 4 Fee delegated rules establishing regulatory technical requirements for credit standing companies had been revealed. These technical requirements set out:

1. the knowledge to be supplied by a credit score rankings company in its utility for registration with ESMA;
2. the presentation of the knowledge to be disclosed by credit standing companies in a central repository in order that traders can evaluate the efficiency of credit standing companies in numerous ranking segments;
3. how ESMA will assess ranking methodologies; and
4. the knowledge that credit standing companies should undergo ESMA, and at what time intervals, for it to oversee compliance.

Rankings used both for regulatory functions or in a prospectus for use for admission to buying and selling on a regulated market should be issued by credit standing companies established within the European Group and registered in accordance with the Ranking Regulation. A credit score company could, topic to sure situations, endorse a credit standing issued abroad. Exemptions to endorsement are topic to sure situations, and credit standing companies searching for such an exemption should apply for certification.

It was additional supplied that, by 7 June 2010, every Member State ought to designate a reliable authority for the aim of the Ranking Regulation. The AMF was designated by Legislation No. 2010/1249 of twenty-two October 2010 because the competent French authority for registration and supervision of credit standing companies.

Key provisions of Regulation (EU) No. 462/2013 of the European Parliament and of the Council of 21 Might 2013, amending Regulation (EC) No. 1060/2009 on credit standing companies, stipulate that:

1. rankings might be revealed on a European ranking platform;
2. rankings of sovereign bonds might be restricted and made extra clear;
3. monetary establishments should strengthen their very own credit score threat evaluation; and
4. the chance of conflicts of curiosity might be mitigated.

Till not too long ago, French regulation supplied a particular legal responsibility regime for credit standing companies that was distinct from the one supplied within the EU rules. Nevertheless, this regime was abrogated by Legislation No. 2018/727, of 10 August 2018, to align French laws with EU regulation.

On account of the financial disaster and of the EU authorized framework governing ranking companies, the three companies dominating the French ranking market (Moody’s, Normal & Poor’s and Fitch) have reorganised their buildings, which has strengthened their supervisory exercise. The ranking companies in France had already considerably modified their methodology regarding bonds in 2009 in order that estimated liquidity threat may very well be taken under consideration and addressed.