I just had 3 wonderful seasons with Man Utd(won every competition) and now im with Real Madrid. The squads not bad eventhough most of the star players have left but there's not enough spanish players and this is a problem in meeting the requirements in european competitions. Whats more baffling is other clubs have lesser players from their own country but are still able to play in the Champions League. The players i have that are "REAL MADRID" players are Casillas, Raul and Miguel Torres. Why are other clubs able to enter without a single "local" player and i cant??

You'll have to register some of your youth players. Not sure if you can register straight from Real 'C' or if you have to move them to your senior squad first.

One problem dude. You can only register 25 players which means some of my first team players will not get to play. Whats even worse is i'm facing clubs that dont have to follow this rule with my weaker team.

how do you know they are not following the rule? can you check who they have selected?

All clubs that play in the Champions League have to follow this rule.