History of the Spanish Stock Market: From Law 24 to Modern Trading

Posted on Aug 19, 2024 in Economy

HISTORY OF THE SPANISH STOCK MARKET

The Impact of Law 24

The current landscape of the Spanish stock market is largely shaped by Law 24 of July 28th. This groundbreaking law, with its force of law as a framework, has undergone numerous additions and revisions since its inception nearly 89 years ago. Article 15 of the Securities Market Act empowers the market to be regulated through circulars, often issued by the President of the CNMV (National Securities Market Commission).

Key Changes Introduced by Law 24

  1. Expansion of Securities: The concept of securities was broadened, albeit with restrictions.
  2. Establishment of the CNMV: This public entity oversees the inspection and supervision of the stock market.
  3. Formation of the Governing Body: This body governs the CNMV and is composed of:
    • Chairman and Vice-Chairman (elected by the Government)
    • Director General of the Treasury
    • Deputy Governor of the Bank of Spain
    • 3 Directors (nominated by the Minister of Economy)
    The board of directors is heavily influenced by the government, with key positions filled through political appointments.
  4. Transformation of Stock Market Agents: The traditional role of public faith and exchange agents was replaced, leading to the creation of agencies and listed securities companies. Two primary solutions emerged:
    • Brokers: Former notaries transitioned into brokers, retaining their signing authority while gaining involvement in buying and selling operations.
    • Partners in Brokerage Firms: Law 24 stipulated a phased transition of ownership in brokerage firms, with former agents holding decreasing shares of capital over four years.

Governing Societies and Their Functions

Governing societies, formed by members who held shares in brokerage firms, were tasked with two key functions (as per Article 70):

  1. Admission of New Securities to Trading: This involved reviewing dossiers prepared by the National Commission (Article 32).
  2. Market Monitoring: This aimed to prevent artificial demand and insider trading.

The Four Stock Exchanges of Spain

Prior to Law 24, Spain had four separate stock markets, leading to price discrepancies. The introduction of a single market, facilitated by the figure of the “puntista” who mediated between exchanges, aimed to address this issue. The four stock exchanges are:

  • Madrid (established in 1831)
  • Bilbao (1891)
  • Barcelona (1915)
  • Valencia (1980)

The Single Market and its Components

Primary Market

This market deals with the issuance and placement of new shares, primarily by corporations. The process involves rigorous paperwork and verification by the CNMV. Title 3 of Law 24 is dedicated to the primary market.

Secondary Market

This market facilitates the circulation of already issued securities, providing liquidity. Title 4 of Law 24 addresses the secondary market.

Other Official Secondary Markets in Spain

  • Stock Exchanges
  • Public Debt Market and Annotations
  • Options and Futures Market (regulated by Decree 1814 of 1991)

Modernization of the Spanish Stock Market

  1. Automated Quotation System (SIBE): Introduced by Law 24 and managed by the company of stock exchanges, SIBE handles computerized buy-sell transactions during trading sessions.
  2. Securities Clearing Services: This service, established by Royal Decree, manages the clearing and settlement of shares traded through SIBE.
  3. Penalties and Regulations: Law 24 introduced a system of penalties for legal and physical entities, similar to the law governing credit institutions.