1. CONCEPT: WHAT IS EXECUTION-ONLY?

Under MiFID, bank has 3 levels of service, each with different investor protection:

Execution-Only = Bank acts as mere order transmitter. No assessment of knowledge/experience required. Minimal investor protection.

Condition for Execution-Only (Art 25(4) MiFID II, Art 216 LMV - Texto Refundido Ley Mercado Valores RD 4/2015, now Ley 6/2023 de Mercados):

Can ONLY be used if ALL 4 conditions met:

1. Instrument is non-complex (Art 25(4)(a)): Listed shares, plain vanilla bonds, money market instruments, UCITS. Complex instruments NEVER execution-only: Preferentes, subordinated debt, swaps, structured products, CFDs.
2. Service provided at initiative of client (not bank calling you)
3. Client has been clearly warned that bank will not assess appropriateness and does not benefit from protection - Warning in standardized format.
4. Bank complies with conflicts of interest and best execution.

If any condition fails = Misclassification = Service becomes non-advised sale requiring appropriateness test.

2. WHY SPAIN HAS MASSIVE DISPUTES?

Spanish banks (Bankia, Caixa, Santander, BBVA) sold Preferentes (Preferred Shares), Subordinated Debt, and Floor Clauses linked swaps as execution-only to retired retail clients with no financial knowledge, saying "It's like a deposit".

But Preferentes are complex instruments per MiFID and CNMV. Cannot be execution-only. Therefore bank had duty to do appropriateness test (test de conveniencia) and suitability test.

When product collapsed (2012-2013), clients sued: "You sold me as execution-only, but you should have classified me as retail needing full protection and assessed appropriateness."

3. SPANISH LAW FRAMEWORK

A. MiFID II Transposition:

• Ley 6/2023, de 17 de marzo, de los Mercados de Valores y de los Servicios de Inversión (New LMV) - Replaces RD Legislativo 4/2015
• Art 208-216 LMV: Classification
• Art 209: Retail vs Professional vs Eligible Counterparty
• Art 216: Execution-only conditions

B. CNMV Guidance:

• CNMV Q&A on MiFID - Complex vs Non-complex list

4. DETAILED CASE LAWS - SPAIN AND CJEU

CASE 1: THE FOUNDATION - CJEU CASE - GENIL v. BANKINTER - C-604/11 (30 May 2013)

Facts: Spanish company Genil 48 SL bought IRS (Interest Rate Swap) from Bankinter. Bank classified it as execution-only. Client lost €500k.

Question to CJEU: Is swap complex? Can it be execution-only?

CJEU Held:

• IRS Swap is complex instrument under MiFID.
• Cannot be sold execution-only.
• Bank must do appropriateness test.
• Even if client is company, not consumer, MiFID protection applies if not professional client.
• Spanish impact: All swaps sold as execution-only in Spain = voidable.

CASE 2: SPANISH SUPREME COURT - PREFERENTES CASES - STS 244/2013 of 18 April 2013 + STS 458/2014 - THE LEADING CASES

STS 244/2013 (Bankinter) and STS 458/2014 (Bankia):

Facts: 80-year-old retired client with primary education bought Preferentes de Caja Madrid por €100,000. Bank classified as execution-only, made client sign "I have initiative, I understand product is complex, no advice".

Supreme Court Held (Doctrine that generated 300k cases):

1. Preferentes are complex and high-risk.
2. Execution-only classification invalid if bank took initiative (bank called client, offered branch meeting).
3. Warning clause in contract is boilerplate - Not enough if bank did not explain risks.
4. Burden of Proof: Bank must prove it complied with appropriateness test. Not client to prove ignorance.
5. Error Vicio: Lack of appropriateness test leads to error in consent (error vicio del consentimiento) under Art 1265 Civil Code - Contract voidable.

Result: Bank must return €100,000 + interest, client returns preferentes (now worthless).

This doctrine repeated in 1,500+ Supreme Court judgments 2013-2020.

CASE 3: FLOOR CLAUSES SWAPS - STS 840/2013 of 20 Jan 2014

Bank sold mortgage with floor clause + interest rate swap as hedge, classified as execution-only.

Supreme Court: Swap linked to mortgage is complex, cannot be execution-only. Bank had duty to assess. If client retail, swap void.

CASE 4: CJEU ON EXECUTION-ONLY WARNING - CASE C-19/11 - GELD LAGNE v. Caja de Ahorros del Mediterráneo

Question: Is it enough to put warning "This is execution-only, no protection" in contract?

CJEU: No. Warning must be clear, and bank must still ensure product is non-complex. If complex, warning does not cure - Service cannot be execution-only at all.

Spanish Application: In STS 149/2014, Supreme Court said banks used standardized warnings to circumvent MiFID - Invalid.

CASE 5: CJEU - NATEK vs Sberbank - C-671/13 - INITIATIVE TEST

Facts: Who took initiative? Bank says client came to branch.

CJEU: Initiative must be real. If bank advertises product, sends letter, calls client, or includes product in portfolio proposal, it is bank's initiative, not client's. Cannot be execution-only.

Spanish Supreme Court Applied in STS 138/2017: If client went to renew term deposit and bank employee said "This deposit gives low interest, we have preferentes with 7% - Do you want?", That is bank initiative, not execution-only.

CASE 6: CJEU - C-604/11 Genil Doctrine Extended - CASE C-143/20 - Caixa Bank vs Client - 2022

Facts: Bank sold subordinated bonds as execution-only.

CJEU: Subordinated bonds are complex if they include bail-in clause (since BRRD 2014). Cannot be execution-only to retail.

Impact in Spain: After 2016, all subordinated debt with bail-in clause = complex. Banks must reclassify clients who bought before as retail needing appropriateness.

CASE 7: STS 1505/2023 - EXECUTION-ONLY vs ADVISORY BOUNDARY

Latest Spanish Supreme Court on Execution-Only Classification:

Facts: Client had portfolio with Bankinter, bank sent periodic reports saying "We recommend you maintain preferentes". Bank claimed execution-only.

Supreme Court: If bank gives any personal recommendation or opinion that influences decision, it ceases to be execution-only and becomes advisory, requiring suitability test (test de idoneidad) under Art 213 LMV, which is stricter than appropriateness.

Test: Would reasonable retail investor think bank is advising? If yes, advisory.

5. HOW SPANISH COURTS DECIDE EXECUTION-ONLY DISPUTE - 4-STEP TEST

Spanish judge uses this checklist (from STS 102/2024):

Step 1: Was instrument complex or non-complex? (CNMV list)

• If complex → Execution-only impossible → Bank loses.

Step 2: Who took initiative? (Art 216(b) LMV)

• If bank offered, called, marketed → Not client initiative → Not execution-only.

Step 3: Was warning given in correct format? (Art 216(c))

• Must be in durable medium, separate warning, not buried in 40-page contract.

Step 4: Did bank actually give advice?

• Even if contract says execution-only, if employee said "This is good for you", it becomes advisory.

If bank fails any step → Reclassification to non-advised sale or advisory → Must have done appropriateness/suitability → If not done → Contract voidable for error or breach of MiFID = Bank must restitute.

6. CONSEQUENCES

A. Civil: Nullity for error vicio (Art 1301 Civil Code) - 4-year limitation from when client discovers error (not from purchase). Supreme Court says limitation starts when client realizes loss, not when bought (STS 19/02/2018).

B. Administrative: CNMV can fine bank €300k-€600k for systematic misclassification.

C. Criminal: If intentional misclassification to place toxic product to retail, can be estafa (Art 248 CP) or administración desleal.

Bottom Line: In Spain, execution-only is interpreted restrictively. CJEU and Spanish Supreme Court say: When in doubt, it is NOT execution-only. Banks must prove all 4 conditions. Preferentes, swaps, subordinated, structured products can NEVER be execution-only for retail.