Spanish Stock Market and Insurance Institutions: Operations and Regulations

Posted on Dec 11, 2024 in Economy

The Stock Market: Organization and Trading Segments in Spain

There are four stock exchanges in Spain: Madrid, Bilbao, Barcelona, and Valencia. Currently, they are integrated into a holding company. Each exchange is managed and run by a leading company. All four exchanges are interconnected by a computer network called the Spanish Stock Exchange Interconnection System (SIBE), or continuous market, thus obtaining a single price for each security. The SIBE is managed by the company of exchanges. It publishes and calculates the IBEX 35, which is the official index of the Spanish continuous market.

The priority for trade execution is price-stable. Thus, in sales orders, the most expensive are executed first, and in buy orders, the cheapest. Where there is equality, the order in which they are introduced takes precedence. The buy/sell order is executed automatically when there is a counterpart at the fixed price. Auctions are periods during which investors can enter, modify, and cancel orders, but without driving transactions. The final price of the auction is the one in which supply and demand have coincided most often.

During the open session, order contracting and negotiation take place. The open session can be interrupted by a so-called volatility auction, which occurs when the price fluctuation limits considered normal for the type of contract are exceeded. Overall, there is a continuous market opening auction (between 8:30 and 9:00 AM) and a closing auction (between 5:30 and 5:35 PM). In the opening auction, the price is set for the open session. In the closing auction, prices are fixed for the end of the day for each action. These prices serve as a reference for the opening of the next session.

The clearing, settlement, and recording of business transacted in the stock market are done through Iberclear SCLV.

Segments of Negotiation

Segments with special features include:

  • Fixing System: This is the segment where prices are fixed only for each value with operations at two times of day. Included in fixing are companies whose shares do not have a high trading volume.
  • Latibex: Another segment of recruitment in the electronic market that was created in 1999 at the Bombay Stock Exchange. In Latibex, stocks and bonds of top-tier Latin American companies can be traded. The objective of this market is to facilitate European investment in Latin American companies.
  • Market Blocks: Through SIBE, operations with a large amount are channeled through the block market. This market runs from 9:00 AM to 5:30 PM and works with two types of operations:
    1. Previously Agreed Blocks: These operations are agreed upon beforehand and have a volume of over €600,000 and 2.5% of the average procurement volume of the value in the last quarter.
    2. Parameterized Blocks: These operations are used to negotiate any value exceeding €1,200,000 and 5% of the average daily trading value of the last quarter.
  • Alternative Investment Market (MAB): Traditionally, to facilitate the access of SMEs to the stock market and their funding, the so-called secondary market was established, where small and medium-sized companies could contribute. The second market has had very limited success.

Insurance Institutions

The Insurance Companies

Authorized Activities:

  • Direct life insurance, direct insurance, and reinsurance of life.
  • Capital redemption operations based on actuarial calculations.
  • Own operations preparatory or complementary to capitalization.
  • Insurance or prevention of damage related to insurance business activities.

Prohibited Activities:

  • Those without an actuarial basis.
  • Engaging in commercial activities and providing guarantees that do not fit insurance operations.
  • Activities mediated by private insurance available for mediators provided by law.

Corporations

The minimum amount for corporations, as well as cooperatives and mutuals operating in fixed premium insurance, has to reach a certain amount. The management and representation of the company are the responsibility of the administrators, who shall be persons of recognized integrity and appropriate qualifications.

Mutual Insurance

Mutuals can be of two kinds: fixed premium and variable premium.

Mutual Premium Fixed

Members pay a fee determined at the beginning of each period for coverage of their risks. It has the following characteristics:

  1. They lack a profit motive.
  2. The minimum number of mutual members is 50.
  3. The mutual condition is inseparable from that of the policyholder or the insured.
  4. Mutual members give input to establish the mutual fund and may earn interest, no more than the legal interest.
  5. The mutual is not liable for the debts unless the statutes provide otherwise.
  6. The results of each year will give rise to corresponding active or return payments or, if the premium has not been sufficient to cover the risks, require a passive payment, which the partners have to meet in the coming year.
  7. When a mutual member leaves, they will be entitled to active duty to pay the agreed passive and not paid.
  8. If the mutual is dissolved, the mutual member will participate in the distribution of assets resulting from the entity.

Variable Premium Mutual

These are non-profit private insurers, founded on the principle of mutual aid, which are intended for coverage, sharing among partners the risks covered by charging a premium once the claims have occurred. They share the characteristics of the fixed fee from 1 to 7 and also:

  • The mutual must provide an entrance fee and should provide a cushion for maneuver to pay claims and expenses without waiting for the recovery of premiums.
  • The administrator will not receive any remuneration from management.

Cooperatives Insurance

These are companies formed by people who are associated, in free and low voluntary accession, to carry out business activities designed to meet their needs and economic and social aspirations with a democratic structure and operation. They are governed by the principles of free membership and open doors. Their purpose is to meet the needs of their members. Their objectives are not profitable, and if there are surpluses, they should be distributed among their members in terms of operations performed and not the capital they contribute. They operate democratically.

Among the organs of the cooperative are:

  • The General Assembly, which is the sovereign body that forms the social will through voting.
  • The Governing Council, which exercises governmental functions and representation of the cooperative.
  • Auditors, whose primary mission is to censor the annual accounts presented to the Governing Council and the General Assembly.

Cooperatives cannot be for-profit, and their partners must be policyholders or insured, except in the case of worker cooperatives that can insure a third party. A cooperative insurance essentially applies the characteristic features from 1 to 7.