One of the first responses of the Bank of Italy to the Cirio and Parmalat scandals has been an immediate tightening of the procedures regulating the disclosure of offers of securities within the Italian market. In order to achieve this goal, the Bank of Italy, rather than modifying the existing regime, has adopted a more rigid approach and will scrutinise more closely and strictly offers of securities using the tools already provided by article 129 of the Italian Banking law. The following is an analysis of these procedures.
Cases where a prior notification to the Bank of Italy is required
According to article 129 of the Italian Banking Law (1) and the Regulations of the Bank of Italy implementing such law (2), issues of securities by Italian entities and offers of foreign securities in Italy for an amount exceeding €50 million (or €150 million, where the relevant securities are listed on a regulated market (3)) must be notified in advance to the Bank of Italy. The same notification requirement applies to issues and offers of securities that, whatever the size of the issue, are considered by the Bank of Italy as ‘not standard’. Whether securities are ‘standard’ or not is dependent on their adherence to a set of characteristics established by the Bank of Italy as further described below.
Conversely, the article 129 notification is not required (among other things):
- For securities issued by Italian entities and offered exclusively in foreign markets
- For issues and offers in Italy of bonds issued by, or guaranteed by, EU member states
- For issues and offers in Italy of equity shares
The rationale of article 129 of the Italian Banking Law lies in the Bank of Italy’s function as market regulator. In fact, the Italian central bank has the primary task of assuring the stability and the efficiency of the market. Specifically, if the Bank of Italy deems an offer of securities incompatible with the conditions and the dimensions of the market at any given moment (for instance, because many similar offers are being made at the same time), it might agree with the issuer to postpone such offer (to a maximum of three months) or, if no such postponement or segmentation of the offer can be agreed, the bank can prohibit the offer outright.
In practice, upon receipt of an article 129 notification, the Bank of Italy may either:
- Not enter into any communications with the applicant, whereupon the transaction may be carried out following the lapse of a 20-day period (the silenzio assenso rule)
- Request additional documentation or information in connection with the proposed offer within 15 days of receipt of the notification, in which case the 20-day period is interrupted, and a new 20-day period will start again from the date when the Bank of Italy has received all the information
- Agree with the interested parties a postponement of the transaction (or, failing such an agreement, order the postponement of the transaction to a date not later than three months), if it finds that the carrying out of the transaction is incompatible with market conditions, having regard also to the other transactions notified to it by other entities
- Prohibit the transaction if it is incompatible with the dimension of the market, unless the issue is divided into an issue to be released in segments over a given period of time, or in other circumstances concerning the characteristics of the financial instruments
Accordingly, the issuer or the investment bank arranging and managing the issue should notify the Bank of Italy of the relevant issue well in advance of the expected issue date. In order to avoid the risk of unscheduled postponements of the issue, it is strongly recommended that the notification documents are filed at least 40 to 45 days before the issue date. The lack of certain information in the notification form does not represent a real issue, since the Bank of Italy normally permits the disclosure of certain information such as the spreads, the size or the nominal amount of the issue at a later stage (five to ten days before the issue date).
Securities which may be qualified as ‘standard’
According to the Regulations of the Bank of Italy, for securities to be considered ‘standard’, the following criteria shall apply:
- The issuer shall be a ‘qualified entity’, namely a bank or a company listed in a qualified country or whose legal office is in a qualified country. It should be noted that the term ‘qualified country’ comprises all EU member states as well as all other countries with an investment grade rating obtained by at least two recognised rating agencies
- The currency of securities shall be euro or another ‘qualified currency’ (ie, the currency of a ‘qualified country’ as described above)
- The interest rate shall be fixed, floating or mixed, provided that the same is in accordance with market conditions at the time of issue
- The payment of interest shall occur not less than quarterly or in aggregate on the redemption date
- In the case of indexed notes, the index parameter shall be one of the following:
- Monetary market indexes: BOT yield, EURIBOR, LIBOR or equivalent rates collected in relation to euro;
- Medium- to long-term indexes: RENDISTATO, RENDIOB, swap interest rate on euro
- Currency: euro or other ‘qualified currencies’
- Shares market indexes of ‘qualified countries’ or shares listed on regulated markets of ‘qualified countries’, or baskets of both parameters. The value of such indices and securities shall be published daily in economic newspapers distributed throughout the country. The indexation shall refer to interests only (although the redemption of capital shall always be granted) and be represented by ‘call’ options on reference parameters incorporated in the debt security
Finally, asset backed securities are never considered ‘standard’ securities and, consequently, the article 129 notification to the Bank of Italy is always required regardless of the size of the issue. In addition, in the case of asset backed securities, the silenzio assenso rule does not apply since the Bank of Italy shall always notify in writing the issuer that it has been authorised to issue such securities.
Contents and form of the article 129 notification to the Bank of Italy
In order to offer securities in Italy, either the issuer or the lead manager (or even a third party, provided that it specifies its role and the relationship with the issuer) must provide the Bank of Italy with a form,4 which includes certain information
on the offered securities. Such information relates mainly to the features of the offered securities (eg, size, financial information, terms and conditions of the notes, calculation of the interest), the transaction (eg, timetable, duration of the offer and structure, reference to the parties thereof, including the financial institutions members of the placement syndicate), the underlying assets (eg, type, nature, amount, evaluation criteria) and the risks involved (identification, management and hedging). Such form, to which the terms and conditions
of the notes must be attached, must be drafted in Italian.
In the case of an issuer that is an Italian or a foreign bank, a further document (the Foglio Integrativo Analitico or FIA) must always be filled in and attached to the article 129 notification form. The FIA, a standard document containing the characteristics of the issue, will be distributed among the investors should the securities be offered to the public in general.
Lastly, if the issuer is a foreign bank, the issue of the securities will only be authorised provided that the issuer is an institution authorised by the Bank of Italy to conduct banking activity in Italy.
Alternative notification procedures
The Regulations of the Bank of Italy also provide for the following alternative notification procedures:
(a) The ‘procedure with abbreviated term’ (comunicazione abbreviata). This procedure can only be used in the instance where: (i) the issuer has already issued securities duly notified to the Bank of Italy; and (ii) the characteristics
of a subsequent issue are identical to those of the securities already notified and authorised by the Bank of Italy, provided that the relevant issue does not exceed €250 million
(c) The ‘cumulative notification’ (comunicazione di tipo cumulativo). This procedure can only be used in the case where the issuer has in mind several subsequent drawdowns of securities within a period of six months, provided that the relevant securities can be qualified as ‘standard’ and the amount of each drawdown does not exceed €250 million
Federico Vermicelli
This article was co-authored by Federico Vermicelli, a lawyer in Norton Rose’s Milan office. He specializes in corporate finance and securities and has advised Italian companies in connection with IPOs and listings on the Italian Stock Exchange.
1 Legislative Decree n. 385 of 1 September 1993.
2 Chapter IX of the ‘Istruzioni di Vigilanza per le Banche’.
3 The computation of these amounts shall include all issues carried out by the same entity in the previous twelve months.