A EUROMONEY SURVEY - MARCH 1996
BACKGROUND
The structure of Spanish legislation is comparable to that of leading worldwide economies. This is partly due to the demands of the European Union of which Spain is a member, but also due to the desire of the Spanish government to internationalize its financial markets. Liberalization in Spain in the last 10 years has been widespread and rapid.
LEGAL FRAMEWORK
The legal framework for the financial sector is based upon several important pieces of legislation. The central bank is responsible for a monetary policy based on economic stability and meeting the challenges of the changing financial services sector. It is also responsible for credit guidelines, banking discipline and questions of solvency.
The securities market regulation is based on the 1988 Securities Market Act and its amendments and provisions. This covers all aspects of the financial markets from listing to trading and control of markets and participants.
EQUITIES: SHARES
A share is a security which represents an equal division or proportional part of a corporation (sociedad anónima). The fundamental characteristic of a sociedad anónima is the division of its capital into shares, which incorporate the shareholders' rights. Shares can be represented by certificates (registered or bearer) or by book-entries. With registered shares, the owner's identity appears among the certificates' registers, while if they are represented by book-entries, such information does not appear.
TransferThe transfer of those shares materialized in book-entries takes place through a complex process known as an accounting transfer. If the shares are in registered form, they may be transferred by a much simpler endorsement procedure.
Shares not listed on an exchange are governed by the Companies Act (Ley de Sociedades Anónimas) of 1989, as amended. If the shares are listed on an exchange, the base rule is the Securities Market Act (Ley del Mercado de Valores) of 1988.
Tax aspectsFollowing the 1988 introduction of the Securities Market Act, a transfer of shares, whether or not admitted to an official secondary market, is exempt from both transfer tax (Impuesto sobre Transmisiones Patrimoniales; ITP) and value-added tax. However, transfers on the secondary market of securities of companies, funds, associations and other entities, whose assets are at least 50% formed by property located in Spain, are the exception and therefore subject to transfer tax.
EQUITIES: CORPORATE PARTICIPATIONS
In accordance with the provisions of Law 2/1995, in respect of limited liability companies ("Sociedades de Responsabilidad Limitada"), the corporate capital must be divided into indivisible and cumulative corporate participations. These are not considered to be securities, may not be represented either by book-entries or physical certificates, and may not be referred to as shares. Lack of classification as a security implies on the one hand that they may not be traded on an organized securities market and, on the other hand, that such limited liability companies may not be listed on an exchange.
TransfersVoluntary transfers of participations among partners, as well as those carried out in favour of a spouse, ascendant or descendant of the partner or in favour of companies belonging to the same group as the transferor, are freely permitted, unless otherwise provided in the company's by-laws.
CORPORATE BONDS
Bonds may be represented by certificates (in registered or bearer form) or by book-entries. In the event that the bonds are represented by certificates, these are issued in a numbered series and are negotiable.
In the case of default, there is a very quick procedure (juicio ejecutivo) which allows auction of the debtor's property. The representation of bonds through book-entries is obligatory if it is intended that the bonds become, or remain, admitted to trading on an official securities market.
Sociedades anónimas, in terms of bond issuance, are governed by the Companies Act, the Securities Market Act and the Mercantile Registry Regulations. Limited liability companies may not issue bonds.
Normally sociedades anónimas use bond issues as a means of financing. There is a requirement that the total amount of the issue not exceed the sum of paid-in share capital, any reserves which appear on the latest approved balance sheet, regularization accounts and balance sheet updates.
There are some exceptions to this limit:
1) When the issue is guaranteed by mortgages, pledges, the state, an autonomous community, a province or a municipality
2) When the issue is carried out by banks
3) When the issue is carried out by highway licensee companies.
Bonds may be classified either as simple or convertible, and as ordinary or guaranteed. The difference between simple and convertible is based on whether or not they incorporate the right to be converted into shares in a new issue of the company, while the difference between ordinary and guaranteed lies in whether or not they are backed by a special guarantee (mortgages, pledge, guarantee of the state, the autonomous community, province or municipality).
TREASURY SECURITIES
The Spanish government securities market is distinguished between short-term treasury debt, both bills and notes (Deuda del Tesoro) and longer term state debt (Deuda del Estado).
Deuda del TesoroDeuda del Tesoro are short-term securities issued by the Bank of Spain to bolster cash flow or to fulfil monetary policy goals.
The Bank of Spain issues treasury bills or notes (Letras del Tesoro or Pagarés del Tesoro) which are normally acquired by private banks, savings banks and by money market dealers. Letras del Tesoro usually have a duration of 12 months. Pagarés del Tesoro have a maximum redemption period of 18 months.
Deuda del EstadoDeuda del Estado are medium-term and long-term bonds issued to finance public expenditure and official credit. State bonds are medium-term (five years), while debentures are 10 years. The structure of the Spanish government debt market structure was altered to a book-entry system with the 1986 State Budgetary Act, based on articles of the General Budgetary Act. This new system permits greater speed in securities trading.
Both the short-term and long-term treasury markets have experienced strong growth in Spain in recent years, due principally to a decline in interest rates. Investors have been able to secure high returns which enjoy the guarantee of the state.
FOREIGN EXCHANGE
Currency market regulations have changed profoundly because of liberalization in the European Union. This liberalization has created significant modifications in both the spot and forward markets. One important change is the trading of the peseta directly against all of the EU currencies instead of calculating foreign exchange by cross-rates via the dollar. In addition, because of the new foreign exchange freedom, banks can now establish their own fixing or average foreign currency exchange rates which may differ from those published by the Bank of Spain.
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