Bolsas y Mercados Españoles
Regulation of the Spanish securities market. European MIFID regulations

Spanish securities markets and financial instruments regulations are heavily influenced by European legislation following the implementation of the Financial Instruments Directive (MiFID). The directive was implemented through two laws: Law 47/2007 involved an important amendment to the Spanish Securities Market Law 28/1988 (LMV) and Royal Decree 217/2008 established the legal framework applicable to investment services institutions.

1. Trading environment

In accordance with the LMV, the regulated markets (RM), Multilateral Trading Systems (MTS) and systemic internalisers (SI) are all considered as part of the Spanish trading environment.

  • Regulated Markets (RM). According to the LMVS these are official secondary markets. They are multilateral trading systems that allow interested parties in the purchase and sale of financial instruments to be brought together to exchange contracts with respect to financial instruments that have been listed for trading, and are authorised to do so by law.
  • Multilateral Trading System (MTS).Are all trading systems managed by an investment services firm (ESI) or by a governing body of an official secondary market, that allow interested parties in the purchase and sale of financial instruments to be brought together to exchange contracts with respect to financial instruments.
  • Systematic Internalisers (SI). Are investment services firms (ESI) and credit institutions that execute, through the regulated market or a multilateral trading system, on their own account, client orders for shares listed in regulated markets, in an organised, frequent and systematic way. IS operations are subject to compliance with certain requirements related to the transparency and size of operations.

In a framework where a single security can be traded in a number of trading centres, information is highly important. In order to avoid situations prejudicial to clients, the LMV has established, for each of the trading systems, transparency requirements both before and after a trade has been executed.

Transparency Regime

Official secondary markets, in order to ensure market transparency and price efficiency, are, before a trade, obliged to make publicly available on their systems, the current bid and offer and the depth of the market at those prices, of shares that are listed on the markets. In order to further transparency and efficiency, official secondary markets will make publicly available the price, volume and time of executed trades.

The law establishes certain organisational and transparency obligations for multilateral trading systems, both prior and subsequent to trading, similar is scope to the requirements for official secondary markets.

Pre-trade systemic internaliser transparency obligations vary depending on if the share is liquid or not and if the size of the order is larger than normal market size.

  • Pre-trade transparency. Systemic internalisers should generally make firm quotes publicly available when client orders are for liquid listed shares and when their orders are equal or less than the standard market size.

    In the case of illiquid shares, systemic internalisers only divulge quotes at the request of the client.

    In the case where there is a liquid market for a share, but the size of the order is greater than normal, systemic internalisers are not obliged to publish firm quotes.

  • Post-trade transparency. Systemic internalisers will make public the size and price of trades done in shares listed on regulated markets, off-market or through a multilateral trading system.

2. Supervisory authorities

Supervisory cooperation is essential as the integration of the European and transnational business activity advances. The established regulations from the implementation of MiFID on information to be disclosed on financial instruments operations aim to guarantee that the pertinent authorities are properly informed of the operations they supervise. For this it is necessary to ensure that all investment firms collect a single set of data with minimal differences between Member States, in order to minimize differences in reporting requirements affecting businesses operating across borders, and that the competent authorities have at their disposal the maximum possible proportion of information that they can share with other pertinent authorities.

The European Security and Markets Authority (CESR) has, over recent years, been working on developing measures to strengthen European supervisory coordination. In January 2011, the CESR became the European Securities and Markets Authority (ESMA), and took on, having had a consultative role previously, an implementation capacity, which allows it to make legally binding decisions.

3. Investment service firms (ESI)

The legal regime for investment services firms and other entities providing investment services and partially amending Regulation Act is to be found in Royal Decree 217/2008, of 15 February 2008 and in the CMNV Circular 10/2008, of 30 December2008, on financial advisory companies.

Investment services firms (ESI) are those companies whose main activity consists in offering professional investment services to third parties on financial instruments as defined by law.

The following are considered investment services firms:

  1. Broker-dealer companies. These are investment services firms who can operate professionally, either for third parties or on their own account, and carry out all investment services and ancillary services.

  2. Securities brokers. These are investment services firms who can only operate professionally for third parties, with or without representation. They may carry out investment and ancillary services, with some exceptions.

  3. Portfolio management companies. These are investment services firms that may exclusively carry out discretionary and individualised fund management activities in accordance with mandates given by investors, and provide advice on investment.

  4. Financial advisory firms. These are those natural or legal persons may only provide the investment service of investment advice, advising companies on capital structure, industrial strategy, mergers and acquisitions and the preparing of investment and financial analysis reports or other forms of general recommendation relating to transactions in financial instruments.

    The provision of investment advice is now considered as an investment service and, as such, people or companies that dedicate themselves to this activity in a professional capacity must be investment services firms (ESI).

  5. Credit institutions and collective investment fund managers are subject to the provisions of the Securities Market Law when they provide investment services under the provisions of the law.

    ESIs can designate agents linked to the development of investment services. The said agents will exclusively act for only one investment service firm.

4. Rules of conduct for investment services firms

Title VII of the Security Markets Act lays out a list of rules of conduct applicable to those firms that offer investment services. It should be pointed out that it does not establish a single and uniform level of protection, rather the law recognises the reality of the financial markets today, in that the profile of the investor has changed.

Types of Clients

The rules of conduct oblige firms to classify their clients according to their knowledge, financial expertise, profile and investment objectives. The Security Markets Act defines three kinds of clients.

  • Minority Investors

    These investors are more protected and come under the category of clients who cannot be classed as professional or an eligible counterparty. This category includes people, self-employed, small companies, etc.

  • Professionals

    Clients who are presumed to have the experience, knowledge and necessary qualifications to make their own investment decisions and correctly assess the associated risks. This category includes financial institutions, States, regional administrations, central banks, institutional investors and large companies.

  • Eligible counterparties

    These are legal persons who meet the requirements to be classified as professionals and comprise the following groups: Investments services firms, credit institutions, insurance companies, collective investment institutions, pension funds, fund management companies, other authorised or regulated financial institutions, national governments, etc.

Adequacy and suitability test

Firms that provide investment services also have certain obligations to provide information to clients, and clients must undergo a suitability test or exam before the company can provide its services.

Information obligations

Entities that provide investment services must keep their clients informed all the time. All information for customers, including advertising matter should be fair, clear and not misleading. In pre-contractual information clients will be provided, in a clear and understandable manner, correct information about the entity and its services; on financial instruments costs and associated costs, in such a way that the client can understand the nature and risks of the financial service and the financial instrument.

Best execution and order management

Persons or entities that provide investment service have an duty to provide best execution, to take the correct measures to achieve the best possible result for client orders, taking into account price, costs, speed and likelihood of the order being executed and any other relevant element involved in the execution of an order.

The duty to provide best execution will be carried out via an order execution policy that the entities should apply and that their clients should be aware of. Trading centres, and which of them allows the best result possible for clients to be achieved should be included in this policy.



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