The Italian securities market, as other European markets, is a bank-dominated industry. Pursuant to Legislative Decree No. 58/1998 (Consolidated Law on Financial Intermediation), the National Commission for Listed Companies and the Stock Exchange (CONSOB) and the Bank of Italy (BoI) share responsibility for securities regulation under a functional approach to supervision. According to the International Monetary Fund's (IMF) 2006 Detailed Assessment of Italy's compliance with the International Organization of Securities Commission's (IOSCO) Objectives and Principles of Securities Regulation, securities market regulation and oversight is very strong in Italy. Twenty-five of the IOSCO Principles were found to be fully implemented, three principles were broadly implemented and two were considered to be not applicable. However, the IMF report identifies a few areas that still require action. In particular, the CONSOB and BoI need to include markets and market operators in their on-site inspection plans. The CONSOB should also ensure that information from the wholesale market is timely and effectively integrated with that from the retail market. Furthermore, disclosure requirements should be extended to non-listed debt instruments issued by banks. At the time of the IMF's 2006 assessment, the Italian legal framework needed to be harmonized with the EU Prospectus Directive No. 2003/71/EC. Effective April 24, 2007, the EU Prospectus Directive was implemented in Italy. In addition, the Italian Stock Exchange (Borsa Italiana), which is one of the three market operators in Italy, merged with the London Stock Exchange in 2007.

General Overview

In February 2006, the International Monetary Fund (IMF) conducted a Detailed Assessment of Italy's compliance with the International Organization of Securities Commission's (IOSCO) Objectives and Principles of Securities Regulation, as background documentation to the Financial Sector Assessment Program (FSAP) with Italy in 2004. The report concludes that securities market regulation and oversight is very strong, and that the general preconditions to effective securities regulation appear to be in place. Full compliance was achieved with twenty-five of the thirty IOSCO Principles. Two principles were broadly implemented, and two were considered to be not applicable. Finally, Principle 30 on clearing and settlement systems was assessed as part of the IMF's 2006 Detailed Assessment of Monte Titoli's Observance of the Committee on Payment and Settlement Systems (CPSS)/ IOSCO's Recommendations for Securities Settlement Systems. However, the IMF report identifies a few areas that still require action. In particular, the National Commission for Listed Companies and the Stock Exchange (CONSOB) and the Bank of Italy (BoI) should include markets and market operators in their on-site inspection plans. In order to strengthen the supervision of the government securities market, the CONSOB should ensure that information from the wholesale market is timely and effectively integrated with that from the retail market. Disclosure requirements should also be extended to non-listed debt instruments issued by banks.

Italy's system of securities regulation is a component of the supervisory framework for the financial services sector that is organized around four independent authorities, namely the Supervisory Authority for Private Insurance Undertakings and Insurance Undertakings of Public Interest (ISVAP) for the insurance industry, the Supervisory Authority for Pension Funds (COVIP) for pension funds, the BoI for the banking industry, and the CONSOB, together with the BoI, for the securities industry. Legislative Decree No. 58 of 1998 (Consolidated Law on Financial Intermediation) sets out the institutional framework for the regulation and supervision of the Italian securities market. According to the IMF's 2006 report, the CONSOB and the BoI share responsibility for securities regulation under a functional approach to supervision, and are required to cooperate in a coordinated manner in the areas in which they share authority. The Consolidated Law on Financial Intermediation establishes in detail the powers of both regulators and the activities they may perform, and identifies the persons and entities subject to their respective supervision. The Consolidated Law on Financial Intermediation was amended by the Law on Market Abuse No. 62 of 2005, which implements the EU Market Abuse Directive No. 2003/6/EC. At the time of the FSAP in 2004, the Italian legal framework needed to be harmonized with the EU Prospectus Directive No. 2003/71/EC. Effective April 24, 2007, the EU Prospectus Directive was implemented in Italy.

As noted in the IMF's 2006 report, the Italian securities market, as other European markets, is a bank-dominated industry. In 2003, there were 710 banks and 131 investment firms, mostly controlled by Italian banks and Italian financial groups. In addition, 153 asset management companies, mostly controlled by Italian banks, and 1556 collective investment schemes (CIS) were registered, with a total of EUR 403.722 million assets under management. As of 2003, according to the IMF's 2006 report, three market operators were authorized to manage regulated markets in Italy, namely the Italian Stock Exchange (Borsa Italiana), the Electronic Trading Platform for Government Bonds (MTS S.p.A), and the Regulated Exchange (TLX S.p.A). As noted on its website, MTS S.p.A, founded in 1988 and privatized in 1997, provides wholesale electronic trading of Italian government bonds, and other types of fixed income securities. The operator is supervised by the Ministry of Economy and Finance (MEF), the BoI, and the CONSOB. The control of MTS S.p.A has recently been transferred to Euronext and Borsa Italiana. According to its website, TLX S.p.A, created in 2002 and in operation since January 2003, organizes and manages markets for the trading of financial instruments aimed at the investment needs of non-professional investors. The company is fully owned by Italian banks. Finally, the Borsa Italiana is entrusted with regulatory and market management powers over listed companies, and mostly owns the Italian Central Securities Depository (Monte Titoli) and the Italian Clearing House. The Borsa Italiana merged with the London Stock Exchange in 2007.

The Borsa Italiana established two new segments of the market devoted to smaller companies, namely the STAR segment in 2001 and the Mercato Expandi in 2003. As noted on Borsa Italiana's website, the STAR segment (segment stocks conforming to high requirements) is the segment dedicated to mid and small cap companies, which conform to stringent levels criteria, in terms of corporate governance and liquidity. Conversely, the Mercato Expandi (expanding market) is a market designed for small sized companies which have decided to increase their capital on the Italian stock exchange. To date, the STAR segment lists more than 70 companies, whereas the Mercato Expandi includes about 40 firms.

The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral Memoranda of Understanding (MoUs). The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. Spain's Securities Commission (CNMV) is a signatory to the MMoU and an ordinary member of IOSCO.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

FC

This principle is implemented, as stated in the IMF's 2006 report. The Consolidated Law on Financial Intermediation sets out the institutional framework for the regulation and supervision of the Italian securities market. According to the IMF's 2006 report, the CONSOB and the BoI share responsibility for securities regulation under a functional approach to supervision, and are required to cooperate in a coordinated manner in the areas in which they share authority. The Consolidated Law on Financial Intermediation establishes in detail the powers of both regulators and the activities they may perform, and identifies the persons and entities subject to their respective supervision. The CONSOB is principally in charge of ensuring investor protection, market transparency, and proper conduct of business by intermediaries, whereas the BoI focuses on matters relating to risk limitation, financial stability and capital adequacy of intermediaries. The BoI is also responsible for the wholesale government securities market, although CONSOB has the authority to regulate and monitor market abuse on the wholesale market.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

FC

This principle is implemented, according to the IMF's 2006 report. The independence of the CONSOB and the BoI is provided under the Consolidated Law on Financial Intermediation. The IMF report notes that while the CONSOB receives around 30 percent of its funds from the State's budget, it manages its budget autonomously. Conversely, the BoI is self-funded, and its independence is provided under the European Union's Maastricht Treaty. While, in specific cases, both authorities are required to submit secondary regulation to the MEF, and consult with one another or even act jointly in areas where they share authority, "there does not appear to be any interference in the ability of either regulator to operate independently without external political interference or interference from commercial or other sectoral interests" (p. 6) the IMF report emphasizes. Pursuant to the Law on Savings No. 262 of 2005, which entered into force in January 2006, the CONSOB was given more resources and powers to act independently from the MEF.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

FC

This principle is implemented, as stated in the IMF's 2006 report. The Consolidated Law on Financial Intermediation sets out the institutional framework for the regulation and supervision of the Italian securities market. The IMF report notes that the CONSOB and the BoI "share responsibility for securities regulation under a functional approach" (p. 7). Furthermore, the IMF report adds, the Consolidated Law on Financial Intermediation "establishes in detail the powers of both regulators and the activities they may perform, and identifies the persons and entities subject to their respective supervision" (p. 7). The CONSOB is principally in charge of ensuring investor protection, market transparency, and proper conduct of business by intermediaries, whereas the BoI focuses on matters relating to risk limitation, financial stability and capital adequacy of intermediaries. The BoI is also responsible for the wholesale government securities market, although CONSOB has the authority to regulate and monitor market abuse on the wholesale market.

4. The regulator should adopt clear and consistent regulatory processes.

FC

This principle is implemented, as noted in the IMF's 2006 report. The CONSOB and the BoI have adopted rules concerning their internal organization, and the procedures to be fulfilled in carrying out their activities. Furthermore, both authorities consult the market and interested parties on a regular basis and prior to adopting regulations.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

FC

This principle is implemented, as stated in the IMF's 2006 report. Per the same report "legal and regulatory requirements exist with the aim of ensuring the proper use of information obtained by employees in the course of their professional activities, the confidentiality of information obtained, and the prohibition on any misuse of information" (p. 8). Furthermore, both the CONSOB and the BoI have enacted regulations concerning employees' conduct.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

This Principle is not applicable as the Italian regulatory framework does not make use of self-regulatory authorities.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

See Principle 6.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

FC

This principle is implemented, according to the IMF's 2006 report. The CONSOB and the BoI have extensive powers to request information and conduct inspections on regulated entities without prior notice. Pursuant to the Consolidated Law on Financial Intermediation, the CONSOB also has similar powers over non regulated entities. Regarding market supervision and surveillance, the CONSOB performs daily surveillance of the regulated markets it authorizes through an electronic surveillance system. Conversely, the BoI monitors the wholesale government securities market through an intra day surveillance of liquidity indicators, and periodical analysis to evaluate market trends. Information on transactions carried out in the wholesale market is then transferred and stored into CONSOB's own database.

9. The regulator should have comprehensive enforcement powers.

FC

At the time of the FSAP in 2004, enforcement powers of the CONSOB and the BoI were limited by the fact that they could not impose pecuniary sanctions as well as by the limited amount of the sanctions. Both aspects have since been addressed through the adoption of the Law on Market Abuse No. 62 of 2005. This principle is implemented, as stated in the IMF's 2006 report, and the legal framework provides the CONSOB and the BoI with extensive powers to enforce compliance with securities laws and regulations, including precautionary measures, corrective measures, and administrative sanctions. Per the same report, the CONSOB "can order the market operator of the regulated markets to suspend trading in any security, prohibit the trading of securities on nonregulated markets, and has the power to suspend or prohibit the public offering of the securities of an issuer" (p. 9).

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

CP

According to the IMF's 2006 report, this principle is broadly implemented. At the time of the FSAP in 2004, enforcement powers of the CONSOB and the BoI were limited by the fact that they could not imposed pecuniary sanctions as well as by the limited amount of the sanctions. Both aspects have since been addressed through the adoption of the Law on Market Abuse No. 62 of 2005. The IMF report notes that to ensure the proper functioning of the market, the Italian supervisory framework still needs to be complemented with on-site inspections "to achieve a more thorough and effective supervision of critical aspects such as the reliability and effectiveness of the organizational structure, systems and procedures and internal controls designed by the market operator" (p. 10). While market operators are required to submit reports in this area, it is important that the CONSOB and the BoI do not exclusively rely on the operators' reports, and conduct independent verifications of such critical aspects through on-site inspections. Although the CONSOB monitors the markets in a timely fashion to detect unusual or suspicious transactions, it does not monitor the wholesale government securities market on a real time basis. In order to effectively supervise the government securities market on issues of market manipulation and investor protection, the IMF report emphasizes the need for CONSOB "to adequately integrate the information it receives on the wholesale government bonds market with the information it collects on the government securities retail market" (p. 10). Furthermore, disclosure of investor complaints could be substantially improved by establishing a separate and extensive report with detailed information on the activities performed by the CONSOB.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

FC

This principle is implemented, as stated in the IMF's 2006 report. Pursuant to the Consolidated Law on Financial Intermediation, the CONSOB and the BoI are required to cooperate effectively in line with an internal protocol covering the terms of their cooperation. The Law also strengthens confidentiality provisions related to the information obtained by CONSOB through international cooperation. The CONSOB and the BoI cooperate with other supervisory authorities, including the ISVAP, the COVIP, and the Foreign Exchange Office (UIC). While a protocol exists between the UIC and the CONSOB, there are no formal agreements between the CONSOB and ISVAP or COVIP. In this regard, consideration should be given to establish protocols with the domestic supervisors. The IMF report notes that external approval is not needed to exchange information with foreign counterparts. Both the CONSOB and the BoI are legally empowered to use their powers at the request of their foreign counterparts. Pursuant to the Consolidated Law on Financial Intermediation, the CONSOB has the authority "to carry out inspections within Italian territory on behalf of competent authorities of EU member states and jurisdictions outside the EU" (p. 11) the IMF report emphasizes.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

FC

This Principle is implemented, and the MoUs are easily accessible on the CONSOB website, as stated in the IMF's 2006 report. The CONSOB is a signatory to the MMoU, and an ordinary member of IOSCO. The IOSCO MMoU is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. According to the IMF's 2006 report, the BoI has also signed bilateral MoUs with its main European counterparts, and is a signatory to the Committee of European Securities Regulators (CESR) MoU on the Exchange of Information and Surveillance of Securities Activities.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

FC

See Principle 12.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

FC

At the time of the IMF's 2005 report on Selected Issues, disclosure and financial reporting requirements applicable to listed companies in Italy were quite rigorous, particularly in comparison with other European countries. However, pecuniary and administrative sanctions that could be imposed on issuers or management for breaches of these requirements remained limited in practice. Moreover, the CONSOB could not impose penalties directly, but had to act through the MEF. Pursuant to the Law on Savings No. 262 of 2005, which entered into force in January 2006, the CONSOB was given more resources and powers to act independently of the MEF.

According to the IMF's 2006 report, this principle is implemented. The majority of the rules applicable to public offerings are contained in the Consolidated Law on Financial Intermediation, as well as CONSOB regulations. Italian listed companies are required to prepare quarterly, semi-annual and annual reports, and publish financial statements on an annual basis. Furthermore, both EU Directives and Italian legislation require individual and consolidated financial statements of listed companies to be audited by an external auditor. However, disclosure requirements needed to be extended to non-listed debt instruments issued by banks. The IMF report noted that the current legal and regulatory framework would be revised to transpose and implement the EU Prospectus Directive No. 2003/71/EC. Effective April 24, 2007, the EU Prospectus Directive was implemented in Italy.

15. Holders of securities in a company should be treated in a fair and equitable manner.

FC

This principle is implemented, as stated in the IMF's 2006 report. Per the report, the Civil Code and CONSOB regulations guarantee the fair and equal treatment of shareholders, and require members of the Board of Directors, Board of Statutory Auditors, as well as general managers of the company "to carry out their duties with due diligence and to be liable for losses arising from the failure to fulfill their responsibilities" (p. 13). With respect to listed companies, the Consolidated Law on Financial Intermediation requires listed issuers to guarantee the same treatment to all holders of identical financial instruments. In practice, however, legal protection for minority shareholders was not fully realized, according to the IMF's 2005 report on Selected Issues, as collective action of minority shareholders for misrepresentation against the members of the Board of Directors was unlikely.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

FC

This principle is implemented, according to the IMF's 2006 report. Furthermore, national accounting standards, which are enacted by the Organismo Italiano di Contabilità (OIC), are high and broadly in line with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board. Provisions for regulating the accounting and auditing profession in Italy were among the strongest in Europe, as stated in the IMF's 2005 report on Selected Issues. The audit quality assurance system of the CONSOB to oversee the work of the auditing firms was also quite comprehensive.

Per a regulatory and standard-setting framework assessment published by the Consiglio Nazionale dei Dottori Commercialisti e Degli Esperti Contabili in 2005, the CONSOB has an adequate mechanism in place to recommend, and enforce compliance with accounting and auditing standards for listed entities. The CONSOB can further request disclosure of additional information, and require issuers to restate their financial statements. Beginning in 2005, pursuant to Legislative Decree No. 38 of 2005, Italian listed companies are required to prepare their consolidated financial statements using IFRSs. As for individual company accounts, CONSOB regulations mandate the use of IFRSs and national accounting standards.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

FC

This principle is implemented, as noted in the IMF's 2006 report. The Italian regulatory framework sets specific authorization standards for both CIS and CIS operators. The authorization to manage CIS is based on the fulfillment of a set of criteria, including capital adequacy, integrity and experience requirements, and adequacy of internal controls and management systems. According to the IMF report, the CONSOB and the BoI share oversight of CIS and CIS operators. The BoI is in charge of authorization of CIS, as well as financial stability of CIS and CIS operators, whereas the CONSOB is responsible for matters regarding transparent and proper conduct of CIS operators and CIS public offerings. While examination of CIS is part of CONSOB's annual inspections, BoI's monitoring of CIS activities is mainly performed through analysis of CIS reports submitted on a regular basis.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

FC

This principle is implemented, as stated in the IMF's 2006 report. Requirements for the legal form and structure of CIS are provided under rules and prospectus of the CIS, both of which are subject to authorizations procedures. Furthermore, the custody of assets of CIS are entrusted to depositary banks, which are subject to the regular supervision of the BoI.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

FC

This principle is implemented, according to the IMF's 2006 report. CIS operators, including asset management companies, are subject to periodic reporting, and are required to prepare a comprehensive prospectus that allows investors to evaluate the proposed investment. The IMF report notes that the content of the prospectus is in line with EU legislation.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

FC

This principle is implemented, as stated in the IMF's 2006 report. Pursuant to the Consolidated Law on Financial Intermediation, the BoI, after consultation with the CONSOB, establishes the criteria or methods for valuing CIS assets and calculating net asset value. External auditing firms of the CIS are further required to verify compliance with the valuation rules. According to the IMF report, valuation criteria follow national generally accepted accounting standards, and are consistent with IFRSs.

21. Regulation should provide for minimum entry standards for market intermediaries.

FC

This principle is implemented, as noted in the IMF's 2006 report. The Consolidated Law on Financial Intermediation establishes the general rules concerning the authorization and licensing of market intermediaries. CONSOB and BoI regulation establish more detailed requirements for, respectively, investment firms and banking institutions providing investment services. Furthermore, the CONSOB and the BoI can revoke a license when they consider that the investment firm or bank does not meet the minimum requirements. The IMF report notes that Italian legislation in this area is in line with EU Directives, including the EU Directive No. 2004/39/EC on Markets in Financial Instruments (MiFID) and the EU Consolidated Banking Directive No. 2000/12/EC, 2000. According to a 2008 study by the Studio Legale Beltramo law firm, Legislative Decree No. 164 of 2007 has been enacted to transpose MiFID into Italian law. The CONSOB has also adopted the new 2007 regulations No. 16190 and No. 16191 regarding intermediaries and financial markets respectively.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

FC

This principle is implemented, as stated in the IMF's 2006 report. The IMF report notes that current prudential requirements are more stringent than those required by European legislation, including the EU Capital Requirements Directive No. 2006/48/EC and No. 2006/49/EC. In addition, per the IMF report, "intermediaries are required to comply with supervisory capital requirements, whose amount depends on the nature and the level of the risk incurred" (p. 16), and to submit sufficient data to the CONSOB and the BoI to verify their compliance with the requirements. The IMF report notes that investment firms may adopt internal models to calculate the capital requirements for market risk subject to the approval of the BoI.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

FC

This principle is implemented, according to the IMF's 2006 report. Market intermediaries are required to act in a transparent manner, and with due diligence in the interest of their customers and the integrity of the market. Furthermore, in order to mitigate conflicts of interest, market intermediaries are required to implement adequate measures to prevent inappropriate information exchange between different departments of the firm that need to be separated. In addition, CONSOB regulation requires market intermediaries to establish specific procedures to deal with customer complaints. In this regard, "customers are entitled to take legal action for damages relating to the provision of financial services" (p. 17) per the IMF report.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

FC

This principle is implemented, as noted in the IMF's 2006 report. Pursuant to the Consolidated Law on Financial Intermediation, and Legislative Decree No. 385 of 1993 (Banking Law), per the same report, "competent authorities may suspend the management of a market intermediary as a matter of urgency and appoint a provisional administrator to take over their management" (p. 18). Furthermore, in the case of insolvency, the MEF, upon proposal of the CONSOB or BoI, "may issue a decree withdrawing authorization to carry on business, and ordering the compulsory liquidation of the firm" (p. 18).

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

FC

This principle is implemented, as stated in the IMF's 2006 report. The CONSOB is the competent authority for authorizing and regulating markets and trading systems. Provisions concerning the authorization of exchanges and trading systems, as well as the recognition of foreign markets are established under the Consolidated Law on Financial Intermediation. Per the same report, the CONSOB monitors compliance with CONSOB regulations, and can require that market operators amend market rules. Per the IMF report, markets rules, which are approved by the CONSOB and adopted by market operators, refer to "conditions and procedures for admission, exclusion and suspension of market participants to and from trading" (p. 19). The CONSOB, together with the BoI, check that market rules comply with regulation enacted by the MEF. Upon proposal of the BoI and after consultation with the CONSOB, the MEF may require that market operators amend market rules.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

CP

According to the IMF's 2006 report, this principle is broadly implemented. To ensure the proper functioning of the market, the Italian supervisory framework still needs to be complemented with on-site inspections "to achieve a more thorough and effective supervision of critical aspects such as the reliability and effectiveness of the organizational structure, systems and procedures and internal controls designed by the market operator" (p. 19) as stated in the IMF report. While market operators are required to submit reports in this area, it is important that the CONSOB and the BoI do not exclusively rely on the operators' reports, and conduct independent verifications of such critical aspects through on-site inspections. Per the same report, although the CONSOB monitors the markets in a timely fashion to detect unusual or suspicious transactions, it does not monitor the wholesale government securities market on a real time basis. In order to effectively supervise the government securities market on issues of market manipulation and investor protection, the IMF report emphasizes the need for CONSOB "to adequately integrate the information it receives on the wholesale government bonds market with the information it collects on the government securities retail market" (p. 20).

27. Regulation should promote transparency of trading.

FC

This principle is implemented, as stated in the IMF's 2006 report. Pursuant to the Consolidated Law on Financial Intermediation, per the same report, market operators are required to establish "comprehensive procedures for the verification, publication and dissemination of prices to market participants and the public" (p. 20). Furthermore, market rules promoting transparency of trading have to be approved by the CONSOB. Standards of transparency are also high in the wholesale government securities markets and alternative trading systems.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

FC

This principle is implemented, as stated in the IMF's 2006 report. The disciplinary framework with regards to market manipulation and insider trading was strengthened as a result of the adoption of the Law on Market Abuse No. 62 of 2005, which establishes a wide range of penal sanctions. The Law also includes administrative sanctions to be applied by CONSOB for both types of conducts. Per the same report, while CONSOB monitors the markets in a timely fashion to detect unusual or suspicious transactions, it does not monitor the wholesale government securities market on a real time basis. In order to effectively supervise the government securities market on issues of market manipulation and investor protection, the IMF report emphasizes the need for CONSOB "to adequately integrate the information it receives on the wholesale government bonds market with the information it collects on the government securities retail market" (p. 21).

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

FC

This principle is implemented, as stated in the IMF's 2006 report. Large exposures are monitored by authorized intermediaries, clearing houses and market operators, under the ultimate responsibility of the BoI and the CONSOB. Through the internal system of the Italian Clearing House, the BoI monitors large exposures of the clearing houses' participants on the proprietary and customers' accounts. Per the same report, the CONSOB, in agreement with the BoI, establishes the regulation with respect to the insolvency of market participants of the clearing house. To this end, the CONSOB and the BoI have concluded MoUs to cooperate and exchange information with domestic and foreign regulators. Within the EU, the Settlement Finality Directive No. 98/26/EC establishes the procedures to communicate an insolvency of a clearing house participant.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

CP

This Principle was assessed as part of the IMF's 2006 Detailed Assessment of Monte Titoli's Observance of the CPSS/IOSCO Recommendations for Securities Settlement Systems. According to the Detailed Assessment, Italy broadly observes this principle. Furthermore, Italy fully implemented 18 out of 19 CPSS/IOSCO Recommendations, and broadly observed only one Recommendation. Per the same report, the tasks and the role of the CONSOB and the BoI with respect to securities clearing and settlement activities are clearly defined in the laws and regulations. Monte Titoli was founded in 1978, and since 1986 has been the Italian Central Securities Depository for all Italian financial instruments.