SECURITIES AND EXCHANGE COMMISSION

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

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20549

1

DIVISION OF

.JING AND MARKETS

December 22, 2008

Nicholas A. Kronfeld

Davis Polk & Wardwell

450 Lexington Avenue

New York, NY 10017

Re: Banco Santander, S.A.

File No. TP 09-29

Dear Mr. Kronfeld:

In your letter dated December 19, 2008, as supplemented by conversations with the

staff, you request on behalf of Banco Santander, S.A., a bank organized under the laws of

the Kingdom of Spain ("Santander"), an exemption from Rules 101 and 102 of Regulation

M under the Securities Exchange Act of 1934 ("Exchange Act") in connection with the

distribution of Santander Shares, in the form of American Depositary Shares (the.

"Santander ADSs"), to be made by Santander to shareholders of Sovereign Bancorp, Inc., a

Pennsylvania corporation ("Sovereign"), in connection with the proposed acquisition of

Sovereign by Santander (the "Acquisition") as described in your letter.

You seek an exemption to permit Santander and its affiliates to conduct specified

transactions outside the United States in Santander Shares and Santander ADSs during the

distribution of Santander ADSs in connection with the Acquisition. Specifically, you

request that: (i) the Market Making Subsidiary be permitted to continue to engage in

market making activities as described in your letter; (ii) the Derivatives Market Maker be

permitted to continue to engage in derivatives market-making and hedging activities as

described in your letter; (iii) the Asset Managers be permitted to continue to engage in

asset management activities as described in your letter; (iv) the Insurance Company be

permitted to continue to engage in insurance activities as described in your letter; and (v)

the Non-U.S. Brokerage Units be permitted to continue to engage in unsolicited brokerage

activities as described in your letter.

)

,_

You also seek an exemption to permit certain Santander affiliates to conduct

specified transactions in the United States in Santander Shares and SantanderADSs during

the distribution of Santander ADSs in connection with the Acquisition. Specifically, you

request that: (i) the Puerto Rico Asset Manager be permitted to continue to conduct asset

management activities in Puerto Rico as described in your letter; (ii) Banco Santander

International be permitted to continue to conduct asset management activities from the

Continental United States for non-U.S. clients as described in your letter; and (iii) the U.S.

Brokerage Units be permitted to continue to engage in unsolicited brokerage activities as

/

•

NicholaS A. Kronfeld

December 22, 2008

Page 2 of5

)

described in your letter. We have attached a copy of your correspondence to avoid reciting

the facts set forth therein. Unless otherwise noted, each defined tenn in our response has

the same meaning as defined in your letter.

. Response:

Based on the facts and representations that you have made in your letter, but

without necessarily concurring with your analysis, the Commission hereby grants

Santander an exemption from Rules tol and to2 of Regulation M to pennit the Market

Making Subsidiary, Derivatives Market Maker, the Asset Managers including the Puerto

Rico Asset Manager and Banco Santander International, the Insurance Company, and the

Brokerage Units including the U.S. Brokerage Units (collectively, the "Companies") to

continue to engage in the transactions described in your letter. In particular, in your

correspondence you make the following key representations:

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•

The average daily trading volume ("ADTV") of Santander Shares on the Spanish

Exchanges during the six months that ended on June 30,2008 1 was 94.1 million

shares valued at approximately €1.189 billion ($1.872 billion);

•

Santander's market capitalization as of June 30,2008 was approximately €72.99

billion ($114.94 billion), making it Spain's second largest company by

capitalization and representing 17.65% ofthe IBEX 35 index;

•

As of June 30, 2008, over 6 billion shares of Santander Shares were outstanding

that were held by over 2 million record holders with a public float value in excess.

of $100 billion;

•

The principal trading market for Santander Shares is on the Spanish Exchanges

through the AQS accounting for approximately 95% of the global ADTV value

during the six months that ended on June 30, 2008;

•

The ADTV value of the Santander ADS on the NYSE during the six months ended

June 30, 2008 was approximately $21.84 million;

•

The Santander ADSs to be issued in connection with the Acquisition will represent

approximately 2% of the of the Santander Shares currently outstanding;

•

Santander maintains and enforces written infonnation barrier policies and

procedures to prevent material non-public infonnation from passing between the

sales/trading areas and other sensitive areas of Santander includingthe investment

oversight committee;

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As noted in your letter, Santander represents that it is not aware of any material changes in the nature or

volume of its trading activities since June 30, 2008.

I ..

Nicholas A. Kronfeld

December 22, 2008

Page 3 of5

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•

The Market Making Subsidiary conducts its market making activities outside the

United State~ and, during the six months that ended on June 30, 2008, the market

making activities by the Market Making Subsidiary accounted for approximately

1.853% ofthe ADTV in Santander Shares on the Spanish Exchanges;

•

The Derivatives Market Maker conducts its derivatives market making and hedging

activities outside the United States and, during the six months that ended on June

30,2008, the derivatives market making and hedging actlviti~s ofthe Derivatives

Market Maker accounted for approximately 1.31% of the ADTV in Santander

Shares on the Spanish Exchanges;

•

All of the Asset Managers except for the Puerto Rico Asset Manager and Banco

Santander futernational conduct their investment management activities outside the

United States;

•

The Puerto Rico Asset Manager will only engage in normal course asset

management activities in Puerto Rico and the Puerto Rico Asset Manager's volume

oftrading in Santander Shares has historically been low;

•

Banco Santander International will only engage in normal course asset

management activities with non-U.S. clients;

.

•

The Insurance Company sells insurance products and conducts activities in

connection with investment selections made by purchasers of such insurance

products outside the United States;

•

Each of the Non-U.S. Brokerage Units conducts its unsolicited brokerage activities

outside the United States and, during the six months that ended on June 30, 2008,

the unsolicited brokerage activities of the Non-U.S. Brokerage Units accounted for

approximately 10.79% of the ADTV in Santander Shares on the Spanish

Exchanges;

•

Each ofthe U.S. Brokerage Units have been instructed to not make any investment

recommendations to their customers with respect to Santander Shares or ADSs

during the restricted period and will only engage in normal course unsolicited

brokerage activities, which represents approximately 0; 11 % of the worldwide

ADTV in Santander Shares during the six months that ended on June 30, 2008;

•

The withdrawal of a significant market maker in Santander Shares in the primary

market for those shares for an extended period of time would have harmful effects

in the home market and, indirectly, in the U.S. market, for Santander Shares,

/

Nicholas A. Kronfeld

December 22, 2008

Page 4 of5

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including a significant imbalance ofbuy and sell orders, which could cause greater

volatility and reduced liquidity;

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•

Each of the Market Maker Subsidiary, Derivatives Market Maker, the Asset

Managers, the Insurance Company, and the Brokerage Units has confirmed that the

activities for which it is requesting relief will be conducted in the ordinary course

of its.businesses and in accordance with applicable Spanish, and other non-U.S.

. laws;

•

In the United States, Santander conducts a securities business through Santander

Securities Corporation, Santander Investment Securities, Banesto Securities, and

ANSI, each a separate subsidiary that is registered with the Commission as a

broker-dealer and is a member ofFINRA, and Santander Investment Securities and

ANSI are also members of the NYSE; and

•

Santander Securities Corporation, Santander Investment Securities, Banesto

Securities, and ANSI will not engage in derivatives market marking and hedging,

asset management and insurance, but rather will only engage in unsolicited

brokerage activities in the normal course of its business with its customers.

The exemption is subject to the following conditions:

1. None of the transactions of the Companies described in your letter shall occur in

the United States, with the exception of the unsolicited brokerage ofthe U.S.

Brokerage Units, the Puerto Rican client asset management activities of the Puerto

Rico Asset Manager and non-U.S. client asset management activities of Banco .

S.antander International described in your letter;

2. All of the transactions described in your letter shall be effected in the ordinary

course of business and not for the purpose of facilitating the Acquisition;

3. .The registration statement/proxy that will be.distributed to Sovereign shareholders

will disclose the possibility of, or the intention to make, the transactions described

in you letter;

4. Santander and each of the Companies will provide to the Division of Trading and

Markets ("Division"), upon request, a time-sequenced schedule of all such

transactions made during the Restricted Period. Such schedule· will include:

)

(a) size, broker (if any), time of execution, and price of the transactions;

(b) the exchange, quotation system, or other facility through which the

transactions occurred, and

(c) whether the transactions were made for a customer account or a proprietary

account;

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Nicholas A. Kronfeld

December 22, 2008

Page 5 of5

5. Upon request ofthe Division, Santander and each ofthe Companies will transmit

the information requested in item 4 (above) to the Division at its offices in

Washington, D.C. within 30 days of its request;

6. Santander and each of the Companies shall retain all documents and other

information required to be maintained pursuant to this exemption for at least two

years following the completion of the Acquisition;

7. Representatives of Santander and each of the Companies shall be made available

(in person at the offices ofthe Commission in Washington, D.C. or by telephone)

to respond to inquiries of the Division relating to their records; and

8. Except as otherwise exempted by this letter, Santander and each of the Companies·

will comply with Regulation M..

The foregoing exemption from Rules 101 and 102 of Regulation M is based solely

on your representations and the facts presented to the staff and is strictly limited to the

application of this rule to the proposed transactions. Such transactions should be

discontinued, pending presentation of the facts for our consideration, in the event that any

material change occurs with respect to any of those facts or representations.

In addition, your attention is directed to the anti-fraud and anti-manipulation

provisions of the Exchange Act,including Sections 9(a) and lO(b), and Rule 10b-5

thereunder. Responsibility for compliance with these and any other applicable provisions

of the federal securities laws must rest with the participants in the various transactions.

The Division expresses no view with respect to any other questions that the proposed

transactions may raise, including, butnot limited to, the adequacy of disclosure

concerning, and the applicability of any other federal or state laws to, the proposed

transactions.

For the Commission,

by the Division of Trading and Markets,

Y

,

??;::Oril

Josephine J. Tao

Assistant Director

Attachment

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DAVIS POLK & WARDWELL

MENLO PARK

450 LEXINGTON AVENUE

WASHINGTON,

NEW YORK. NY 100 17

D.C.

LONDON

2124504000

FAX 2 I 2 450 3800

PARIS

FRANKFURT

MADRID

TOKYO

NICHOLAS ADAMS KRONFELD

2124504950

BEIJING

NICHOLAS. KRONFE.LO@OPW.COM

HONG KONG

December 19,2008

Re:

Ban~o Santander, S.A. Request for Exemptive Relief from Rules 101

and 102 of Regulation M

Josephine J. Tao

Assistant Director

Division of Trading and Markets

Securities and Exchange Commission.

100 F Street, N.E.

Washington, D.C. 20549

SEC

Mall Processing

Section

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Washlngtofi, 00

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Dear Ms. Tao:

We are writing as counsel to Banco Santander, S.A. ("Santander"), a

bank organized under the laws of the Kingdom of Spain, with respect to the

application of Regulation M to t~ansactions by Santander and its affiliates in the

ordinary shares of Santander (the "Santander Shares") during the distribution of

Santander Shares, in the form of American Depositary Shares (the "Santander

ADSs"), to be made by Santanderto shareholders of Sovereign Bancorp, Inc., a

Pennsylvania corporation ("Sovereign"), in connection with the proposed

acquisition of Sovereign by Santander (the "Acquisition"). Specifically, on

behalf of Santander, we ask the members of the staff (the "Staff') of the

Securities and Exchange Commission (the "SEC") to grant Santander exemptive

relief from Rules 101 and 102 of Regulation M to permit Santander and its

affiliates to continue, in the ordinary course oftheir respective businesses as

described below and in accordance with applicable local law, to engage in the

activities described below during the distribution of Santander ADSs in

connection with the Acquisition. In connection with the relief requested by

Santander in this letter, please note that substantially similar exemptive relief

from Rules 101 and 102 of Regullition M was granted to Santander under each of

your exemptive letters dated September 10, 2004, August 18, 2008 and November

7,2008. 1

.

See Banco Santander Central Hispano, S.A., SEC No-Action Letter, File No. TP 04-70 (Sep.

10,2004), Banco Santander, S.A., SEC No-Action Letter, File No. TP 08-77 (Aug. 18,2008)

and Banco Santander, S.A., SEC N<>:-Action Letter, File No. TP 09-16 (Nov. 7,2008).

!';

Josephine 1. Tao

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2

December 19, 2008

This letter sets forth data concerning the trading activity of Santander and

its affiliates for periods ending June 30,2008. Santander has represented to us

that it is not aware of any material changes in the nature or volume of these

activities since June 30, 2008.

Market Making Activities. As is customary in Spain for financial

institutions, Santander engages in market making activities with respect to

Santander Shares throufh a subsidiary dedicated to that function (the "Market

Making Subsidiary"). The Market Making Subsidiary makes bids and offers

for Santander Shares on the Automated Quotation System (Sistema de

Interconexi6n Burscitil Espanol) of the Spanish stock exchanges (the "AQS"), the

centralized national market that integrates by computer quotation the Spanish

stock exchanges in Madrid, Barcelona, Bilbao and Valencia (collectively, the

"Spanish Exchanges") and purchases and sells Santander Shares on the AQS.

The Market Making Subsidiary effects these transactions for its own account in

order to provide liquidity to the market.

.

Derivatives Market Making and Hedging. As part of its business, the

Treasury department of Santander andWallcesa, S.A. (a subsidiary of Santander)

that effects trades in derivative~ on Santander Shares in connection with stock

options issued by Santander (the "Derivatives Market Maker") issues, buys and

sells derivatives on Santander Shares or on baskets or indices including Santander

Shares (the "Santander Share Derivatives") for its own account and for the

accounts of its customers outside the United States. These derivatives include

listed and over-the-counter options, warrants, futures, convertible securities and

other structured products relating to Santander Shares ~r to baskets or indices

including Santander Shares, as well as index futures on the foregoing. The

Derivatives Market Maker engages in derivatives market making activities, on

both solicited and unsolicited bases, in order to provid~liquidity to the derivatives

market and to facilitate customers' derivatives transaCtions. These transactions

are effected primarily on the MEFF Renta Variable, S.A. (the "MEFF Renta

Variable") with the balance occurring on other~xchangesoutside the United

States and, in some cases, in the over-the-counter market outside the United

States. In addition, the Derivatives Market Maker solicits and effects trades in

Santander Shares or in derivatives, including listed andover-the-counter options,

warrants, futures, convertible securities and other structured products relating to

Santander Shares or baskets or indices including Santander Shares, as well as

index futures on the foregoing, for its own account and for the accounts of its

-customers for the purpose of hedging positions (or adjusting or liquidating

existing hedge positions) belonging to it and its customers that are established in

connection with these derivatives market making activities. The hedging

. transactions in Santander Shares are effected outside the United States through the

AQSand the hedging transactions in derivatives on Santander Shares are effected

outside the United States on the MEFF Renta Variable, on other exchanges

Santander's market making activities are carried out by Pereda Gesti6n, S.A., a corporation

organized under the laws of Spain.

)

Josephine 1. Tao

3

December 19, 2008

outside the United States and in the over-the-counter market outside the United

States. During the twelve months ended December 31, 2007 and the six months

ended June 30, 2008 these market making and hedging transactions in Santander

Shares and derivatives on Santander Shares amounted to approximately 3.99%

and 1.31 %, respectively, of the value of average daily trading volume (the

"ADTV") in Santander Shares on the Spanish Exchanges.

Trading in Santander Shares by the Asset Managers. Certain affiliates of

Santander manage the assets of mutual funds, pension funds and discretionary

investor portfolios (such affiliates, the "Asset Managers"; such funds and

discretionary investor portfolios, the "Managed Funds,,).3 As part of their

ordinary investment management activities on behalf of the Managed Funds, the

Asset Managers buy and sell Santander Shares and derivatives, including listed

and over-the-counter options, warrants, convertible securities and other structured

products relating to Santander Shares or baskets or indices including Santander

Shares, as well as index futures on the foregoing, for the Managed Funds'

accounts.

Trading by the Insurance Company. As part of its ordinary business,

Santander Seguros y Reaseguros, S.A., an affiliate of Santander incorporated in

Spain (the "Insurance Company"), sells certain insurance products requiring the

insurer to invest the premiums paid by the purchaser of the policies within certain

asset classes determined by that purchaser (such as shares represented in the

IBEX 35 Index, which includes Santander Shares) (such products, the "Asset

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The Asset Managers consist of BanifGesti6n, S.A., S:O.I.I.C., Banesto Banca Privada

Gestion, S.A., S.G.I.I.C., Optimal Alternative Investment, S.A., S.G.I.I.C., Santander

Carteras, S.G.C., S.A., Santander Asset Management, S.A., S.G.I.I.C. and Santander

Pensiones, SA, E.G.F.P., each a corporation organized under the laws of Spain (collectively,

the "Spanish Asset Managers"), Santander Rio Asset Management Gerente de Fondos

Comunes de Inversi6n SA., a corporation organized under the laws of Argentina, Santander

Asset Management DTVM, Ltda., a corporation organized under the laws of Brazil,

Santander Asset Management, S.A., Administradora General de Fondos, a corporation

organized under the laws of Chile, Santander Investment Trust Colombia S.A., Sociedad

Fiduciaria, a corporation organized under the laws of Colombia, Santander Asset

Management Ireland, Ltd., a corporation organized under the laws of Ireland, Santander

Private Banking, SpA, a corporation organized under the laws of Italy, Santander Asset

Management Luxembourg, S.A., a corporation organized under the laws of Luxembourg,

Gestion Santander, S.A. de C.V., Sociedad Operadora de Sociedades de Inversion, Grupo

Financiero Santander, each a corporation organized under the laws of Mexico, Santander

Asset Management - Sociedade Gestora de Fundol: de Investimento Mobiliario, S.A. and

Santander Pensoes - Sociedade Gestora de Fundos de Pens(les, S.A., each a corporation

organized under the laws of Portugal, Santander Asset Management Corporation, a

corporation organized under the laws of Puerto Rico (the "Puerto Rico Asset Manager"),

Banco Santander (Suisse), S.A. and Optimal Investment Services, S.A., each a corporation

organized under the laws of Switzerland, Santander Asset Management UK Holding Ltd.,

Santander Asset Management UK Limited, Abbey National PEP & ISA Managers Limited,

Santander Unit Trust Managers UK Limited, and Santander Portfolio Management UK

Limited, each a corporation organized under the laws of the United Kingdom, and Banco

Santander International, a banking corporation organized under U.S. laws ("Banco

Santander International").

Josephine 1. Tao

)

4

December 19, 2008

Class Policies"). The Insurance Company does not provide any investment

advice to purchasers with respect to the asset classes that may be selected by the

customer as part of the Asset Class Policies.

Unsolicited Brokerage. The non-U.S. brokerage units set forth in note 4

below (the "Non-U.S. Brokerage Units,,)4 effect unsolicited brokerage

transactions in Santander Shares by placing orders on the AQS and other overseas

exchanges or effecting trades in the over-the-counter markets in Spain and

elsewhere outside the United States. These transactions arise from unsolicited

buy or sell orders received by the Non-U.S. Brokerage Units from their

customers, although the Non-U.S. Brokerage Units may solicit the other side of

these transactions. Additionally, Santander conducts a securities business through

its affiliated U.S. (including Puerto Rico) broker-dealers, Santander Securities

Corporation, a corporation incorporated under the laws of Puerto Rico

("Santander Securities Corporation"), Santander Investment Securities, Inc., a

corporation incorporated under the laws of the state of Delaware ("Santander

I~vestmentSecurities"), Banesto Securities, Inc., a corporation incorporated

under the laws of the state of Delaware ("Banesto Securities"), and Abbey

National Securities Inc., a corporation incorporated under the laws ofthe state of

Delaware ("ANSI" ·and, together with Santander Securities Corporation,

8-antander Investment Securities and Banesto Securities, the "U.S. Brokerage

Units"; the U.S. Brokerage Units, together with the Non-U.S. Brokerage Units,

the "Brokerage Units"), each of which may engage in unsolicited brokerage

transactions in the Santander Shares and Santander ADSs with its customers in

the United States. These transactions would be effected in the United States

markets or in the non-U.S. markets described above. During the twelve months

ended December 31,2007 and the six months ended June 30, 2008, the

unsolicited brokerage activities of the Brokerage Units (excluding trades executed

by the Non-U.S. Brokerage Units on behalf of the Market Making Subsidiary) as

a percentage of the worldwide value of ADTV in Santander Shares was 12.91 %

and 10.36%, respectively. During the twelve months ended December 31, 2007

4

)

The Non-U.S. Brokerage Units consist of Santander Investment Bolsa, S.V., S.A. and Banesto

Bolsa, S.A., Sociedad de Valores y Bolsa, each a corporation organized under the laws of

Spain (together, the "Spanish Brokerage Units"), Santander Sociedad de Bolsa, S.A., a

corporation organized under the laws of Argentina, Santander Investment Limited, a

corporation organized under the laws of Bahamas, Banespa, S.A. Corretora de Cambio e

Titulos, Santander Brasil S.A., Corretora de Cambio e Valores Mobiliarios, Santander

Distribuidora de Tftulos e Valores Mobiliarios Uda. and Norchem Participat,:oes e

Consultorfa, S.A., each a corporation organized under the laws of Brazil, Santander

Investment Valores Colombia, S.A., Comisionista de Bolsa Comercial, each a corporation

organized under the laws of Colombia, Santander Investment, S.A. Corredores de Bolsa and

Santander, S.A. Agente de Valores, each a corporation organized under the laws of Chile,

Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander and Efectividad en

Medios de Pago, S.A. de C.V., each a corporation organized under the laws of Mexico,

Marylebone Road CBa 3, BV, a corporation organized under the laws of The Netherlands,

Banco Santander de Negocios Portugal, S.A., a corporation organized under the laws of

Portugal, Abbey Stockbrokers Limited, a corporation organized under the laws of the United

Kingdom, and Valores Santander Casa de Bolsa, C.A., a corporation organized under the laws

of Venezuela.

Josephine 1. Tao

)

pecember 19, 2008

5

and the six months ended June 30, 2008, the unsolicited brokerage activities of

the U.S. Brokerage Units collectively as a percentage of the worldwide value of

ADTV in Santander Shares was 0.07% and 0.11%, respectively.

The Market Making Subsidiary, the Derivatives Market Maker, the

Spanish Asset Managers, the Insurance Company and the Spanish Brokerage

Units are collectively referred to herein as the "Spanish Companies". The

Spanish Companies, together with the other Asset Managers and the other

Brokerage Units are collectively referred to herein as the "Companies".

The availability of the exemptions Santander is requesting would be

conditioned on the disclosure and record-keeping undertakings outlined below.

The descriptions of factual matters in this letter, including the market for

Santander Shares and the Companies' business and market activities, as well as

the descriptions of certain matters under Spanish law and the laws of other

jurisdictions outside the United States included in this letter, have been provided

to us by Santander.

I.

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The Market for Santander Shares

The principal trading market for Santander Shares is on the Spanish

Exchanges through the AQS in Spain. The Santander Shares also are listed on the

New York (in the form of the Santander ADSs), Milan, Lisbon, Buenos Aires,

London and Mexico Stock Exchanges. Each Santander ADS represents one

.Santander Share and is evidenced by an American Depositary Receipt issued by

JPMorgan Chase Bank, as Depositary. Santander is a foreign private issuer as

defined in Rule 3b-4(c) under the U.S. Securities ExchangeAct of 1934.

. As of December 31, 2007, 6,254,296,579 Santander Shares were

outstanding, held by 2,278,321 record holders. Approximately 62.38% of the

outstanding Santander Shares were held of record by non-residents of Spain and

14.37% ofthe outstanding Santander Shares were held by 796 record holders with

registered addresses in the United States (including Puerto Rico).

As of June 30~ 2008, 6,254,296,579 Santander Shares were outstanding,

held by 2,255,266 record holders. Approximately 62.77% of the outstanding

Santander Shares were held of record by non-residents of Spain and 14.37% of

the outstanding Santander Shares were held by 814 record holders with registered

addresses in the United States (including Puerto Rico).

Santander's market capitalization at June 30, 2008 was approximately

€72.99 billion ($114.94 billion),5 the largest of any Spanish bank and the second

)

Throughout this letter, euros have been translated to dollars at the rate of€ 1 .00 = $1.4603, the

noon buying rate in New York City published by the Federal Reserve Bank of New York on

December 31, 2007, with regard to data as of or for periods ended December 31, 2007, and at

the rate of at the rate of€I.OO = $1.5748, the noon buying rate in New York City published by

the Federal Reserve Bank of New York on June 30, 2008, with regard to data as of or for

periods ended June 3D, 2008.

Josephine J. Tao

December 19, 2008

largest of any Spanish company, representing 17.65% of the IBEX 35 Index. The

values. of ADTV in the Santander Shares on the Spanish Exchanges during the

twelve months ended December 31, 2007 and the six months ended June 30, 2008

were approximately €1,190.63 million ($1,738.68 million) and €1,188.69 million

($1,871.95 million), or 97.8% and 95.0% of the global value of ADTV,

respectively. The ADTV in number of shares in the Santander Shares on the

Spanish Exchanges during the twelve months ended December 31, 2007 and the

six months ended June 30, 2008 were approximately 85.4 million shares and 94.1

million shares, respectively. The values of ADTV of the Santander ADSs on the

New York Stock Exchange (the "NYSE") during the twelve months ended

December 31, 2007 and the six months ended June 30, 2008 were approximately

$11.66 million and $21.84 million, respectively. The values of ADTV of the

Santander Shares on the Milan, Lisbon, Buenos Aires, London and Mexico Stock

Exchanges during the twelve months ended December 31, 2007 and the six

months ended June 30, 2008 were, in the aggregate, approximately €18.01 million

($26.30 million) and £48.22 million ($75.94 million), respectively.

The AQS links the Spanish Exchanges, providing securities listed on it

with a uniform continuous market that eliminates the differences among the

Spanish Exchanges. The principal feature ofthe system is the computerized

matching of buy and sell orders at the time of entry of the order. Each order is

executed as soon as a matching order is entered, but can be modified or canceled

until executed. The activity ofthe market can be continuously monitored by

investors and brokers. All trades on the AQS must be placed through a bank, a

brokerage firm, an official stock broker or a dealer firm member of a Spanish

Exchange directly. The AQS operates separate order-matching systems for block

trades (which exceed ceryain minimum amounts) and all other trades.

During the twelve months ended December 31, 2007 and the six months

ended June 30, 2008, the aggregate turnover on the Spanish Exchanges, for both

equity and debt securities, was in excess of€5,891 billion and €3,399 billion,

respectively, and as of December 31, 2007 and June 30, 2008, the overall market

capitalization of equity securities listed on the Spanish Exchanges was

approximately €1,384.7 billion and €1,259.0 billion, respectively. As of

December 31, 2007 and June 30, 2008, there were 3,537 and 3,615 listed

companies on the Spanish Exchanges~ respectively.

II.

Santander's Market Activities

Santander is one of the world's largest banking and financial services

groups, and its headquarters are in Madrid, Spain. In addition, Santander has

subsidiary, branch, representative and similar offices worldwide. Santander is

regulated and licensed under the Bank of Spain in Spain, and its branches and

affiliates in the United States are subject to·applicable U.S. bank regulations,

among other laws and regulations. Santander has confirmed that the activities

described below, for which it is requesting relief, are permitted under and would

be conducted in accordance with applicable Spanish law and other non-U.S. laws.

Assuming the requested relief is granted, Santander has confirmed that the·

)

Josephine 1. Tao

7

December 19, 2008

activities described below also would be conducted in accordance with applicable

U.S. law.

In the continental United States, Santander conducts a securities business

through Santander Investment Securities, Banesto Securities and ANSI and an

asset management business for non-U.S. clients through Banco Santander

International. During the twelve-month period of August 1,2007 through July

30, 2008, purchases and sales by Banco Santander International of Santander

Shares and Santander ADSs totaled approximately $1.39 million. Santander

Investment Securities and ANSI are registered with the SEC as broker-dealers and

are members of the Financial Industry Regulatory Association ("FINRA") and

the NYSE. Banesto Securities is registered with the SEC as a broker-dealer and is

a member of FINRA In Puerto Rico, Santander conducts a securities business

through Santander Securities Corporation and an asset management business

through the Puerto Rico Asset Manager. During the period from June 1, 2007

through July 30,2008, purchases and sales by the Puerto Rico Asset Manager of

Santander Shares and Santander ADSs totaled approximately $196 thousand.

Santander Securities Corporation is registered with the SEC as a broker-dealer

and is a member of FINRA. With respect to those activities for which Santander

is seeking relief, Santander Investment Securities, Banesto Securities and ANSI

will only engage in unsolicited brokerage activities in the United States,

Santander Securities Corporation will only engage in unsolicited brokerage

activities in Puerto Rico, the Puerto Rico Asset Manager will only engage in asset

management activities in Puerto Rico and Banco Santander International will only

engage in asset management activities from the continental United States for non­

U.S. clients. The rest of the activities for which Santander is seeking relief

(including unsolicited brokerage and asset management), with the possible

exception of trades made by the Spanish Asset Managers, which, due to their

fiduciary obligations as asset managers, cannot follow instructions from

Santander, or by the Asset Managers not based in Spain, which may not be able to

follow the instructions to be provided by Santander due to the same fiduciary

duties, will be conducted by the Spanish Companies and the other Companies

outside the United States and Puerto Rico as described below.

Market Making Activities. As is customary in Spain forfmancial

institutions, Santander engages in market making activities with respect to

Santander Shares through its Market Making Subsidiary. The Market Making

Subsidiary makes bids and offers for Santander Shares and purchases and sells

Santander Shares on the AQS. The Market Making Subsidiary effects these

transactions for its own account in order to provide liquidity to the market. The

Market Making Subsidiary conducts its market making activities outside the

United States and manages these activities from Madrid.

As noted above, the AQS is an order-matching system, not an inter-dealer

market with formal, officially designated market makers. The Market Making

Subsidiary engages in its market making activities by placing bids and offers on

the AQS, primarily through one ofthe Non-U.S. Brokerage Units. However, the

Market Making Subsidiary is not required to and does not maintain independently

Josephine J. Tao

8

December 19,2008

established bid and ask prices. In connection with block trades, if an adequate

counterparty order is not available on the AQS at the time that the bid or offer is

placed, the broker through which the order was placed, or the Market Making

Subsidiary itself, may solicit counterparty orders. The Market Making Subsidiary

is not required to make a market in the Santander Shares. Accordingly, the

Market Making Subsidiary does not act as a "market maker" as that term is

understood in the U.S. securities markets.

Santander believes that the Market Making Subsidiary is the only market

maker for Santander Shares on the Spanish Exchanges and, for the twelve months

ended December 31, 2007 and the six months ended June 30, 2008, the Market·

Making Subsidiary's market making activities accounted for approximately

1.065% and 1.853% of the value of ADTV in Santander Shares on the Spanish

Exchanges. At times when supply has significantly exceeded demand, its share of

such value ofADTV has increased materially, but the Market Making

Subsidiary's market making activities generally do not comprise in excess of 20%

of the value of ADTVin Santander Shares as measured on a daily basis, on the

Spanish Exchanges. The monthly average percentage of outstanding Santander

Shares held by the Marketing Making Subsidiary as a result of market making

activities ranged from.0.294% to 0.005% during the twelve months ended

December 31, 2007 and ranged from 0.675% to 0.175% during the six months

ended June 30, 2008.

During the restricted period for the Acquisition(the "Restricted Period"),

the Market Making Subsidiary intends to continue its market making activities in

the ordinary course of business, although the Acquisition distribution may result

in increased selling pressure and thus volumes of transactions by the Market

Making Subsidiary may be higher than average and represent a greater than

average percentage of trading volume, including in excess of20% of such daily

trading volume.

Derivatives Market Making and Hedging. The Derivatives Market Maker

conducts its derivatives market making and hedging activities outside the United

States and manages these activities principally from Spain. In Spain, the

Derivatives Market Maker is admitted under the MEFF Renta Variable roles as a

market maker and is a. significant market maker in derivatives of Santander

Shares. The Derivatives Market Maker is also the only market maker on the

Spanish Exchanges of securitized derivatives issued by it and based, in whole or

in part, on the Santander Shares and the Derivatives Market Maker is required by

applicable stock exchange rules to provide quotes for such derivatives it issues.

This activity involves the issuance, purchase and sale of derivative products for its

own account and for the accounts of its customers, on both solicited and

unsolicited bases, on the Spanish Exchanges, certain other non-U.S: exchanges

and in the over-the-counter market in Spain and elsewhere outside the United

States. These derivatives products include listed and over-the-counter options,

warrants, futures and other securities that are exercisable or convertible into, or

the value of which is determined by reference to, Santander Shares or proprietary

or third-party baskets or indices including Santander Shares. These derivatives

Josephine J. Tao

)

9

December 19, 2008

may also include index futures on the foregoing and total return cash-settled

equity swaps on Santander Shares in connection with stock options issued by

Santander. The Derivatives Market Maker's derivatives market making involves

issuing, purchasing and selling derivatives on Santander Shares in order to

facilitate customer orders and to provide liquidity to the market.

In addition, as a result of its derivatives market making, the Derivatives

Market Maker will maintain varying positions in these derivatives and its

financial exposure to movements in the price of the Santander Shares will vary

from time to time. In order to manage this financial exposure, the Derivatives

Market Maker continually enters into hedging transactions thatjnvolve, in whole

or in part, purchases and sales of Santander Shares or of derivatives based on

Santander Shares, for its own account and on behalf of its customers in order to

assist them in hedging their own derivatives positions. The derivatives hedging

transactions in Santander Shares described above occur primarily on the AQS and

onthe MEFF Renta Variable, with the balance occurring on other exchanges

outside the United States and, in some cases, in the over-the-counter market

outside the United States. During the twelve months ended December 31, 2007

and the six monthsended June 30,2008, these market making and hedging

transactions in Santander Shares represented approximately 3.99% and 1.31%,

respectively, of the value of ADTV in Santander Shares on the Spanish

Exchanges.

Trading in Santander Shares by the Asset Managers. As part of their

ordinary investment management activities, the Asset Managers buy and 'sell

Santander Shares and derivatives, including listed and over-the-counter options,

warrants, convertible securities and other structured products related to Santander

Shares or baskets or indices including Santander Shares, as well as index futures

on the foregoing, outside the United States for the Managed Funds' accounts. 6

Under Spanish law, the Asset Managers have a fiduciary duty to oversee the

Mana~ed Funds in a manner that is in the best interests of the investors of those

funds. The Asset Managers are prohibited by law from taking into account any

)

6

The Puerto Rico Asset Manager conducts such activities in Puerto Rico and Banco Santander

International conducts such activities in the continental United States for non-U.S. clients.

Both entities' volume of trading in Santander Shares has historically been low.

7

Under Spanish law, Santander cannot issue directives to the Spanish Asset Managers

requesting them to stop trading in any specific security for a specified period. This has been

confirmed orally by the Spanish National Markets Commission (the "CNMV"). As a result,

prior to the commencement of the Restricted Period, Santander will instead issue advisory

notices to the Spanish Asset Managers informing them that any trading by them in Santander

Shares or derivatives during the Restricted Period could result in a violation of U.S. law.

Prior to the commencement of the Restricted Period, Santander will issue directives to the

Asset Managers not based in Spain requesting such Asset Managers to stop trading in

Santander Shares or derivatives until the termination of the Restricted Period. However, in

light of the fiduciary duties that the AssetManagers have to the beneficiaries of the Managed

Funds, no assurances can be given that the Asset Managers will in tact refrain from trading in

Santander Shares or derivatives during the Restricted Period. Accordingly, we are asking that

the requested relief cover the asset management activities of the Asset Managers to the extent

Josephine J. Tao

December 19,2008

10

factors other than the interests of the Managed Fun~s; beneficiaries in making

investment decisions. Accordingly, the Asset Manbgers would be prohibited by

la~ from following a directive by Santander to cea~e trading Santander Shares

and derivatives, including listed and over-the-counter options, warrants,

convertible securities and other structured product~ related to Santander Shares or

baskets or indices including Santander Shares, as ,-*ell as index futures on the

foregoing, during the Restricted Period, unless the IAsset Managers believed that

cessation of such trading was in the best interests ~fthe Managed Fund's

beneficiaries. 8 Similarly, the Asset Managers would be prohibited by law from

following a Santander directive to bid for or purchase. Santander Shares and

derivatives, including listed and over-the-counter d.ptions, warrants, convertible

securities and other structured products related to &antander Shli!es or baskets or

indices including Santander Shares, as well as ind~x futures on the foregoing,

unless the Asset Managers independentlyconclud~d that such bids or p1.1Ichases

were in the best interests of the Managed Fund's b~neficiaries.

!

Trading by the Insurance Company. The ~surance Company purchases

Santander Shares in connection with investing pret!niums paid on Asset Class

Policies, which require investments within a narroiv class of assets, such as the

IBEX 35 Index, that may include Santander Share~. The Insurance Company

conducts these activities outside the United States.!

.

I

I

I

Under Spanish law, the Insurance Company has a fiduciary duty to the

purchasers of Asset Class Policies to oversee the investments with respect to those

policies in a manner that is in the best interests of those purchasers. The

Insurance Company may not take into account any factors other than the interests

of its insureds in making investment decisions under those policies. Accordingly,

the Insurance Company would be prohibited by law from following, with respect

to the Asset Class Policies, a directive by Santander to cease trading Santander

Shares during the Restricted Period, unless such a halt in trading were in the best

interests of the purchasers of those policies. Similarly, the Insurance Company

would be prohibited by law from following a Santander directive to bid for or

purchase Santander Shares unless the Insurance Company independently

concluded that such bids or purchases were in the best interests of its insureds

under the Asset Class Policies.

that the Asset Managers continue to trade in Santander Shares or derivatives in the ordinary

course of business during the Restricted Period.

Some of the pension funds managed by the Asset Managers have an "investment oversight

committee" charged with overseeing the investments made by the Asset Managers. In certain

cases, representatives and/or employees of Santander or its affiliates may be members of

those investment oversight committees. However, those committees (and their members)

would be unable to require the pension fund Asset Manager to stop or start trading Santander

Shares or derivatives during the Restricted Period ifthe Asset Manager did not believe it was

in the best interests of the fund's owners to do so. The representatives and/or employees of

Santander who participate on the investment oversight committees are, like the Asset

Managers themselves, isolated by Chinese Walls from th.e areas of Santander where price­

sensitive information relating to Santander Shares or derivatives and where infonnation

relating to the Acquisition would be discussed.

)

.::.

Josephine J. Tao

11

December 19, 2008

Unsolicited Brokerage. The Non-U.S. Brokerage Units effect unsolicited

brokerage transactions in the Santander Shares by placing orders onthe Spanish

Exchanges and other overseas exchanges or effecting trades in the over-the-.

counter market in Spain and elsewhere outside the United States, in each case on

behalf of cuStomers. ,These transactions arise frOIll unsolicited buy and sell orders

received from their customers, although the Non~U.S. Brokerage Units may

solicit the other.side of these transactions..The unsolicited ·brokeiage aCtivities of

. the Non-U.S. Brokerage Units (excluding trades·executed by the Non-U.S.

Brokerage Units on behalf of the Market Makmg.Subsidiary)represented

approximately 13..12% and 10.79% ofthe value of ADTV in Santander Shares on

the Spanish Exchanges during the twelve months ended December 31,2007 and

the six months ended June 30, 2008~ respectively.

)

I

Although the·Non-U.S: Brokerage Units trom time to time provide advice

to their customers regarding an investment: in Santander Shares, none ofthe Non­

U.S. Brokerage Umts, Saritander or any subsidiary of Santander pUblishes

research reports concerning Santander. Furthennore,the Non-U.S: Brokerage

.

Units' pe~sonn~l have been instruCted not to ~e any investment

recommendationsto their cUstomers withrespect to Santander Shares or

Santander ADSs dUring the Restricted Period.

\

,/

Asaf June .30, 2008, 55.95% of S~tander Shares were heldby·customers

ofSantander andits affiliates in ~ecUrities accounts at Santander and its affiliates

inSpain. The Non-U.S. Brokerage Units are required by Spanish law, as well as~

in some cases, by the terms of their contracts with customers, to facilitate the·

trading activity of customers as described above. 9 . It would place a substantial .

.burdert 011 the Non~U.S.BrokerageUnits' customers to require them to transfer

their Santarider Shares to a securities account with another bank, or to have the

Non-U.S. Brokerage Units place orders with anotherbank,:in order to make trades

with respect to Santander Shares during the Restricted Period. Moreover, the

Non~V.S. Brokerage Units would likely lose a significant number of those

cuStomers if the Non-U:S. Brokerage Units were preventedfrom providing them

with customary facilitation services during the Restricted Period.

As noted above, the U.S. Brokerage Units may also engage in unsolicited

brokerage transactions iIi the Santander Shares with their cuStomers in the United

States. These transactions would be effected onthe NYSE, in the over-the­

counter markets in the United States orin the non-U.S. markets described above.

The personnel oftheU.S. Brokerage Units have been instructed not to make any

investment recommendations to their customers with respect to Santander Shares

or Santander ADSs during the Restricted Period:

9

)

/

The Brokerage Units are not required, however, to buy or sell Santander Shares as principal

for the benefit of their clients.

j

;1

. Josephine J. Tao

0.,

: ..

-December 19,2008

12

Significance to Market. As noted above; the Market Making Subsidiary's

market making activities accounted for 1.065% ~nd 1.853% of the- values-of

ADTVin Santander Shares on the Spanish Exchanges during the twelve months

ended December 31, 2007 and the sixmoriths ended June 30~ 2008, respectively,

-_while the derivatives market making and -hedging activities of the Derivatives

Market Maker and the unsolicited brokerage actiyitie~ of the Non-U.S. Brokefl'!,ge

Units (excluding trades executed on behalf of the MarketMaking Subsidiary)

-represented approximately 3.99% and 13.12%; respectively, of such 2007 value of

ADTV and approximately L31% and 10.79%, respectively, ofsuch 2008 value of

_. ADTV. In the aggregate, these market activities represented approximately

_ 18;175% and 13;953% of the valuesof ADTVin Santander Shares on the Spanish

Exc~anges during the twelve months ended December31, 2007 and the six

-months ended June 30, 2008, respectively, making Santander, on an aggregate

_ basis, the largest market participantin the tnarkeaor Santander Shares onthe

Spanish Exchanges and the only market maker msuGh shares. Although

Santander is unable to'detennine on whosebeh~fthe non-Santander record

hdlders ofSantander Shares'ar~ trading stich sharesol).theSpailish Exchanges,

the second largest participant in the market for Santander Shares accounted for

. only approximately 8.69% .and 12.60% ofthe values ADTV in Santander

Shares on the Spanish Exchanges duringfuetwelve months ended December 31,

2007 and the six months ended June 30, ~()68, respectively.

.'

'.

of

..

.

,

Chinese Walls. Santander maintains an,de.nforces written '~ChineseWall"

policies-and procedures to prevent materiiilnon...;public information from passing

betW~en the sales/trading areas and other:'sen,sitiye areas of Santander (induding

any investment oversightcomrriittee). Accordirigly, during restricted periods· .

prior to announcements of earnings reSUlts or oth~r material developlllertts that

have not yet become public, all market making and other ordinary course market

'

activities of Santander are permitted to cohtintie: Under these policies and

procedUres, Santander's traders and sales force who conduct these market '.

.activities will generally be able to continue doing so during and outside these

restricted periods, although seniorlnanagtimentmayrestrict such activities in

extraordinary circumstances. Santander Will continue to maintain .and enforce

these policies and procedures during the Restricted Period.

Other affiliatesofSantartder conduct market activities in Santander Shares

in the ordinary course of their business. In connection with the Acquisition, these

other affiliates will comply with Regulation M,either by suspending their market

,activities during the relevant period or by conducting those activities in

accordance with an available exception from Regulation M: These exceptions

might include those available for"affiliated purchas~rs." Accordingly, Santander

. is not seeking relief from the Staff for these activities.

)

{ ..

r,

',.1

~.

,., ~.

"

Josephine 1. Tao'

III.

)

Decenlber19,2008

The Santander/Sovereign Acquisition

On October 13, 2008, Santander and Soyereign announced the tenns of

the Acquisition pursuant to, which holders of Sovereign common stock will, ifthe

Acquisition is completed and subject to any adj1.,1Stnlent required by the,

transactiQn agreement to adjust for certain eyents, receive 0.3206 Santander ADSs

for each share of Sovereign conimon stock (which, to account for a Santander

rights offering that \Vas completed on Decenlber),2008, ~asadjustedfrom an

exchange ratio of 0.2924) (the "Merger Consideration"): 10

",

, The'Acquisition will be effected by Sov~reign fomling a new ~holly­

ownedsuhsidiary as a Virgimacorporati~n("So"ereign V~rginia")., Sovereign

will merge with and into Sovereign Virginia, with Sovere.ignVirginia SurVivmg

such merger {the "Reincorporatio~ Merger"); resulting 4i aU Sovereign , "

shareholders'hecoming shateholdersof Sovereign Virginia. Immediately after the

Reincorporation Merger, Santander and Sovere.~gn Virgin~a will effect, a statutory

share exchange under Virginia corpOrate law, pursuant to whicheachshate of

SQvereignVirginia common stock will be acquired by Santaii~er and exchanged

for the right to receive the Merger Consideration. As a resUlt, Sovereign Virginia '

'

will become:a wholly-owne.d subsidiary ()f Santander.

\-I

In order for the Acquisition to beCome effective and binding, Sovereign's

sharehol<lers must approve tbeAcquisition, Santander's shareholders must '

approve the increaSe in Santander's share capital required toissue the Soot,ander

ADSsto be delivered to Sovereign shareholders l;lsconsideration in the

Acquisition,

the registnitionstatement (descrIbed more fully below)with

respect to such Santander ADSs mUst be declared effective. Sovereign has agreed

with Sant'ander that promptiy following the organization of Sovereign Virginia,

Sovereign, as the sole shareholder of Sovereign Virginia, will approve the

ReincorpOrationMerger and the share exchange and waive any rights to dissent

pursuant certain provisions of the Virginia corporate law. 'Completion of the

Acquisition is also subject to certain regulatory approvals, including approval of

the Federal Reserve Board (which was received on December 10, 2008), and is

further subject to certain terms and conditiqns agreed upon between Santander

and Sovereign.

'

and

to

Santander has filed a registration statement/proxy (aildan amendment

Form F-4,pursuant to which the

thereto) on behalf of Santander and Sovereign

Santander Shares underlying the ADSs to be delivered in the Acquisition will be

'registered under the Securities Act of 1933. Sovereign plans to mail the

registratiqn statenlent/proxy to its COnlmon shareholders as soon as practicable

after the registration statement/proxy is declared effective. The meeting of

Sovereign's shareholders to vote on whether to approve the Acquisition is

on

10

)

Sovereign shareholders may elect to receive 0,3206 Santander ordinary shares instead of

0.3206 Santander ADSs per share of Sovereign common stock. This election may be

invalidated by Santander.

I

;\

· Josephine J. Tao

)

14

December 19, 2008

scheduled to occur in the first quarter of 2009. II 'The meeting of Santander's

.shareholders to vote on whether to approve the capital increase in connection with

· the Acquisition is expected to occur on in the first quarter of2009.

The Santander ADSs issued in conne9tion with th~ Acquisition will

represent approximately 2% of the Santander:Sl1ares curre}\t1y outstanding.

Sovereign's comm~n stock is listed on the NYSE and its principal market is.in the

United States.

.

IV.

ApplicatiQn of Regulation M

In connection with the Acquisition, Santander will· distribute Santander

ADSsto Sovereign shareholders, most of whom are expected to reside in the

. United States, and may therefore becOIlsideredto be en~aged in a distribution in

the United States for purposes of Regulation ·M. Pursuantto.Rule 100 under

the day that the registration

Regulation M, the Restricted Period witt begin

statement/proxy is first inailed to Sovereign shareholder$: anp, will end once

Sovereign's shareholders have approved the Acquisition.at the Sovereign

shareholders'· meeting. Thus, as. noted l:ibove,. tlie Restricte(fPeriod is likely to

last approximately one month (otpotentiallylonger in the event of a competing

offer for Sovereign).

..

\

.....

on

As business units or affiliates of Santander that, from time to time,

purchase Santander Shares for their ownacco.uuts and the accounts of others. and .

.recornroend and exercise investment d~scretion with respect to the purchase of

Santander Shares, the Companies may pe deeryIed to be "affiliated purchasers" of

Santander; as defined in Rule 100 of Regulation M. In addition, none of the .

Companies currently intends to partiCipate in the proxy solicitation effort relating

· to the Acquisition; accordingly, they would not be deemed to be "distribution

partiCIpants" as defined in Rule 100 ll!1d, thus, would be subject to Rule 102 of

Regulation M. 12

..

.

..

Under Rule 102, the Companies will not be permitt~d to bid for or

purchase, or attempt to induce any person to bid for or purchase, Santander Shares

during the Restricted Period unless one of the specified exceptions under Rule

102 is available. There are no exceptions available under Rule 102 that would

permit the Companies to engage in the.Jllarket-making, derivatives hedging, asset

11

The date of Sovereign's shareholders' meeting will be at least 20 business days following the

mailing of the proxy statement/prospectus included in the registration statement.

12

aUdistribution participant" and thus would be subject to Rule iOI of Regulation M. Under

If any of-the Companies participated in the solicitation effort, they would likely be considered

Rule 101, none of the Companies would be permitted to bid for or purchase, or attempt to

induce any person to bid for or purchase, Santander Shares during the Restricted Period,

unless one of the specified exceptions under Rule 101 were available. As the available

exceptions under Rule 101 would not pennit the Companies to engage in most of the

activities for which relief is being sought in this letter, we ask that the exemption thatwe are

requesting apply whether these Companies are subject to Rule 101 or Rule 102.

~.'.

.~.

::'

Josephine J. Tao

15

. December 19, 2008

management, insurance and unsolicited brokerage~ctivities described in this

letter. Therefore, Without the requested exemptive relief, the Companies would

not be permitted to engage in these activities for an extended period of time,

which is likely to last approximately one month (or potentially longer in the event.

of a competing offer for Sovereign).

.

Santander believes that the. withdrawal of the most important market

participant and the only market maker in Santander Shares in the primary market .

for those shares, which are among the most actively traded in Spain, for such an

extended period of time would have serious harmful effects in the home market

and, indirectly, in the U.S. market,. for the Santander Shares. These effects could.

include a significant imbaIanccofbuy and sell orders, particularly given the large

•humber ofshares to be distributed in the Acquisition, and thuS greater volatility

. and reduced liquidity.· In addition, as)heDerivatives Market Maker-is a

significant market maker in derivatives on Santanddr Shares issued by Santander,

if the Derivatives Market Ma1<er is preCluded from conducting market making ,

activitiesiri the deri'vativesorfrom effecting hedging transactions in Santander

Shares relating to the derivatives, the application ofRegulation M could have

adverse effects on the Derivatives Market Maker's ability to manage hedge

·positions maintained by it and its customers previously established in connection

with this activity. The AssetManagers and the Brokerage Units may also be

unable to execute asset-manag~ment related or unsolicited brokerage orders

submitted by their customers in the nOImal course, thereby forcing their·

customers to' take their orders elsewhere or to refrain from trading. Similarly, the

Asset Mariagersand the Insurart.ce Company have a fiduciary duty to the investors

ofthe Managed Funds arid to thepurbhasets of their insurance products to oversee

the investments in a mariner that is in the best interests Of those purchasers.

AccOrdingly, the Asset Managers' and the Insurance Company may not refrain

from, or engage in, trading'inS::mtander Shares or, as the case may be,

derivatives, including listed and over-the-counter options, warrants, convertible

securities and other structured products related to Santander Shares or ,baskets or

indices including SantanderShares, as well as indexfutures on the foregoing, as a

result of investment instructions received from Santander, unless such action is in

. the best interests ofthe purchasers ofthose policies. .The derivatives market

making and hedging, asset management, insurance and unsolicited bro'kerage

activities described in this letter are also important aspects of Santander's

business as· a major financial institution in Europe and, therefore, interrupting

those activities for such an extended period could also have an adverse ,impact on

Santander's business, including itS ability to properly manage its risks.

As noted above, the Santander Shares ",ould easily qualify as actively

.. traded securities that are exempt wider Rulc 101(c)(I), with a value of average

daily trading volume for the twelve months ended December 31, 2007 and the six

months ended June 30, 2008 ofapproximately€I,190~63 million($1,738.68

million) and €I,188.69 million ($1,871.95 million), respectively, and a public

float value in excess of $100 billion. Regulation M normally would not interfere

with market-making and other market activities in actively traded securities, such

as the Santander Shares. However, because the Companies are affiliated

I

./

.c.

Josephine J. Tao·

16

December.19, 2008

. purchasers of the issuer, they may not rely on the actively traded securities

exception to do what market makers and ,brokers for large U.S. issuers are

normally allowed to do during distributions by those issuers.

.In addition, the Acquisition is being conducted in accordance with

applicable U.s~ law and trading in Santander Shares by the business units and

affiliates of Santander identified herein during the' Acquisition di'stribution is

subject to and will be conducted. in accordance with applicable Spanish law and .

'other applicable non-U.S. laws; As discussed in greater detail below, applicable

Spanish law provides important safeguards against the type of risk of ab~e that

Regulat~on M was designed to prevent.

Finally, Santander believes thaqhe risk ofmadcet:mampulation by the

Companies is 'limited by the "ChiheseV/all", procedures and fiduciary duties

descdbedabove. the fact that the market activities that are the subject ofthis

requestfor exemptive relief are .the ord~nary course market activities. ofthe

Companies rather than activities cOII1II\enced or managed in contemplation of the

Acquisition, and the fact that the jurisdictions in which the. Companies operate

have laws thafprohibit market manipulation (as furth,¢rQiscussed below)~

For the foregoing reasons, Sanu,mder asks the Staff to provide an

exemption from Regulation M that would allow the Companies to continue to

engage in marking making, derivatives market making and hedging, asset

management, insurance and unsolicited brokerage activities with respect to·

Santarider Shares.and Santander ADSs.in theordi~arycouise oftheir respective

bUsiness as described above during the RestriCted Period, as permitted tinder

market practice and applicable lawin their home jutis~ictions.

V.

The Spanish Regulatory Regime'

The principal regulations that apply to the Spanish Cpmpanies' market

activities under Spanish law are the Sparnsh SecuritieS Market Ac.t (the "SSMA"),

Royal Decree 1333/2005, as amended (relatingto'm~rketabuse),Royal Decree

217/2008 (relating to regulations governing the acilvitiesofinvestment firms and

conduct on the SpanishExchanges).13 The SSMA ~stablished an independent

regulatory authority, the CNMV,to supervise the securities markets. The SSMA

governs,among other things, trad.ing gra~tices, insider trading and disclosure. In

particular, Articles 83 ter!4 and 99(i)softhe SSMA prohibit market

European anti-market abuse legislation is found principally in EU Directive 2003/6/CE,

which has been incorporated into Spanish law in the SSMA and in Royal Decree 133312005.

13

14

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Article 83ter provides:

Any person or entity acting or otherwise related to the securities markets shall refrain from

engaging in activities that may falsify the free development of prices in the securities mark'ets.

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.Josephine J. Tao

December 19,2008

17

manipulation. Under the SSMA;theCNMV oversees price formation, execution

and the settlement oftransactions to ensure that insider trading, price

manipulation and other breaches of law may be detected. The CNMV has a

division which has responsibility for market supervision, monitoring compliance,

investigating violations and imposing disciplinary measures. The CNMV also,

takes measures to ensure that information necessary'to maintain a transparent

market is made public. This applies; in particular, to the prices and volwnes of

securities traded on and off the Spanish Exchanges. '

. '

.

.'

,The Spanish Criminal' Code providesremeciies for abusing confidential

information that is likely toitlfluence the prices·of securities. Market

," manipulation and dissemination of false rumors to affect the prices of listed

securities to realize a gain are prohibi.ted. The breach ofprofessiohal secrecy,

insider trading and pdcemllllipulation in Spain are'criminal offenses. In

particular, Article 284 of the Spanish Crimimil Code establishes criminal,liability

for employment of any mechanism with the intent to' alter prices that would

otherwise result from a free market for, among otherthings, securities. '

Under Spanish law; Santander and its subsidiaries are prohibitedfrom

purchasing Santander Shares unless the purchase of Santander Shares is generally

authorized at a meetmg of shareholders ofSantander, and Santander creates

reserves equal to the acquisition price of any Santander Shares that are actually

purchased. In addition, the total number of Santander Shares held by Santander

and its subsidiaries may not 'exceed'S% of the total capital stock ofSantimder.

Spanish lawrequiresthattheCNMV l;>enotifiedeach time Santander andits

subsidiaries acquire~ on an aggregate basis, 1% of the outstanding capital stock of

Santander (without d~ductingany sales ofSantander Shares which mayhave been

made during that time period). In addition; the Bank of Spain requires Santander

. to provide monthly reports of the IiUmber ofSantander Shares held by Santander

and its subsidiaries, the U1nnber of Santander Shares held for hedging purposes

and the number of SantanderShares held by third parties whose purchase was

either financed by or pledged to Santander or any of its subsidiaries.

,Pursuant to Spanish regulations relating to conduct in the securities

markets, the Spanish Brokerage Units must keep records of orders received from

any third party regarding Santander Shares and any other security as well as the

execution of such order. The Spanish Brokerage Units also must keep re~ords

relating to transactions in which they are acting as principals. The information

contained in such records must includeidentification of the client, the nwnber,

15

Article 99 provides:

The following acts or omissions constitute extremely serious infringements by. the individuals

and institutions referred to iil Article 95 hereof [including brokers, market makers and their

.respective officers]:

.

(i) breach of Article 83' ter if such breach has a material adverse effect on the price [of the

relevant security]. If the effect on the price is not material, this would still constitute a serious

infringement, in accordance with Article 100.

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Josephine J. Tao

)

December 19,2008

18

type and price of securities bought or sold and the market on which the

transaction is effected. These records must be made available to theCNMV upon

request. In addition, the Market MakIng Subsidiary, the Derivative Market

Maker, theSpanish Asset Managers and the Insurance Company must also

maintain records relating to the transactions in which they engage, including Ute

. number, type and price ofsecuritiesboughi or sold'.

.

.

"

The juri.sdictions inwhich the Companies other than the Spanish

·Companies operate generally have anti-market manipulation, insider trading and

· record-keeping laws andr,egulations similar to~those gov,erning market activities

....

in Spain.

.

VI.

Relief Requested

As discussed abov~, Santander is s~eIcin~.eXemptive relief from Rules 101

and 102 of Regulation M.~o permit the Market Making Subsidiary, the . .

Derivatives Market M:ak~r, the Asset Manllgers, the Insurance Company and the

Non-U.S. Brokerage Units to continue to engage in the market making,'

derivatives market making and hedging, assehnanagement, insurance arid

unsolicited brokerage acti.vities'describedin·this'letter during the Restricted'

Period. The Market M~ng Subsidiary, the,Derivatives Market Maker, the Asset

.Managers, the Insurance Company and the Non-RS. Brokerage Units:would

conduct these activities in the ordinary course of their business, not for the

purpose of facilitating the Acquisition Distribution audin accordance. with .

applicablel~w, all as described'inthis letter.' Santander also,~ks for relief to

permitthe U.S. Brokerage Units, Banco Santailder International arid the Puerto.

Rico Asset Managerto eI}gage' in their respective activitiesin the normal course

of business, not for the purpose .of facilitating the Acquisition Distribution and in

· accordance with applicable local taw, as describ~ in this letter.

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'.

":

"

:

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" .

As a condition to the relier being requ~sted, Santander would undertake to

include disclosure in the registration statement/proxy that will be distributed to

Sovereign shareholders. The disclosure would be substantially similar to the .

.following:

.

Since the announcement oftll~,Acquisition)Santaiider, through

certain identifiable business units, and certain afits affiliates have

engaged and intend to continue to'enga,ge in·various dealing and brokerage

activities involving Santander Shares outside the United States. Among

other things, Santander, through an affiliate, has made a market, from time

to time, and intends to continue to make a market, from time to time, in

the, Santander Shares by purchasing and selling Santander Shares for its

own account in Spain on the Spanish Exchanges.

Certain mutual fund management companies, pension fund

management companies, asset management companies and insurance

companies that are affiliates of Santander have purchased and sold, and

intend to continue to purchase and sell, Santander Shares and derivatives,

)

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"\

Josephine J. Tao

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19

Decernberl9,2008

.

~

..

as part of their ordinary investing activities arid/or as part of the

investmentselec,tions made by their clients~ Santander, through its

derivativesbusiiiess units, has also engaged, and intends to continue to

engage, in dealings in~antander Shares ,and derivatives for their accounts

. and for the accounts oftheir respective customers for the purpose of

market making of derivatives or of hedging their respective positions

established in connection with certain derivatives activities (such as

options, warrantS, futures and other instruipents, including stock options

issued by Santander)telating to Santander Shares entered into by

Santailder and its affiliates and their respective customers. "Santander, ,

through its brokerage business units, haS also engaged, and iritends to

continue to eng~ge; in unsolicited brokerage transactions in Santander

'Shares with Santandef's customers. These activities occurred and are

expected to continue to occur through the AQS'~ on the Spanish,

Excnanges, thestockcxchartges of Milan; Lisbon, Buenos Aires, London

and Mexico arid'in thebver-the-coUnter market in Spain or elsewhere

outside the United States.

.

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r

Santander's affiliates in the Umted States also have engaged and

may continue to-engage in UnsoliCited brokerage and assetmanagement

transactions inSantari<;ler Shares 'and Santander ADSs in the United States.

In addition, Santander's affiliates in Puerto Rico have engaged and may

continue to engage in unsolicited brokerage transactions in Santander

, Shares and Santander ADSs in Puerto Rico and may purchase Santander

'Shares and Santander APSs in' connection with assetmanagement ,

activities in Puerto Rico. Santartdeds not obliged to make a markft in

Santander Shares and any such market making may be discontinued at any

time. All of the$e activities could have the effect of preventing

retarding a decline' in the market price ofthe Santander Shares.

or

Santander has sought and received from the SEC certain exemptive

relieffrom Regulation M in order to permit its identifiable business units

and affiliates to engage'in the foregoing activities during the Restricted

Period.

.

As a further condition to the retiefbeing requested, Santander and each of

the Companies will undertake to keep records (the "Records") of the date and

time when any Santander Shares are purchased or sold, the market in which the

purchase or sale is effeCted, the amount of Santander Shares purchased or sold

and the price of the purchase or sale, for each purchase or sale of Santander

Shares made during the Restricted Period. This information will not include any

client-specificdata, the disclosure of which is restricted under local law.

Santander will maintain Records for a period of two years following the

completion of the Acquisition. Upon the written request of the Director of the

Division of Trading and Markets of the SEC, Santander will make a copy of the

relevant Records available at the SEC's offices in Washington, D.C.

)

Josephine J. Tao

)

20

December 19, 2008

In conriection with the relief requested by Santander in this letter, please

note that substantially similar exemptive relief from Rule 101 and Rule 102 of

Regulation M was granted to Santander with respect to market making, ..

derivatives hedging, asset management, msurance and unsolicited brokerage

activities under your exemptive letters dated September 10, 2004 and August 18,

. 2008 and to Banco Bilbao Vizcaya Argentaria, S.A. under your exemptive letter

dated JUne 25, 2007, substantially similar exemptive. relief from Rule 101 and

Rule 102 ofReguIationM was granted to AIUanz AG with respect to market

making, derivatives market making and hedging and Unsolicited brokerage

activities under yourexeIP-ptive letter dated April 10, 2003 andS~milar exemptive

.re.lief from Rule 102 ofRegulation M was granted to. Santander with respect to

derivatives market making and hedging, asset management, insurance and

uIiSolidted brokerage activities relating to shares ofthe Royal.Bank of Scotland

under your exemptive letter dated July 23, 2007.

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* * * * *..

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If you have anY-questions about this request, please do not hesitate to

contact me (212-450-4950). We appreciate your ass(1)tanceinthis matter;

.

.

Very truly yours,

~p~

.. Nicholas A. Kronfeld.·

Copy to:·

Mr. Jose Manuel de Araluce

BancoSahtander, S.A.

Ciudad Grupo Santander

28660'Boadilla del Monte (Madrid)

Kingdom of Spain

)