Understanding Stock Markets: Concepts, Actors, and Operations
Stock Market: Concept and Characteristics
The stock market, a vital institution within the financial system, is an organized market where professionals regularly engage in buying and selling public or private securities. It serves a dual role as both a primary and secondary market.
Primary Market
The stock market acts as a primary market when facilitating the issuance of new securities. For instance, during a capital increase, a company seeking capital approaches the stock market, while savers seeking investment opportunities provide funding.
Secondary Market
As a secondary market, the stock market functions as an exchange market. Here, no new values are generated, but rather, trading operations are conducted.
Key Features of the Stock Market
- It is a public market where securities are traded.
- Only securities of entities admitted to trading are listed.
- Transactions are legally and economically secure.
Actors in the Stock Market
Applicants of Capital
Public institutions (state, autonomous communities, city halls) and private enterprises seek financing through the stock market.
Bidders of Capital
Companies or individuals with surplus liquidity aim to achieve profitability by investing in the stock market. Investors strive for maximum returns with minimum risk.
Intermediaries
Intermediaries play a crucial role by connecting the demands of buyers with the offers of securities dealers.
Mediators in the Stock Market
In Spain, the mediating function is exclusively performed by securities firms and stockbrokers, who have replaced stockbrokers and their brokerage monopoly.
Securities Firms
Securities firms are the most comprehensive market intermediaries. They can exercise all stock functions permitted by law, acting as both employees and on their own account (as dealers and brokers). They can invest in securities, underwrite issues, and provide credit for the sale of securities.
Features of Securities Firms
- Exchange contract.
- Receive and channel orders from any investor.
Stockbrokers
Stockbrokers can only act as employees and are not authorized to provide credit for security purchases or underwrite security issues.
Features of Stockbrokers
- Receive, transmit, or execute orders.
- Trade securities not publicly traded.
- Manage portfolios for third parties.
Objectives of the Stock Market
- Facilitate the exchange of funds.
- Provide liquidity to investors.
- Establish the price of securities.
- Provide information to investors.
- Publish prices and quantities traded.
Advantages and Disadvantages of Stock Market Listing
Advantages
- Companies can always know the exact market value of their issued shares.
- The amount of funding obtained is significantly higher than for unlisted companies.
- Listed companies often enjoy tax advantages.
Disadvantages
- Issuing publicly traded shares may lead to a loss of power for founding shareholders.
- Listed companies must undergo external auditing.
Continuous Market and Market Operation
Spain has four official stock exchanges: Madrid, Barcelona, Bilbao, and Vizcaya, along with several Bolsines. Bolsines are securities trading centers in cities without a stock exchange.
The National Securities Market Commission (CNMV)
The CNMV is a legal entity responsible for supervising and inspecting the stock market and its activities.
Open Outcry
Open outcry refers to physical spaces where securities are traded in groups. Each outcry lasts ten minutes per sector, during which all securities in that sector are traded verbally.
Continuous Market
The continuous market operates through a computer network connecting the four stock exchanges. It allows transactions of any security type at any time while the market remains open.
Profitability of the Stock Market
Price Changes
Price changes represent the difference between purchase and sale prices, resulting in either a loss or gain for the security holder.
Dividends
Dividends are a portion of corporate profits distributed among shareholders.
Capital Increases
: impact on profitability because the company has an obligation not to harm existing shareholders by issuing new shares, so these have preferential subscription rights in the expansion. Should not they want to make, have the option to sell those rights to subscribe, thus increasing the profitability of the securities.