History of the Spanish Stock Market: From Public Faith to Automated Trading
History of the Spanish Stock Market
The current situation in Spain is the result of Law 24, passed on July 28, which involved a complete change from the previous system. This law was fundamental and groundbreaking. As stated in the preamble, it served as a framework, a general law that would be expanded upon. It was not exhaustive but provided a foundation for future development. Since its inception, almost every 89 years, a new decree has been added.
According to Article 15 of the Securities Market Act, the market is regulated through circulars. Circulars, or pastoral letters, addressed by the President of the CNMV to different listed entities (for example, on matters of codes of conduct) have become increasingly common. These circulars have no specific legal status and are considered recommendations (in the U.S. they are called “safe harbors”).
The changes introduced by the law include:
- The Rise of Securities: The concept of securities was expanded, but their values were restricted.
- Creation of the National Securities Market Commission (CNMV): This public entity with legal personality was established to inspect and supervise the stock market.
- Governing Body: The body that governs the CNMV consists of:
- A Chairman and Vice-Chairman elected by the Government. Their term is four years, coinciding with the elections.
- The Director General of the Treasury (Government), chosen by the Government.
- The Deputy Governor of the Bank of Spain (Government), chosen by the Government.
- Three directors nominated by the Minister of Economy.
The board of directors can be considered a political arm of the government, and its top positions are elected by it. It is an entity that changes with each new government.
Disappearance of Public Faith and Change Agents: The role of public faith and change agents (semi-public officials who attested to business transfers and sales made on an exchange) was eliminated. These agents were replaced by agencies and companies listed securities, created with the purpose of intervening in the government securities market. This shift moved from personal involvement of public faith to intervention through the stock market.The law provided two possible solutions to replace the function of these agents:
- Becoming Brokers: Notaries of commercial operations could become brokers, involved in buying and selling operations in the places they had previously held bags. These positions were elite, and society complained about the high salaries they received. The government decided to downplay their functions, making the position less exclusive. This figure is based on agents and brokers, so there are no trade edatarios, but lawyers who have commercial and civil functions.
- Becoming Partners of the Brokerage: The law stipulated that during the first year, 50% of the capital in brokerage firms should be held by agents of change and exchange, 40% during the second year, 30% during the third year, and becoming free in the fourth year. This is explained by provision 6 of the Act.
The law states that the organization of such agencies and securities firms can only be carried out by members of the governing bodies, meaning they must be members who have bought shares in them.
Governing societies have two functions (Art. 70):
- Admission to trading of new values: This requires a dossier prepared by the National Commission (Art. 32).
- Built-in monitoring: This is to prevent artificial demands or inside information.
There are four governing societies, as there were previously four sacks and four separate markets. The previous situation of various markets allowed for differences in the value of contributions between bags. To balance these differences, the figure of the “puntista” was created. These individuals mediated between bags, buying and selling shares to equalize the stock value by the end of the day. The next day, the same situation would occur.
Following the entry into force of the law, there is a single market (so that every action has a single quote) and four bags:
- Madrid (first emerging in Spain in 1831)
- Bilbao (1891)
- Barcelona (1915)
- Valencia (1980)
This unique market is divided into:
- Primary Market: This is where new shares are issued and placed by appealing to public order. This is the first entry of new titles into the market. Natural persons, limited partnerships, and limited civil entities cannot issue securities. Only corporations can appeal to savings by issuing securities. To bring new titles to market, the following steps are required:
- The CNMV must review the prospectus to change companies.
- Once the values are in circulation, there is a transaction that involves the public offer of shares of the same nature.
The supply structure is complex, as it requires paperwork. Documents subject to verification include:
- Communication in the form of material fact to the CNMV for approval of publicly traded shares, which should be taken in a General Meeting.
- A certificate from the Secretary, signed by the president, demonstrating the social agreement and quotation taken in a General Meeting.
- A final audit or complete information sheet, composed of all agreements and headings, which should be reviewed by the CNMV (stock, expectations, etc.).
The law aims to avoid the accumulation of operations and sales. Title 3 of the law is dedicated to the primary market.
Secondary Market: Securities dealers underwrite securities that are already in circulation. This market provides liquidity for primary actions and ensures that they have been introduced into the market. It is expressed in Title 4 of the Law.In the market, shares can only be placed at a determined price, and in the secondary market, there are sales operations.
Other Official Secondary Markets in Spain:
– Stock Exchanges:
– Public debt market and annotations.
– Options and futures market is regulated by Decree 1814 of 1991
2) The Automated Quotation System (SIBE): Introduced by
Law and managed by the company of bags. Is responsible for negotiating
computer-purchase-sales, the days of trading session.
Also ensures that the parallel computer to work properly
throughout the day. It is one of the best systems in the world,
acquired from the Toronto Stock Exchange because it was thought that this was what
gave better performance.
3) It was created by Royal Decree on securities clearing services to
block him come all the buying and selling shares managed
by SIBE, and they marry (offset) in this service. That collects
purchases and returns the difference to the different companies.
Liquid operations for three days work, to D +2. (BLIND SYSTEM)
4) The law establishes a system of penalties to legal and
physical, very similar to the law of discipline and intervention
credit institutions. (Act very technical and not very legal)