ECB sells second O2-Telefonica bond which broke its own rules

FRANKFURT (Reuters) - The European Central Bank said it had sold another O2-Telefonica <O2Dn.DE> bond last week after realising it broke the rules of the stimulus programme under which it was bought.

The bond <ES102575229=>, purchased by the Bundesbank a year ago and due to mature in 2021, was removed on Monday from an ECB list of more than 1,000 corporate issues bought by central banks as part of their efforts to boost euro zone inflation.

The sale took place just after a sharp fall in the price of the bond, suggesting investors might have been anticipating the ECB move after it shed its other O2-Telefonica bond <ES091299216=> in late March for the same reason.

Critics of the ECB's credit-buying programme say that it is too risky for a central bank and outside its area of expertise.

Both bonds were retrospectively deemed in breach of the ECB's rules because they offer a "step up" coupon, which increases if the telecoms company is taken over and the credit-worthiness of its guarantor downgraded.

The ECB is only allowed to buy bonds whose payouts are either pre-determined or track an index, such as Euribor or inflation.

It is the fourth time the ECB has been forced to sell a bond after spotting a rule breach, with previous cases involving debt issued by French chemical group Arkema <AKE.PA> and Belgian mobile telecoms provider Proximus <PROX.BR>.

(Reporting by Francesco Canepa; Editing by Alexander Smith)