The rules of financial and swap transactions to be entered into by Italian regions and local authorities are now under construction by the Italian legislator.
A new regulation should be approved regarding financial transactions to be finalised by regions and local authorities, including derivative transactions.
A main issue is the classification of regions and local authorities as professional or retail clients when dealing with financial intermediaries.
The Ministry of Economy and Finance will issue a regulation for the identification of public professional clients, also providing the procedures and criteria to be followed by public authorities that intend to be treated as professional clients.
In addition, according to Law Decree 112 of June 25 2008 (Law Decree 112), converted into law with amendments by Law 133 of August 6 2008, the Ministry of Economy and Finance will issue a regulation for the identification of derivative transactions that regions and local authorities will be allowed to enter into, as well as the criteria and conditions to be observed in the finalisation of such transactions (Swap Regulation).
For the time being and before the implementation of the Swap Regulation by the Ministry of Economy and Finance, Law Decree 112 has introduced strong rules and restrictions regarding the financial and swap transactions of regions and local authorities.
The most relevant restriction is that no derivative transaction, nor any renegotiation of outstanding derivative transactions (other than novation agreements not amending the terms of the original trades), may be entered into by regions and local authorities before the implementation of the Swap Regulation and, in any case, during a one-year period since the entering into force of Law Decree 112.
In addition, under Law Decree 112, regions and local authorities are not allowed to incur indebtedness, enter into loans or issue notes when the principal is not reimbursed on an amortising basis.
The amortising period will not exceed a period of 30 years, even when refinancing or renegotiation transactions are finalised by regions and local authorities.