Under article 1 of the Law of January 22, 1988 relating to stock exchanges, "negotiations" (brokerage transactions) and "sales" (direct or indirect) of listed securities must be made by a "societe de bourse" (stock broker). The law of February 14, 1996 extends this right to banks and to entities having their registered office in the European Economic Area.

There are several exceptions to the requirement that sales be made by a broker. These include :

(i) sales between individuals; or

(ii) sales between two companies, one of which holds at least 20% of the capital stock of the other; or

(iii) sales which are part of an agreement other than a sale and which are necessary to such agreement (e.g., a merger); or

(iv) sales between a legal entity (other than a company) and a company where such entity holds at least 20% of the capital stock of the company; or

(v) sales between insurance companies belonging to the same group; or

(vi) sales between corporate entities and retirement or pension funds managed by such entities.

In addition, trades or sales of listed securities between non-French residents and carried out entirely outside of France are not subject to this rule.

The issue whether a sale of securities listed on a French stock exchange between a French and a non-French resident is subject to the stock brokers monopoly is less clear. A 1992 tax regulation states that such sale is presumed to have taken place in France, except in the case where the sale of securities is negotiated on a non-French stock exchange where such securities are also listed. However, this tax regulation only gives an indication which is not binding on the stock exchange authorities. There is no reported case law in this issue.

The main consequences of the requirement that sales be made by a broker are two-fold:

(i) the sale is subject to the payment of an "impot de bourse" of 0.3% up to FF 1 million and 0.15% above FF 1 million; this tax is capped at FF 4,000 and there are a number of exceptions available, and

(ii) the sale must be made at the price quoted on the market at the time the sale is made, subject to certain exceptions (mainly option contracts and block trades). (See Option Contracts and Block Trades).

The contents of this article are intended as a general guide. Specialist advice should be sought for your specific circumstances.

For further information contact Herve Letreguilly on +33 1 44 71 17 17, or enter a text search 'Shearman and Sterling' and 'Business Monitor'.