Securities Market: Regulation, CNMV, and Investment
Securities Market Law
The Securities Market Law (LMV) regulates primary and secondary markets. The LMV establishes the principles of its organization and functioning, rules governing the activity of those involved in them, and their supervisory regime. The products involved in these markets are securities issued by private companies and institutions (fixed or variable income) or public institutions (bonds).
What is the CNMV? Objectives and Functions
The stock market law requires the existence of an entity with legal personality to supervise and inspect the stock market and the many people involved in them. This body is the National Securities Market Commission (CNMV). Its functions include:
- Advising the government and the Ministry of Economy and Finance on matters related to securities markets.
- Disseminating and promoting information to ensure the transparency of markets, correct price formation, and investor protection.
- Issuing circulars requiring the development and implementation of the rules.
- Exercising control over the economic and financial aspects of investment services companies.
- Imposing sanctions.
Investment Services Firms: What Are They?
Investment services firms are financial institutions that provide investment services to third parties. These include:
- Securities firms: acting on their own (purchasing securities when the price rises) and for others (mere commission brokerage).
- Brokerage firms: acting on behalf of others (mere commission agents).
- Portfolio management companies: managing portfolios through investors who they also advise.
Interests of Fixed Income Assets in the Medium to Long Term
The interests of assets or long-term debt are usually created with explicit interest, so the investor is paid coupons on the dates stated in the terms of issue, usually once or twice a year.
What are “Repos”?
Repos (Repurchase Agreements) are an investment by which a person or organization adds titles to its portfolio for some time from another entity. From the point of view of the transferor, they receive money that can be used to invest in something else. From the standpoint of the acquirer, they obtain a higher profit than the same money invested in another product. The reasons that motivate the transferor and the acquirer are, respectively, to obtain liquidity and to obtain a higher return.
Bonds: Risk and Volatility
Investments in financial assets are subject to three types of risk:
- Credit risk: The possibility of not recovering the invested capital, not getting the expected income, or experiencing significant delays.
- Volatility: The more volatile an asset, the faster and with greater intensity its price fluctuates in the market. Fixed income securities have reduced volatility.
- Currency risk: An investor places his titles in a different currency.
Actions in the Event of Default of a Check
It is necessary that non-payment is accredited by one of the following means:
- Notarial protest.
- A statement by the drawee.
- A dated statement in a clearinghouse or compensation system.
The Central Bank’s Risk Information from Spain and Asnef-Equifax
The Central Risk Information Bank of Spain (CIRBE) is a public service under the Bank of Spain which runs a huge database containing most credit risks (loans, credits, guarantees, etc.) that financial institutions have with their customers. Thus, any lender can know the debt that their customers have with others.
Asnef-Equifax contains information on various types of unpaid transactions, both for individuals and corporations. Equifax collects and updates daily data on unpaid debts provided by a large number of financial institutions, energy companies, and others. Through this service, you can know the current status of unpaid operations of a person or entity, if the customers’ credit facilities or loans are not paid, if a client presents insolvency or bankruptcy, and so on.
Where Do You Get More Profit: In a Term Deposit or a Referenced Deposit?
A fixed-term deposit would be safer because you know what you’re getting, whereas the return on a referenced deposit depends on the market.