France: Capital Markets - The Regulatory Structure

Last Updated: 12 June 1995
In recent years, the investment business in France was subject to thorough modifications which have largely contributed to the transparent and fair operation of French securities markets and thereby to their development and modernisation. This overview presented by practitioners tends to summarise the essential elements and principal consequences of these changes from both the national and foreign investments' view point.

The regulatory structure for issuing and listing securities in France derives mainly from the law of January 22, 1988 relating to stock exchanges and the law of August 2, 1989 on the Security and Transparency of the Financial Markets, and the company law of July 24, 1966 contains general provisions applicable to securities.

Regulatory Authorities

As a result of the restructuring and deregulation process in 1988 and 1989, which has modified the powers of existing regulatory authorities and created new ones, the French securities market is administered by four entities, the Commission des Operations de Bourse (Commission of Stock Exchange Operations, "COB"), the Conseil des Bourses des Valeurs (Stock Exchange Council, "CBV"), the Societes des Bourses Francaises (French Securities Exchange Company, "SBF") and the Association Francaises des Societes de Bourse (Association of Stock Exchange Member Firms "AFSB"); each of which covers a particular area of investment business, and also by the Direction du Tresor (Treasury Department of the Ministry of Finance, "Treasury").

1. The Treasury is responsible for the following matters involving international elements:

the preparation and review of regulatory instruments concerning the control of the exchange business in France, and

the approval of foreign direct investments in France.

Moreover, a representative of the Treasury presides over the meetings of the Comite des Emissions (Euro-Franc Committee) which regulates the EuroFrench Franc market.

2. Founded in 1967, the COB is an independent governmental agency vested with primary responsibility for the protection of the investments in securities or other publicly traded instruments, the information of the investors and the maintaining of the fair operation of the securities markets. The number of the COB's functions has been considerably increased in 1989. Accordingly the COB has broad powers in the following areas of the regulation and monitoring of securities markets:

the issuance of the rules and regulations relating to public offerings, take-over bids (offres publiques d'achat or "OPA"), insider trading and, more generally, publicly traded instruments, and the proposal of amendments to the statutes and regulations relating to the information of the public, the stock exchanges and the brokers;

the review of the compliance with the laws and regulations and the adequacy and completeness of the information provided to the investors, including the approval of the prospectuses and the supervision of the continuing disclosure obligations of the listed companies;

the supervision of mutual funds; and

the investigation of the complaints of the investors.

Within the frameworks of these authorities, the COB may take the following actions in the event of non-compliance:

(a) initiating of investigations;
(b) issuing restraining orders;
(c) imposing fines up to FF 10 million or, if greater, ten times the amount of the profits made; and
(d) bringing legal actions before courts.

In order to perform properly its responsibilities, the COB has the power to request the appointment of external auditors, and may co-operate with its foreign counterparts as well.

3. The CBV was established by the law of January 22, 1988; it is a professional organisation composed of various representatives of the stock exchange members. It has general regulatory authority over the operations of the French securities markets and the brokers. The CBV's principal responsibility is to establish and amend the General Regulations (Reglement General). The Reglement General is reviewed by the COB and the Bank of France, and, according to the rules and regulation in effect, must be approved by the Ministry of Finance before implementation. The CBV's principal functions are as follows:

the supervision and control of brokers ("societes de bourse");

the monitoring and operation of the stock exchange (listing, de-listing, suspension of quotations, calendar of operations and public take-overs etc.);

the issuance of the rules and regulations concerning the foregoing;

The CBV may take the following actions against brokers, in the event of non-compliance:

(a) warning
(b) blame
(c) temporary or definitive prohibition to exercise all or part of their activities
(d) withdrawal of the approval
(e) imposing fines up to FF 5 million or, if greater, ten times the amounts of the profits made.

4. Established pursuant to the law of January 22, 1988 in the form of a corporation (societe anonyme) qualified as specialised financial institution, in which majority shares are held by various stock exchange member firms, the SBF is a self-regulatory organisation vested with the principal responsibility for registering and publishing the trades carried out by the brokers and more generally, implementing and executing the rules and regulations and decisions issued by the CBV, and in particular:

the temporary suspension of the trade of certain securities;

the provision of accurate and updated information and data on traded securities and relevant market occurrences for the investors and the public, and also the monitoring of the listed companies' compliance with their continuing obligations regarding such information and data;

the carrying out the activities of the stock exchange's clearing house; and

the administration of the guarantee fund or funds aimed at the protection of the investors' interests.

5. The Association Francaise des Societes de Bourse ("AFSB") is an independent body in the form of an association between the brokers and the SBF which purpose is to represent collectively its members, protect their rights and interests and settle any dispute between them or with the SBF.

The Brokers and the Brokers' Monopoly

Pursuant to the law of January 22, 1988, brokers must be legal entities ("Societes de Bourse"), approved by the CBV. Brokers have a monopoly to trade securities on stock exchanges. All transfers of listed securities must be made through a broker and therefore at the quoted price (subject to certain exceptions), except:

transfers made between individuals, transfers between a company and a legal entity holding at least 20% of such company's capital,

transfers between insurance companies belonging to the same group,

transfers between legal entities and pensions funds managed by such legal entities,

transfers which are an important part of a transaction other than a direct sale (e.g. contribution in kind, exchanges, mergers).

Any acquisition or sale of security made on the Paris Bourse is subject to a stamp tax (impot sur les operations de bourse), equal to 0.3% on transactions (up to FF 1 million) and 0,15% on transactions over FF 1 million. The stamp tax is capped at FF 4.000.

A number of transactions are exempt from such stamp tax, such the acquisition or sale of bonds (other than bonds exchangeable or giving right to shares and participating bonds), public offerings (offres publiques de vente), capital increases, listings, acquisition or sale made by non-French residents.

For further information contact Herve Letreguilly on +33 1 4471 1717.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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