UNION OF INVESTMENT COMPANIES (UIC)

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SPANISH STOCK MARKET AND THEIR DIFFERENTATION
STRATEGIES IN EUROPEDr. D. Antonio Sainz
FuertesCatedrático Organizacíon de Empresas
Paper presented to Union of Investment
Companies Kuwait 23-1-2008
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Topics Covered

• INTRODUCTION
• Why Finance Matters
• The Flow of Savings to Corporations
• Functions of Financial Markets
• Functions of Financial Intermediaries
• Value Maximization and Cost of Capital

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Financial Markets
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Financial Markets

• Financing Decision
• Source of Funds Capital
• Capital Structure
• Money Markets
• Euros

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Financial Markets
Investors
Firm's
Financial
operations
Manager
(stockholders save and invest in closely held
firm.)
Real assets (timberland)
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Financial Markets
Issue Debt
Investors
Company
Cash
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Financial Markets


Windsor Fund
Bank of America
Investors
Sells shares
Issues shares
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Financial Markets
Company
Intermediary
Investor
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Financial Markets
Company
2.5 mil
Loan
Banks
Intermediary
Deposits
Cash
Depositors
Investor
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Financial Markets
Company
250 mil
Loan
Insurance Company
Intermediary
Sell policies Issue Stock
Cash
Policyholders
Investor
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Function of Financial Markets

• Transporting cash across time
• Risk transfer and diversification
• Liquidity
• Payment mechanism
• Provide information

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U.S. Financing

• Information Provided by Financial Markets
• - Commodity prices
• - Interest rates
• - Company values

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1. Introduction Spanish Stock Market 2.
Structure of the Markets 2.1.- Markets 2.2.-
Stock Markets 2.3.- Derivatives and
Public Debt Markets 2.4.- Settlement and
Supervision of the Markets 3. Requeriments for
membership to Bolsa de Madrid 4. The IBEX
35 4.1.- Rules of conduct 4.2.- The Technical
Adversory Conmitee
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INTRODUCTION
Bolsas y Mercados Españoles (BME) encompasses the
companies that direct and manage the securities
markets and systems in Spain. BME is the
Spanish markets response to the new
international financial setting, where investors,
intermediaries and firms demand an ever-expanding
range of services and products within a framework
of security, transparency, flexibility and
competitiveness. Spanish markets have attained
a top-level size within the European setting and
a diversified structure that covers the entire
chain of value in securities markets from trading
to settlement, including the provision of
information and data-processing services.
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INTRODUCTION
Europe.                                        
                                                  
                                                  
                                                  
                                                  
                                                  
                                         
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STRUCTURE OF THE MARKETS MARKETS
According to Spanish Securities Market Law (LMV) "These are official secondary securities markets which operate on a regular basis in accordance with the provisions of this law and the regulations which develop it especially with regard to conditions of market access, listing, operating procedures, information and advertising. According to Spanish Securities Market Law (LMV) "These are official secondary securities markets which operate on a regular basis in accordance with the provisions of this law and the regulations which develop it especially with regard to conditions of market access, listing, operating procedures, information and advertising.
The following markets shall be deemed to be official secondary securities markets The following markets shall be deemed to be official secondary securities markets
  Stock Markets. The Public Debt Market. Futures and Options Markets whatever the underlying security, be it financial or otherwise. Any others, of a national scope,which, meeting the requirements provided, are authorised within the framework of the provisions of this Law and the regulations developing this, and those of a regional scope, which are authorised by the autonomous communities with relevant powers."

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STRUCTURE OF THE MARKETS Stock Markets
The Spanish stock markets (Madrid, Bilbao,
Barcelona and Valencia) are official secondary
markets which carry out exclusive trading in
shares and convertible shares or which grant
acquisition or subscription rights. In practice,
equities issuers also use these bourses as
primary markets for their share issues or rights
issues.
The Sociedad de Bolsas is owned by the four
Spanish stock markets and is responsible for
technical management of the Spanish Stock Market
Interconnection System (Sistema de Interconexión
Bursátil Español, SIBE).
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STRUCTURE OF THE MARKETS Derivatives and Public
Debt Markets

• Derivatives markets are organised by MEFF
  (Mercado Español de Futuros Financieros).
• MEFF manages trading in options and futures on
  the IBEX-35, on interest rates and bonds and on
  individual equities.  Public
• Public Debt Market comprise bonds and T-bills and
  debt issued by other Public Administrations and
  Entities. These securities are also traded
  simultaneously on the Stock Markets which have a
  specific regime for this purpose. The Bank of
  Spain is the governing body of this market.

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STRUCTURE OF THE MARKETSSettlement and
Supervision of the Markets

• The administration of the settlement and clearing
  of securities traded on Spanish stock markets is
  the responsibility of a specific company,
  IBERCLEAR, the resultant merger between SCLV and
  CADE (effective from April 2003).
• IBERCLEAR is responsible for maintaining the
  book-entry registry of listed securities.
• Spanish Securities Market Law entrusts the
  Spanish Stock Exchange Commission with the
  supervision and inspection of the securities
  markets and of the activity of all physical and
  legal persons involved therewith, the exercising
  of disciplinary powers over these and other
  functions.

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REQUIREMENTS FOR MEMBERSHIP TO STOCK MARKET OF
MADRID

• Membership to stock market of Madrid is open to
  Spanish investment firms and credit entities, as
  well as to foreign entities, inside and outside
  the European Union.
• Within the European Union, investment firms and
• credit institutions are subject, respectively,
  to the terms
• of the Council Directive 93/22/EEC, of 10 May.
• Outside the European Union are subject to
  obtaining express authorisation for that purpose,
  to be issued by the Ministry of Economy, at the
  proposal of the Comisión Nacional del Mercado de
  Valores (CNMV).

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THE IBEX 35

• IBEX 35 is the Official Index of the Electronic
  Market of the Spanish Stock Exchange. Sociedad de
  Bolsas calculates, publishes and disseminates
  this index in real time. The surveillance of the
  index is responsability of the Technical Advisory
  Committee.

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THE IBEX 35

• The IBEX 35 is the index made up by the 35 most
  liquid securities traded on the Spanish Market,
  used as a domestic and international benchmark
  and as the underlying index in the trading of
  derivatives. Technically it is a price index that
  is weighted by capitalization and adjusted
  according to the free float of each company
  comprised in the index.

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THE IBEX 35 RULES OF CONDUCT(APPLICABLE TO THE
MEMBERS OF THE TECHNICAL ADVISORY COMMITTEE OF
THE IBEX INDICES

• The Technical Advisory Committee of the
  IBEXIndices are observing some strict rules of
  behaviour in their deliberations and actions,
  which seem appropriate to formalise in a text of
  regulations which covers the same in a systematic
  and coherent manner.
• The Board of Directors of Sociedad de Bolsas,
  after having met on April 13, 2000, has approved
  the following rules of conduct applicable to the
  members of the Technical Advisory Committee of
  the IBEXIndices.

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THE IBEX 35 RULES OF CONDUCT(APPLICABLE TO THE
MEMBERS OF THE TECHNICAL ADVISORY COMMITTEE OF
THE IBEX INDICES)

1. Range of application and scope.
2. Conflicts of interest.
3. Use of information.
4. Relevant information
5. Executing transactions.
6. Duty of confidentiality and communication
   mechanisms.

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THE TECHNICAL ADVISORY COMMITTEE OF THE IBEX
INDICES

• The Technical Advisory Committee in charge of the
  Indexes is composed of a minimum of fi ve and
  maximum of nine members. Their functions are
• To supervise that the calculation of the Indexes
  is carried out by the Manager in accordance with
  the present Technical Regulations for the
  Composition and Calculation of the Sociedad de
  Bolsas, S.A. Indexes then in force.
• To ensure ensure the proper operation of the
  Indexes for use as an underlying index for
  trading in financial derivatives,
• To study and approve the redefi nitions of the
  Indexes when it deems appropriate and at least
  every six months,
• To report any modification regarding point 3 of
  these Technical Regulations for Indexes
  Calculation.

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TEN KEY QUESTIONS ABOUT IBEX 35Ten Key
Questions on the criteria for choosing the
securities making up the IBEX 35 INDEX

1. May a security be chosen to be included on the
   IBEX 35 by taking into account the sectors
   already represented on the index?
2. Are the shares making up the IBEX 35 those of
   the 35 largest companies?
3. According to the Technical Regulations for the
   Composition and Calculation of the Sociedad de
   Bolsas, S.A. indices, the IBEX 35 is made up by
   the 35 most liquid securities during the control
   period. How is the liquidity of securities
   measured for the purpose of choosing them?

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TEN KEY QUESTIONS ABOUT IBEX 35

1. What are the minimum requirements that must be
   met by a security for it to become a candidate
   for the IBEX 35? Is it necessary that the
   security be traded during the entire control
   period prior to the Committee meeting for it to
   be chosen?
2. Is a security whose price rises dramatically over
   a long period an ideal candidate to be included
   on the IBEX 35?
3. Are long-term forecasts made in any way regarding
   the circumstances surrounding a security for its
   inclusion on or exclusion from the IBEX 35?
4. What information does the Committee use to make
   its decisions?

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TEN KEY QUESTIONS ABOUT IBEX 35

1. What number of shares is considered when deciding
   to include a security on the IBEX 35?
2. Throughout the life of a company there may be
   relevant facts affecting its present and future
   capital increases, mergers, segregations,
   takeovers, etc. If the IBEX 35 is reviewed twice
   a year, are these facts taken into account?
3. How many securities are included or excluded in
   each half-yearly review?
   
   Thanks very much
   
   
   

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Web Resources
Web Links
Click to access web sites Internet connection
required
www.nyse.com www.nasdaq.com www.rba.co.uk/sources/
stocks.htm www.fibv.com www.ici.org www.morningsta
r.com www.brill.com
www.americanbanker.com www.us-banker.com www.sec.g
ov www.cftc.gov/cftc/cftchome.htm www.federalreser
ve.gov www.fmcenter,org