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UNION OF INVESTMENT COMPANIES (UIC)

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Title: UNION OF INVESTMENT COMPANIES (UIC)


1
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
2
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

3
Financial Markets
4
Financial Markets
  • Financing Decision
  • Source of Funds Capital
  • Capital Structure
  • Money Markets
  • Euros

5
Financial Markets
Investors
Firm's
Financial
operations
Manager
(stockholders save and invest in closely held
firm.)
Real assets (timberland)
6
Financial Markets
Issue Debt
Investors
Company
Cash
7
Financial Markets


Windsor Fund
Bank of America
Investors
Sells shares
Issues shares
8
Financial Markets
Company
Intermediary
Investor
9
Financial Markets
Company
2.5 mil
Loan
Banks
Intermediary
Deposits
Cash
Depositors
Investor
10
Financial Markets
Company
250 mil
Loan
Insurance Company
Intermediary
Sell policies Issue Stock
Cash
Policyholders
Investor
11
Function of Financial Markets
  • Transporting cash across time
  • Risk transfer and diversification
  • Liquidity
  • Payment mechanism
  • Provide information

12
U.S. Financing
  • Information Provided by Financial Markets
  • - Commodity prices
  • - Interest rates
  • - Company values

13
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
14
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.
15
INTRODUCTION
Europe.                                        
                                                  
                                                  
                                                  
                                                  
                                                  
                                         
16
STRUCTURE OF THE MARKETS MARKETS
17
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).
18
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.

19
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.

20
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).

21
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.

22
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.

23
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.

24
THE IBEX 35 RULES OF CONDUCT(APPLICABLE TO THE
MEMBERS OF THE TECHNICAL ADVISORY COMMITTEE OF
THE IBEX INDICES)
  • Range of application and scope.
  • Conflicts of interest.
  • Use of information.
  • Relevant information
  • Executing transactions.
  • Duty of confidentiality and communication
    mechanisms.

25
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.

26
TEN KEY QUESTIONS ABOUT IBEX 35Ten Key
Questions on the criteria for choosing the
securities making up the IBEX 35 INDEX
  • May a security be chosen to be included on the
    IBEX 35 by taking into account the sectors
    already represented on the index?
  • Are the shares making up the IBEX 35 those of
    the 35 largest companies?
  • 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?

27
TEN KEY QUESTIONS ABOUT IBEX 35
  • 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?
  • Is a security whose price rises dramatically over
    a long period an ideal candidate to be included
    on the IBEX 35?
  • Are long-term forecasts made in any way regarding
    the circumstances surrounding a security for its
    inclusion on or exclusion from the IBEX 35?
  • What information does the Committee use to make
    its decisions?

28
TEN KEY QUESTIONS ABOUT IBEX 35
  • What number of shares is considered when deciding
    to include a security on the IBEX 35?
  • 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?
  • How many securities are included or excluded in
    each half-yearly review?

    Thanks very much



29
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
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