Debt capital markets in Italy: regulatory overview
A Q&A guide to debt capital markets law in Italy.
The Q&A gives an overview of legislative restrictions on selling debt securities, market activity and deals, structuring a debt securities issue, main debt capital markets/exchanges, listing debt securities, continuing obligations, advisers and documents, debt prospectus/main offering document, timetables, tax, clearing and settlement, and reform.
To compare answers across multiple jurisdictions visit the Debt Capital Markets Country Q&A tool
This Q&A is part of the global guide to debt capital markets law. For a full list of jurisdictional Q&As visit www.practicallaw.com/capitalmarketsdebt-guide.
Legislative restrictions on selling debt securities
Main restrictions on offering and selling debt securities
A company can issue debt securities for an amount not exceeding twice the amount of its share capital, the legal reserve and reserves from the last approved financial statements (Article 2412, Italian Civil Code).
The following are exempt from the above limit:
Listed bonds intended to be traded on regulated markets or on the Multi-lateral trading facility (Legislative Decree 83/2012).
Convertible bonds which give the right to acquire or subscribe shares (Article 2412, paragraph 1, Italian Civil Code).
The following debt securities are also not subject to the limits set out in Article 2412 of the Italian Civil Code:
Debt securities in excess of the limit are acquired by institutional investors subject to prudential supervision.
Debt securities secured by a mortgage on a property owned by the company of up to two-thirds of the property's value.
Debt securities authorised by the government on national interest grounds.
Restrictions for offers to the public or professional investors
An issuer must register a prospectus with Consob (Italian Consolidated Financial Act and Consob Issuers Regulation
). If an issuer has not registered a prospectus, the notes, can only be offered, sold or delivered (directly or indirectly) to professional investors.
Notes can only be offered to retail customers where a prospectus has not been drafted when either:
The notes are offered to a maximum of 150 persons (other than professional investors).
The total amount of the offer is less than EUR5 million.
Market activity and deals
The Electric Bond and Government Securities Market (Mercato Telematico delle obbligazioni e dei titoli di Stato) (MOT market) counted a total of 1,110 listed debt security instruments at the end of 2014, out of which:
114 were government bonds.
457 were bonds.
539 were Eurobonds and asset-backed securities (ABS).
The MOT market recorded a daily average of 19,133 contracts and a turnover of EUR1.3 billion at the end of 2014.
The ExtraMOT market counted a total of 550 debt security instruments listed at the end of 2014. More than 80,142 contracts were traded, with a value of EUR6 billion (a 20.3% increase compared to 2013). In December 2014, ExtraMOT Pro (the professional segment of the market) admitted to trading 61 debt security instruments, including 47 bonds with a total nominal value of less than EUR30 million.
The 56 listed companies have raised more than EUR1.7 billion, including over EUR450 million in instruments whose total nominal value is less than EUR30 million.
Structuring a debt securities issue
Debt securities issued to the public (retail issues) are usually plain vanilla, unsecured and unsubordinated bonds. Offers are addressed to retail investors and made through offers for subscription by means of publication of a prospectus approved by Consob, and the securities are listed on the MOT market or the ExtraMOT.
Wholesale issues other than plain vanilla bonds usually include Euro Medium Term Notes (EMTN) issued in the framework of a programme, convertible bonds, structured bonds and equity-linked debt securities.
Issues to professional investors may be offered continuously in the framework of an issuance programme, based on trust structures or fiscal agent structures.
Debt securities listed on the MOT market are made through a public offer based on a prospectus approved by Consob, usually without trust structures or fiscal agent structures. Unlisted debt securities listed on the Multilateral Trading Facility (the ExtraMOT Pro) are offered to professional investors and do not require a prospectus. However, issuers must publish an Admission Document, although this document is not approved by Consob or the Borsa Italiana SpA (that is, the Italian stock exchange for managing capital markets) (www.borsaitaliana.it)..
Debt securities offered by Italian companies in the framework of global medium term or euro medium-term can be structured through the use of trust structures addressed to professional investors.
The appointment of a fiscal agent is quite common in debt securities issues to qualified investors. The agent acts as the principal paying agent and has administrative functions in relation to the debt instruments.
Main debt capital markets/exchanges
Main debt markets/exchanges
The Electric Bond and Government Securities Market (Mercato Telematico delle obbligazioni e dei titoli di Stato) (MOT market) is the main Italian debt securities market, organised and managed by the Borsa Italiana SpA. The MOT market is the market for trading bonds (other than convertible bonds), sovereign debt, Eurobonds, asset-backed securities (ABS) and other debt securities. It consists of two segments:
DomesticMot, for securities settled through the Italian settlement system.
EuroMot, for securities settled through foreign settlement systems.
There are also two other markets:
ExtraMOT. ExtraMOT is a Multilateral Trading Facility regulated by Borsa Italiana SpA, for trading corporate bonds issued by Italian and foreign companies which have already been listed on other regulated EU markets, as well as non-listed bonds and debt instruments issued by Italian small to medium-sized enterprises (SMEs).
ExtraMOT Pro. ExtraMOT Pro is a market for new debt instruments of Italian SMEs. The ExtraMOT Pro was launched in February 2013 and is the professional segment of the ExtraMOT dedicated to trading bonds (including convertible bonds whose shares arising from the conversion are traded on a regulated market), commercial papers, equity instruments and project bonds. Trading is only open to professional investors on the ExtraMOT Pro.
Approximate total issuance on each market
In 2014, the MOT market registered an equivalent in negotiations amounting to EUR323 billion, and ExtraMOT registered an equivalent in negotiations amounting to EUR6 billion.
The regulatory authorities that supervise the debt capital markets are:
Italian Securities and Exchange Commission (Consob), which supervises and regulates the Italian securities market and listed issuers.
Italian Central Bank (Banca d'Italia), which supervises banks and other financial intermediaries.
Institute for the Supervision of Insurance (Istituto per la Vigilanza sulle Assicurazioni) (IVASS), Italy's insurance supervisory authority, which supervises and regulates insurance companies.
Borsa Italiana SpA which is the stock exchange that manages the capital markets
The following legislation applies to the debt securities market:
Italian Consolidated Financial Act, Legislative Decree 58/1998, which governs all legislation applicable to companies' and intermediaries' public offerings, tender offers and listed companies operating in both the regulated and unregulated debt capital markets (www.consob.it).
Italian Consolidated Banking Act, Legislative Decree 385/1993, which governs the rules applicable to banks and financial intermediaries. It also sets out some provisions regarding the issue of securities (www.bancaditalia.it).
Consob regulation No 11971/1999, which implements the Italian Consolidated Financial Act provisions concerning issuers (www.consob.it).
Borsa Italiana SpA regulations for the functioning of its markets, such as the Rules of the Markets organised and managed by Borsa Italiana SpA.
Listing debt securities
An issuer that does not have any other financial instruments listed will have their eligibility to list analysed and reviewed by Borsa Italiana SpA, based on the last two annual financial statements reviewed. The main requirements for bonds are as follows:
The bonds must be issued at a certain minimum amount (not less than EUR15 million).
The bond instruments must be issued in accordance with the laws, regulations and all applicable provisions, and must be freely negotiable.
Where structured bonds are issued, the issuer must demonstrate that certain information is made available to the public.
Any information provided must be updated on a daily basis.
A reimbursement of structured notes must never come in at a lower price.
Assets underlying the structured debt securities can be:
High liquidity shares which are traded on regulated markets in Italy or in another state.
High liquidity government bonds traded on regulated markets in Italy or in another state.
Official interest rates or interest rates which are generally used on the capital market, which have not been manipulated and can demonstrate transparency in the methods of collection and dissemination.
The shares of Undertakings for Collective Investment (Organismi di Investimento Collettivo del Risparmio) (OICR).
Convertible currencies, whose constant exchange rate is continuously measured by the authorities or other institutions.
Goods for which there is a reference market which is characterised by the availability of continuous and updated information of the prices of traded assets, units or shares in investment funds.
Derivative contracts relating to the previous activities, to which there is a liquid market characterised by the availability of continuous and updated information on the prices of such contracts.
Minimum size requirements
There are no minimum size requirements on the MOT market.
However, the following requirements apply to bonds:
Bonds must be issued at a certain minimum amount (not less than EUR15 million).
Bonds must be distributed among non-professional investors, professional investors or both, to an extent Borsa Italiana SpA deems adequate to allow the market to operate.
Trading record and accounts
There are no trading record requirements. The issuer must have published and filed stand-alone or consolidated annual accounts for the last two years, accompanied by an auditor's comfort letter.
The minimum trading quantity is usually established by the Borsa Italiana SpA.
Issuers of asset-based securities (ABS) must:
Make sure that their annual accounts are supplemented by an auditor's comfort letter.
At the date of the application for admission to listing, appoint a firm to audit a stand-alone annual account for the current year (and, where applicable, also provide a consolidated annual account for the current year.
Continuing obligations: debt securities
Consob and Borsa Italiana SpA regulations govern companies' continuing obligations. The obligations include the following:
Disclosing inside information in a press release to at least two news agencies, to Consob and Borsa Italiana SpA, and posting it on the issuer's website.
Disclosing information regarding any corporate actions (including mergers and de-mergers) in a memorandum prepared by the issuer and made available to the public.
Drawing up, maintaining and updating a list of insiders.
Certifying annual and semi-annual accounts and internal control systems by the managing director and the chief financial officer.
Making available annual and semi-annual reports.
Disclosing information on any stock option plans.
If the unit denomination of a debt instrument is less than EUR1,000, the continuing obligations apply to:
Italian companies with debt instruments listed on Italian or EU regulated markets.
Foreign companies with debt instruments listed on regulated markets in Italy (if Italy is the first EU country in which an application for listing has been submitted).
If the unit of denomination of a debt instrument is equal to or higher than EUR1,000, Italian law applies to Italian companies and foreign companies with debt instruments listed on regulated markets in Italy, if these companies choose Italy as the home country.
Consob holds consultations with foreign companies before floatation and sets out any applicable continuing obligations.
Advisers and documents: debt securities issue
Participants in the negotiations
Debt capital markets managed by Borsa Italiana SpA include a large number of participants connected directly or via interconnection, including representatives of the leading Italian banking groups, online banks and leading international banks.
For all market participants (MOT market and ExtraMOT) there are planned participation requirements concerning their organisation structure and the technology to be used.
Borsa Italiana SpA checks that the following conditions are met (these must be met continuously):
Adequacy of the technological systems used for the conduct of trading.
Average number of employees with adequate professional qualifications.
Appropriate internal procedures and controls for trading.
Presence of a compliance officer with an in-depth knowledge of the rules of the operation of the markets, who can provide adequate support to the structure of their application.
Adequate settlement procedures.
Specialist (MOT market and ExtraMOT)
On the MOT market and the ExtraMOT, it is mandatory to appoint specialists who can support the liquidity of the instruments traded. Borsa Italiana SpA assigns the following obligations to specialists:
the minimum quantity of each bid and sales;
the minimum daily quantity that the specialist must ensure.
Spread obligations. The maximum spread, calculated as the difference between the sale price and the purchase price.
Long term obligations. The minimum duration of the commitment.
On the ExtraMOT, specialists must only fulfil the quantity obligations.
It is also mandatory to appoint specialists for all the financial instruments to which the same operator has made an application for an admission to trading.
The obligations are determined by taking into account the nominal amount, the degree of diffusion, the maturity and complexity of the mechanisms of calculating interest and capital repayment.
Until they reach the minimum daily quantity, specialists are required to re-enter bids and offers within five minutes of application or partial quotations exposed.
Borsa Italiana SpA supervises that the specialists are fulfilling their commitments through the calculation of an indicator.
Specialist in purchase (MOT market and ExtraMOT)
The role of the specialist in purchase is to secure the liquidity of the bonds issued by exposing bids continuously. The specialist in purchase provides a value-added service for investors, and also allows issuers to fulfil the requirements for illiquid instruments in the ABI document, validated by Consob.
Debt prospectus/main offering document
Before proceeding with the listing of debt securities, the issuer must submit a special application to the Borsa Italiana SpA, and must request (at the same time) an authorisation from Consob to publish the prospectus.
The prospectus must take the form required by EU legislation, specifically Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (Prospectus Directive) and Regulation (EC) 809/2004 implementing Directive 2003/71/EC as regards prospectuses and dissemination of advertisements (Prospectuses Regulation) and must contain information on:
The corporate and business structure of the company.
The risks factors that may result from the investment.
Returns of financial instruments.
For the applicable rules where a prospectus is not published, see Question 1, Restrictions for offers to the public or professional investors.
Exemptions from the requirement to publish and deliver a prospectus include offers addressed to:
Fewer than 150 investors.
Qualified investors. The following are considered "qualified investors":
National governments and regional authorities, central banks, international and supranational institutions and similar international organisations.
Persons authorised or regulated to operate on financial markets, both Italian and foreign.
"Large" companies which can fulfil at least two of the following requirements:
aggregate value of the balance sheet of at least EUR20 million;
net turnover of at least EUR40 million;
own funds of at least EUR2 million.
Institutional investors whose main activity is investing in financial instruments, including securitisation companies.
Entities that expressly request to an intermediary to be classified as professional customers, provided that specific procedures and at least two of the following requirements are met:
execution of significant transactions on the market in question, averaging ten transactions each quarter in the previous four quarters;
the value of the customer's financial instrument portfolio is higher than EUR500,000 including cash deposits;
the customer works, or has worked, in the financial sector for at least one year in a professional capacity which presumes awareness of the transactions and services envisaged.
A simplified prospectus is required for debt securities issued by banks either under an offering programme or in a continuous or repeated manner. In public offerings involving instruments other than equity securities issued in a continuous or repeated manner by banks, the issuer can publish a simplified prospectus, provided that such instruments have the following features (Article 34, Issuers' Regulation):
The total consideration of the offer in the EUcalculated over a period of months, is less than EUR75 million.
The instruments are not subordinated, convertible or exchangeable.
The instruments do not give the right to subscribe to or acquire other types of securities and are not linked to an instrument derivative.
The issuer must prepare the prospectus in accordance with the Prospectus Regulation, the Prospectus Directive and Directive 2010/73/EC, which set out the rules for drafting the prospectus (Article 94, Italian Financial Act).
The prospectus must contain:
A registration document containing information about the issuer.
A securities note containing information about the securities being offered.
A summary containing the essential characteristics and risks of the issuer and the securities to be offered.
A typical prospectus includes the following standard content requirements:
Risk factors. This describes risks related to the investment, highlighting the characteristics of the issuer, its financial instruments and the offer.
Information on the issuer. This includes a description of the issuer's:
business activities and organisational structure;
research and development, patents and licences;
administrative, management, supervisory bodies and senior management;
related party transactions;
assets and liabilities, financial position and profits and losses;
Audited financial information. This includes audited financial information of the past three financial years and an audit report for each financial year, prepared in accordance with the International Accounting Standards (IAS/IFRS). This financial information can also be provided in accordance with another country's generally accepted accounting principles (GAAP), provided certain requirements are met.
Information on the securities being offered.
Information on the offer and listing and on directors, key executives, and auditors of the company
The issuer is responsible for drafting the prospectus, and the responsibility for any potential damage suffered by an investor who relied on information contained in the prospectus falls first of all on the issuer. The issuer's legal and financial advisors, as well as the independent auditors, are also responsible for drafting certain parts of the prospectus.
The issuer is primarily liable for any loss suffered by an investor who acted in reliance with a prospectus which:
Contained any false or misleading information.
Omitted any material information.
Investors can also a file class action against the issuer, the underwriters or both through consumer or investor associations in order to take advantage of the benefits of a public or aggregate judgment.
The following are also liable for any damage caused to a shareholder who has reasonably relied on the accuracy and completeness of the information contained in the prospectus:
The guarantor (if any).
The intermediary responsible for placement will be liable for false information or omissions that could influence the reasoned decisions of an investor, unless the intermediary proves that all due diligence was adopted pursuant to the previous subsection.
Any other entity or person responsible for the contents of the prospectus. This can include legal and financial advisors as well as independent auditors.
The above will be liable if they fail to prove that they took every precaution and made all necessary checks to prevent the damage from occurring. They must be able to demonstrate that they used their skill and judgement to ensure that the prospectus contained truthful and accurate information.
Under Italian criminal law and the Consolidated Financial Act, it is an offence punishable by imprisonment of one to five years for a person to include false information or conceal data or news, with the view to obtain an undue profit for himself or for others, in a way that is likely to mislead the recipients of a prospectus.
Timetable: debt securities issue
Below, Y is date of Consob's approval of the publication of the prospectus.Timetable for a debt listing:
Three months before Y:
appoint the legal, financial and public relations advisers as well as the global co-ordinator;
prepare all the required documentation for the due diligence checklist;
start drafting the prospectus with all the parties involved in the equity offering process.
Two to three months before Y, legal due diligence and listing process.
Two months before Y, filing with Consob and Borsa Italiana SpA or the prospectus approval.
One month before Y, the pre-marketing activity.
Y, Consob approves the prospectus.
Two weeks after Y, the road show takes place.
Three weeks after Y, the public offer is made.
Four weeks after Y, Borsa Italiana SpA completes the admission of the issuer for trading and defines the first date of trading.
Tax: debt securities issue
The following provides a high-level summary of the main tax issues when issuing and listing debt securities.
Interest income arising from debt securities is generally subject to substitute tax at 26% if it is paid to individuals. Income that is paid to corporate subscribers is considered revenue that forms the taxable base of corporate income tax. Substitute tax on interest is reduced to zero for investors resident in "white-listed" countries, that is, countries allowing an adequate exchange of information between tax authorities.
Capital gains are generally subject to substitute tax at 26% if they are earned by individuals. Income earned that is paid to corporate subscribers is considered revenue that forms the taxable base of corporate income tax. Capital losses are deductible. Capital gains tax rate is reduced to zero for investors resident abroad if bonds are listed and is also equal to zero if investors are resident in “white listed” countries.
Deductibility of costs
Costs incurred over the issuance and listing process are generally deductible. However, the amount of the "interest paid" deduction cannot exceed 30% of the company's earnings before interest, tax, depreciation and amortisation (EBITDA).
The general rules about deduction applicable to other corporate bonds also apply to corporate bonds with "subordination provisions" and "participation provisions".
Participation provisions must have a fixed and a floating rate portion to which the following requirements apply:
The fixed portion of interest cannot be lower than the official base rate.
The floating rate portion must be calculated as a percentage of the issuer's profits to be paid annually within 30 days from the date of approval of the issuer's financial statements.
In order to deduct interest paid, participating bonds must be subscribed by "qualified investors" that are not, directly or indirectly, shareholders of the issuer. Qualified investors include banks, investment firms, other authorised and regulated financial institutions, insurance companies and pension funds.
Clearing and settlement of debt securities
The clearance procedures for debt capital markets managed by Borsa Italiana SpA are fully automated through special procedures involving daily trade checking.
Once the counter value amount of the transaction (including any accrued interest) is calculated, the contracts concluded on the market are valued on the settlement date and are sent to settlement systems.
The liquidation of contracts occurs on various instruments:
On the MOT market, the settlement system is Monte Titoli SpA (the domestic segment of the market).
On the EuroMOT, both the domestic system above can be used, as can Euroclear and Clearstream Banking Luxembourg.
Contracts in currencies other than Euro which are traded on the domestic segment of the MOT market are settled in Euro using the exchange rates of the European Central Bank (ECB), which are fixed at the last trading day prior to the settlement of the contracts. Contracts traded on the EuroMOT and ExtraMOT are based on the currency denomination of the financial instruments.
Sale and purchase contracts are settled:
On the third day following their conclusion date for bonds and government securities (other than Treasury Bills (BOTs)).
On the second day following their conclusion date for BOTs and all foreign bonds for which foreign market regulation provides for this timing for settlement (for example, German Bubills).
The terms of the settlement are calculated according to either:
The timetable set by Borsa Italiana SpA (if settled on the Monte Titoli SpA).
The "target" calendar in any other case.
For debt securities traded on the domestic segment of the MOT market, a guarantee and clearing is provided by the central counterparty (the Clearing and Guarantee Fund (CC&G)). The same service has also been implemented on the EuroMOT and the ExtraMOT (excluding the ExtraMOT Pro) relating to securities settled in Euro.
A recent piece of legislation affecting equity capital markets is Legislative Decree 12 May 2015, No 72. This Decree implements 2013/36/EU on capital requirements (Capital Requirements Directive IV), amends Directive 2002/87/EC and repeals Directives 2006/48/EC and 2006/49/EC, concerning the business of credit institutions and the prudential supervision of credit institutions and investment firms. The Decree contains amendments to the Italian Banking Act and the Italian Consolidated Financial Act, and came partly into force on 27 June 2015.
Regulation (EU) 596/2014 on market abuse (Market Abuse Regulation) comes into force from 3 July 2016. The Market Abuse Regulation introduces:
The extension of :
the legislation on market abuse to financial instruments traded on Multilateral Trading Facilities, other organised trading systems and "over-the-counter";
the legislation to commodity markets and related derivative markets;
the definition of market manipulation to the trading orders placed through electronic means such as algorithmic trading strategies and high frequency.
The possibility of carrying out market surveys.
A list of:
types of conduct considered lawful;
market practices that allow the avoidance of the market manipulation prohibitions.
The requirement to maintain a register of persons with access to inside information for listed issuers and the persons acting on behalf or on behalf of listed issuers.
The following simplified criteria for issuers listed on a "SME growth market" (as defined in Article 33 of Directive 2004/39/EC on markets in financial instruments (MiFID)):
simplified disclosure obligations;
exemption from the creation of a register of persons with access to inside information provided that the issuer ensures that people who have access to inside information are properly informed of the legal and regulatory obligations that this involves and that the issuer can provide, upon request, to the competent authority a list of persons with access to inside information.
Directive 2014/57/EU on market abuse (Market Abuse Directive) introduces a list of criminal sanctions for insider dealing and market manipulation.
Online resources Borsa Italiana SpAW www.borsaitaliana.it
Description. The official website of the Italian stock exchange (Borsa Italiana SpA).
Italian Securities and Exchange Commission (Commissione Nazionale per le Società e la Borsa) ( Consob)W www.consob.it
Description. The official website of the Italian Securities and Exchange Commission (Consob).
Lukas Plattner, Partner
Nctm Studio Legale
Professional qualifications. Lawyer, Italy.
Areas of practice. Equity and debt capital markets; banking and finance; M&A.
Non-professional qualifications. LLB, Università Cattolica del Sacro Cuore of Milan, 1993; LLM (Economics law), Università Carlo Cattaneo – LIUC of Castellanza, 2003.
Recognised leader in the Italian market for assisting SMEs in becoming listed.
Recommended by the IFLR 1000 and Who’s Who Legal in corporate and securities law.
Experienced in capital markets, public offerings, private placements, and banking and regulatory securities matters.