I Securities Markets and Their Agents: Situation and Outlook

I Securities markets and their agents:
situation and outlook

11 CNMV Bulletin. Quarter III/2013
Contents
1 Executive summary 13
2 Macro-nancial setting 15
2.1 International economic and nancial developments 15
2.2 National economic and nancial developments 22
2.3 Outlook 30
3 Spanish markets 32
3.1 Equity markets 32
3.2 Fixed-income markets 40
4 Market agents 45
4.1 Investment vehicles 45
4.2 Investment rms 51
4.3 UCITS management companies 57
4.4 Other intermediaries: venture capital 59
List of exhibits
Exhibit 1: New Financial Education Plan 28
Exhibit 2: First Conference on the Reform of the Securities 36
Clearing, Settlement, and Registry System
Exhibit 3: Strengthening transparency in the selling of target funds 50
Exhibit 4: New customer information requirements with regard to 55
appropriateness and suitability assessment in the realm
of nancial services
Exhibit 5: ESMA report on the selling of complex products to retail 58
investors
1 Executive summary
The global economy has shown signs of improvement over recent months,
particularly among the advanced economies. Economic activity has gained mo-
mentum in both the United States and Japan under the spur of monetary stim-
ulus packages, while the euro area economy edged clear of recession in the
years second quarter. The emerging economies, meantime, experienced some
slowing of the growth pace in the rst-half period due to capacity restrictions,
decelerating external demand and softening commodity prices.
International long-term debt markets have tended to reect both the greater
relative strength of the advanced economies and lower sovereign credit risk in
Europe, although some tension resurfaced around mid-year when the Federal
Reserve announced that it was ready to taper its monetary stimulus ahead of
time if economic activity and employment picked up sufciently.
1
The effect
of this message was to lift ten-year yields on US treasuries to almost 3%, their
highest point since mid-2011, and trigger a small upswing in volatility. The
sovereign risk premiums of most European economies narrowed to levels sim-
ilar to those of spring 2011. In equity markets, year-to-date gains were substan-
tial in Japan (around 40%) and the United States (around 20%), against the
more modest advance of European indices (centring on 10%).
Spanish GDP contracted 0.1% in the second quarter of 2013 (+0.3% in the euro
area). This marks a trend improvement versus prior quarters and opens the
door to an imminent exit from recession, possibly in the third quarter of this
year. Meantime, key labour market indicators point to a slower rate of employ-
ment decline (-3.6%) and a small drop in the unemployment rate, which none-
theless remains stuck at over 26% of the active population. Against this back-
drop, ination has eased considerably year to date (from 3% to an August rate
of 1.5%), while budgetary execution data place the general government decit
at 5.27% in the month of July en route for the full-year target of 6.5%.
The Spanish nancial system remains immersed in a root-and-branch restruc-
turing that has taken it safely past the milestones set in the Memorandum of
Understanding signed by the Spanish and European authorities in July 2012,
the main event being the transfer to SAREB (Asset Management Company for
Assets Arising from Bank Restructuring) of over 50 billion dollars in bank sec-
tor problematic loans. Although the banks continue to operate in a challenging
environment, the better news is that listed nancial institutions reported rst-
1 The closing date for this report is 15 September.
14 Securities markets and their agents: situation and outlook
half prots of 3.51 billion euros
2
compared to the -9.51 billion losses of the
same period in 2012.
The aggregate prots of non-nancial listed companies rose by 11.2% in the
rst six months to 8.37 billion euros, as construction and real estate rms
reined in a large portion of their losses. Companies gross debt fell by 5.8% to
283 billion euros, while leverage held at at 1.4.
Prices on domestic equity markets fell sharply in the rst half of 2013, but
subsequently rallied on the strength of the improved economic indicators com-
ing through and lessening perceptions of sovereign credit risk. After testing
9,000 points in mid-September 2012 (its highest point since October 2011), the
Ibex 35 managed a year-to-date gain of 9.5%, which was even some way sur-
passed by small and medium cap indices. Market volatility spiked at 30%
around mid-year after hovering near 20% for most of 2013. The liquidity con-
ditions of the Ibex 35, as measured by the bid-ask spread, can be viewed as
satisfactory given the prolonged slide in trading volumes, which thinned this
year by a further 8%.
Domestic xed-income markets had a smoother run in 2013 as they moved
further away from the disruptive climate of summer 2012. Public and corpo-
rate debt yields traced a steady downwards course with only short-lived out-
breaks of tension in May and June. Spanish ten-year bond yields dropped to
4.5% in mid-September (5.3% in December 2012), while the spread over the
German benchmark narrowed to 237 basis points (bp) as bund yields headed
higher. Despite a large reduction in the perceived risk of Spanish borrowers
and the cheaper funding available in consequence, the volume of issues led
with the CNMV to September 2013 was 65% down on the year-ago period at
94 billion euros. A degree of market fragility, the existence of alternative fund-
ing sources and banks lower nancing needs may go some way to explaining
this hiatus in debt market issuance.
Assets under management in investment funds rose by 4.3% to 135.93 bil-
lion euros in the rst-half period, after ve years of almost uninterrupted
decline. Around 80% of the advance traced to purchases of xed-income and
passively managed funds to the detriment primarily of guaranteed products.
This change in industry fortunes, supported by falling interest rates on bank
deposits and commercial paper, allowed UCITS managers to grow their prof-
its 11.1%, accompanied by a fall in the number of loss-making companies
and the volume of their losses. In parallel, the weight of less-liquid assets
in investment fund portfolios receded from 4.1% in December 2012 to 3.1% in
June 2013.
Investment rm business continued to suffer the effects of the prolonged slide
in stock market trading, their main source of revenues. However, other busi-
ness lines like investment fund sales and portfolio management have gained
visible momentum year to date. Also, the number of rms reporting losses was
2 According to information available to the CNMV at 15 September.
lower in the period, along with the volume of the same, while sector capital
adequacy remained safely in the comfort zone.
The report contains ve monographic exhibits:
The rst exhibit describes the main characteristics of the extended Finan-
cial Education Plan signed last June by the CNMV and Banco de Espaa,
which sets new objectives for the 2013-2017 period.
Exhibit two summarises the discussions held on 27 June last at the First
Conference on the Reform of the Securities Clearing, Settlement and Reg-
istry System, whose goal was to make public the work under way on de-
ning the future organization of post-trade systems in Spain.
Exhibit three explains the preventive measures recently established by
the CNMV to improve information disclosures to fund investors, in view
of the growing breed of target return funds now being marketed in place
of guaranteed funds.
The fourth exhibit discusses the latest novelties in customer reporting
requirements in the frame of the appropriateness and suitability assess-
ments to be run on prospective buyers of nancial instruments (CNMV
Circular 3/2013, of 12 June).
Finally, exhibit ve summarises the report published by the European
Securities and Markets Authority (ESMA) in July 2013, analysing two
complex products now being extensively sold to retail investors in the
euro area.
2 Macro-nancial background
2.1 International economic and nancial developments
The international macroeconomic climate has shown signs of improvement in
recent months. The advanced economies have been the big beneciaries, while
emerging market economies have seen their vigorous growth eroded somewhat by
capacity restrictions, decelerating external demand and softening commodity prices.
In the euro area, GDP data for the second quarter signalled an end to the recession,
with an overall advance in economic activity of 0.3% (0.7% in Germany, 0.5% in
France, -0.3% in Italy, -0.2% in the Netherlands and -0.1% in Spain). In the United
States and Japan, quarterly growth stood at 0.6% and 0.9% respectively (1.6% and
1.3% in year-on-year terms). In the case of the Japanese economy, the spurt owed
partly to the monetary expansion programme announced by the central bank in
April 2013.
The macroeconomic outlook has
brightened among the advanced
economies, while emerging
market economies have seen
some softening of growth.
Gross domestic product (annual % change) FIGURE 1
-10
-8
-6
-4
-2
0
2
4
6
8
1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13
USA
Germany
UK
Spain
Euro area
Japan
France
Italy
%
Source: Thomson Datastream.
Headline ination has held relatively at among the major advanced economies, at
less than 2% in the United States and euro area and under 3% in the United King-
dom, while core ination even moderated slightly. One exception was Japan, where
both headline and core rates turned up strongly between March and July (from
-0.9% to 0.7% and from -0.8% to -0.1% respectively) in response to the monetary
expansion programme. However, the absence of any build-up in ination pressure
meant that interest rates in these economies could be kept at historical lows or even
cut in the case of the euro area, where the ECB reduced its key rate last May by 25 bp
to 0.5% (see gure 2). In the United States, the main event was the end-June an-
nouncement by the Federal Reserve that it was prepared to phase out the monetary
stimulus measures packaged in its Quantitative Easing program in the event of a
turn for the better in activity and employment data.
3
Ocial interest rates FIGURE 2
0
1
2
3
4
5
6
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Euro area USA Japan UK
%
Source: Thomson Datastream. Data to 15 September.
3 Though the market consensus was that the Federal Reserve would announce the scale-back of asset
purchases at its 18 September meeting, it decided, nally, to leave the program as it stands while indicat-
ing that an increase in volume was not an option (as it had been previously), and that interest rates
would remain at reduced levels for the next three years. Stock markets responded with a price rise which
nonetheless deated in the next few days.
The Federal Reserve has declared
itself ready to taper its monetary
stimulus.
The main drivers of international long-term debt markets in the rst-half period
were the release of successive economic indicators, which by May were pointing the
way of greater relative strength in the United States and some European economies,
and the Federal Reserves announcement that it would withdraw its quantitative
easing program ahead of time if activity and employment came sufciently back on
track. The effect of this message was to lift ten-year yields on US treasuries to a fresh
two-year high of around 3% not seen since mid-2011, and trigger a small upswing
in volatility. Since July, debt markets have also shown some unease in response to
the chain of events in Syria.
The ten-year bond yields of stronger economies (United States, United Kingdom
and Germany) declined to the start of May, touching lows of 1.6% in the rst two
countries and 1.2% in Germany. They then entered a rising trend that was most
marked in the case of the US treasury (see upper panel of gure 3). By mid-September
ten-year bonds were yielding 2.9% in the United States and United Kingdom and
1.9% in Germany in a setting of slightly higher volatility. In the remaining econo-
mies followed, long-term sovereign yields moved steadily lower to the middle
months, when a series of uncertainty factors came into play, though only the Portu-
guese bond experienced signicant market pressures on account of political insta-
bility at home. In general, liquidity conditions on sovereign debt markets have
remained comfortable year to date, even at times of heightened stress (see bottom
left panel of gure 3).
On top of the run-down in sovereign spreads of last years closing months, the im-
proved performance of yields in the rst eight months of 2013 has helped stabilise
the risk premiums of most of the European economies worst hit by the sovereign
debt crisis at close to the levels in place before the turmoil episode of summer 2011.
In parallel, indicators of sovereign risk transmission have moved within the mod-
eration zone, with only a temporary upswing in the middle months, most markedly
in the indicator representing sovereign credit risk contagion emanating from Portu-
gal (see gure 17). As we can see from gure 4, sovereign spreads based on ve-year
CDS were running at mid-September levels of 552 bp in Portugal, 251 bp in Italy,
237 bp in Spain and 145 bp in Ireland. In other, sounder European economies,
equivalent spreads were comfortably below the 100 bp mark.
International debt markets turn
somewhat more volatile in the
years middle months of the year,
with yields heading higher in the
United States, United Kingdom
and Germany
and falling in other leading
economies, albeit with some
uctuation.
After a sturdy decline in second-
half 2012, sovereign spreads
settle near to the levels prevailing
before the upsets of summer
2011.
Ten-year sovereign bond market indicators FIGURE 3
Yield
0
2
4
6
8
10
12
14
16
Jan-
10
Apr-
10
Jul-
10
Oct-
10
Jan-
11
Apr-
11
Jul-
11
Oct-
11
Jan-
12
Apr-
12
Jul-
12
Oct-
12
Jan-
13
Apr-
13
Jul-
13
Germany
Portugal
UK
Ireland
USA
Italy
Spain
France
%
Liquidity
1
Volatility
2
0.01
0.1
1
10
100
Jan-10 Jan-11 Jan-12 Jan-13
Spain
France
Portugal
Italy
USA
Greece Germany
Ireland
UK
Spain
France
Portugal
Italy
USA
Greece (RHS) Germany
Ireland
UK
% % %
0
10
20
30
40
50
Jan-10 Jan-11 Jan-12 Jan-13
0
10
20
30
40
50
60
70
80
90
Source: Bloomberg, Thomson Datastream and CNMV. Data to 15 September.
1 Monthly average of the daily bid-ask spread of ten-year sovereign yields. Axis on a logarithmic scale.
2 Annualised standard deviation of daily changes in 40-day sovereign bond prices. Moving average of
50 periods.
Sovereign credit spreads (ve-year CDS) FIGURE 4
Economies that have sought Other economies
nancial assistance
0
500
1,000
1,500
2,000
basis points basis points basis points
Jan-
10
Jul-
10
Jan-
11
Jul-
11
Jan-
12
Jul-
12
Jan-
13
Jul-
13
0
5,000
10,000
15,000
20,000
25,000
30,000
Portugal
Ireland
Spain
Greece (RHS)
0
100
200
300
400
500
600
Jan-
10
Jul-
10
Jan-
11
Jul-
11
Jan-
12
Jul-
12
Jan-
13
Jul-
13
Germany
Italy
UK
USA
France
Belgium
Corporate bonds spreads for all grades of issuers also stayed virtually unaltered over
the rst six months in both the United States and euro area. Abundant liquidity in
nancial markets coinciding with historically reduced levels of interest rates contin-
ued to fuel demand for higher-risk instruments in an evident quest for return that
has kept corporate credit spreads running at lows. Hence the mid-September risk
premiums of high-yield issuers stood at 392 bp in the United States and 399 bp in
the euro area, improving on the 453 bp and 445 bp respectively of the rst-quarter
close. Meantime, the spreads paid by BBB issuers were 131 bp in the United States
and 153 bp in the euro area (149 bp and 197 bp in the rst quarter), against the
51 bp and 13 bp respectively of those rated AAA.
Corporate bond spreads FIGURE 5
Spread vs. the ten-year government bond
1
United States Euro area
0
5
10
15
20
J
a
n
-
0
8
J
u
l
-
0
8
J
a
n
-
0
9
J
u
l
-
0
9
J
a
n
-
1
0
J
u
l
-
1
0
J
a
n
-
1
1
J
u
l
-
1
1
J
a
n
-
1
2
J
u
l
-
1
2
J
a
n
-
1
3
J
u
l
-
1
3
High yield BBB AAA High yield BBB AAA
percentage points percentage points
0
5
10
15
20
25
J
a
n
-
0
8
J
u
l
-
0
8
J
a
n
-
0
9
J
u
l
-
0
9
J
a
n
-
1
0
J
u
l
-
1
0
J
a
n
-
1
1
J
u
l
-
1
1
J
a
n
-
1
2
J
u
l
-
1
2
J
a
n
-
1
3
J
u
l
-
1
3
Source: Thomson Datastream and CNMV.
1 In the euro area, versus the German benchmark.
Gross long-term issuance on global debt markets came to 10.2 trillion dollars year to
date (in annualised terms), 13.2% less than in full-year 2012. In net terms, the de-
cline was a steeper 43% to 2.7 trillion dollars, reecting both the downturn in issu-
ance and an increased volume of debt redemptions. By sector, gross sovereign issuance
again the most voluminous came to 7 trillion dollars, a drop of 16.4% versus 2012.
The stall in public debt sales was sharpest in the United States, though the effects of
ongoing scal consolidation were also apparent in all remaining areas tracked. Fi-
nancial institution issue volumes were down 9.4% versus 2012 at 1.49 trillion dol-
lars, though note that the sector fared better in gross and net terms in both the
United States and Europe compared to the difculties encountered in the thick of
the nancial crisis. Finally, non-nancial corporate bond issuance held on a fairly
even keel at 1.71 trillion dollars compared to 1.73 trillion in 2012, maintaining a
clear lead over the nancial sector. Note that inter-year comparison underplays the
dynamism of corporate markets, since baseline volumes for 2012 were particularly
high (see bottom right panel of gure 6).
Corporate bond spreads continue
at lows as abundant liquidity
spurs investor demand for riskier
instruments.
Lower gross debt issuance on
international markets reects a
scale-back in public debt sales
oset in part from the private
sector of the economy.
Gross international debt issuance FIGURE 6
Total Public sector
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
0
1,000
2,000
3,000
4,000
5,000
USA Europe Japan Rest of the
world
Billion dollars
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
world
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
HY2 HY1 Billion dollars HY2 HY1
Financial institutions Non-nancial corporations
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
world
0
200
400
600
800
1,000
1,200
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
0
100
200
300
400
500
600
700
800
900
world
Billion dollars Billion dollars HY2 HY1 HY2 HY1
Source: Dealogic. Half-year data. Data for the second half of 2013 run to 15 September, but are restated on a
semiannual basis to facilitate comparison.
Stock indices in the worlds main economic areas have performed fairly divergently
year to date. US and Japanese stocks took an early lead, chalking up large gains on
the strength of their more buoyant activity and, in the case of Japan, the monetary
stimulus program set in train by the central bank. European indices, meantime, suf-
fered ups and downs in the rst six months due to low-gear activity and, in some
countries, elements of economic and political uncertainty. In the third quarter, how-
ever, European shares rallied strongly on more upbeat growth gures, which sig-
nalled the end of recession in the euro area and rekindled investors appetite for risk
(see gure 7).
Japanese indices have performed strongest to date with gains approaching 39%,
though price volatility has also moved up a gear. US indices, meantime, have risen
between 17% (Dow Jones) and 23% (Nasdaq), against the more subdued advances
of their European peers, ranging from the 8.8% of the Euro Stoxx 50 to the 13.4%
of the Euronext 100 (see table 1). Stock price volatility in the United States and
Europe tended to hover round the 20% mark, in contrast to the second-quarter spike
recorded in Japan (see right-hand panel of gure 7).
Stock indices stay strongly bullish
in the United States and Japan,
while gains in Europe quicken
from the third quarter.
Most advanced economy indices
record major gains, with a
volatile Japanese market in the
lead.
Performance of main stock indices
1
(%) TABLE 1
3Q13
(to 13 September)
2009 2010 2011 2012 3Q12 4Q12 1Q13 2Q13
%
prior qt.
%
Dec
%
y/y
2
World
MSCI World 27.0 9.6 -7.6 13.2 6.1 2.1 7.2 -0.1 7.0 14.6 15.4
Euro area
Euro Stoxx 50 21.1 -5.8 -17.1 13.8 8.4 7.4 -0.5 -0.8 10.2 8.8 12.7
Euronext 100 25.5 1.0 -14.2 14.8 5.0 6.0 4.7 -1.3 9.7 13.4 16.4
Dax 30 23.8 16.1 -14.7 29.1 12.5 5.5 2.4 2.1 6.9 11.8 16.4
Cac 40 22.3 -3.3 -17.0 15.2 4.9 8.5 2.5 0.2 10.0 13.0 17.5
Mib 30 20.7 -8.7 -24.0 10.2 8.6 6.0 -2.6 -0.4 12.8 9.4 10.5
Ibex 35 29.8 -17.4 -13.1 -4.7 8.5 6.0 -3.0 -2.0 15.2 9.5 12.7
United Kingdom
FTSE 100 22.1 9.0 -5.6 5.8 3.1 2.7 8.7 -3.1 5.9 11.6 13.1
United States
Dow Jones 18.8 11.0 5.5 7.3 4.3 -2.5 11.3 2.3 3.1 17.3 13.6
S&P 500 23.5 12.8 0.0 13.4 5.8 -1.0 10.0 2.4 5.1 18.4 15.6
Nasdaq-Composite 43.9 16.9 -1.8 15.9 6.2 -3.1 8.2 4.2 9.4 23.3 17.9
Japan
Nikkei 225 19.0 -3.0 -17.3 22.9 -1.5 17.2 19.3 10.3 5.3 38.6 60.1
Topix 5.6 -1.0 -18.9 18.0 -4.2 16.6 20.3 9.6 4.5 37.9 59.3
Source: Datastream.
1 In local currency.
2 Year-on-year change to the reference date.
Financial market indicators FIGURE 7
Risk appetite
1
Implied volatility
-30
-20
-10
0
10
20
30
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
0
20
40
60
80
100
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
S&P500 (VIX)
Emerging Markets (VXY)
Eurostoxx 50
Japan
%
increase in risk
appetite
decrease in risk
appetite
1 State Street indicator.
Equity issuance on international markets totalled 730 billion dollars to September
2013 (in accumulated twelve-month terms), easily surpassing the 583 billion dollars
of the year-ago period when nancial markets continued in the grip of turmoil. Is-
suance has picked up sharply in most regions since last summers trough to the ex-
tent of almost doubling in Europe from the 88 billion dollars of August 2012 to
176 billion in September de 2013,
4
while volumes in the United States jumped from
181 to 249 billion (see gure 8). In Japan too companies turned increasingly to the
equity market, though, as we can see from the gure, baseline levels are relatively
low. Globally, equity issuance had its ten-year peak at the start of 2010, when it
summed slightly over one trillion dollars.
Global equity issuance FIGURE 8
Million dollars
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
J
a
n
-
0
1
J
a
n
-
0
2
J
a
n
-
0
3
J
a
n
-
0
4
J
a
n
-
0
5
J
a
n
-
0
6
J
a
n
-
0
7
J
a
n
-
0
8
J
a
n
-
0
9
J
a
n
-
1
0
J
a
n
-
1
1
J
a
n
-
1
2
J
a
n
-
1
3
Europe USA Japan Rest of the world
Source: Dealogic. Accumulated twelve-month data to 15 September. For comparative purposes, the gure
for September is restated on a monthly basis.
2.2 National economic and nancial developments
The latest data from Quarterly National Accounts, corresponding to the second half
of 2013, show a 0.1% decline in GDP, 0.3 points less than in the preceding quarter.
5

This gives an annual contraction in GDP of 1.6% (-2.0% in the rst quarter), mark-
ing a visible improvement in trend terms. In the euro area, as stated, improvement
was more palpable, with GDP registering a second-quarter advance of 0.3%.
The two main components of domestic demand lost less ground than in previous
quarters. Final household consumption decreased by 3.2% in year-on-year terms
against the -4.3% of the rst quarter, while gross xed capital formation receded
6.4% (-7.5% in the rst quarter). It bears mention that the equipment component of
gross xed capital formation rose by 0.4% after the -4.1% of the preceding quarter,
whereas the rate of decline in construction investment was again over 10%. Overall,
4 Accumulated twelve-month gures.
5 These data reect the updated annual estimates of Spanish National Accounts for the 2009-2012 period,
baseline 2008, released on 27 August, which revised down GDP growth for 2012, 2011 and 2009 by 0.2,
0.3 and 0.1 points respectively as far as -1.6%, 0.1% and -3.8%. In the same exercise, the 2010 growth rate
was revised up 0.1 points to -0.2%.
Equity issuance recovers strongly
year to date in main world
regions.
GDP contracted 0.1% in the
second quarter (-1.6% year on
year), 0.3 points less than in the
rst three months
on the slackening decline of
domestic demand components.
domestic demand detracted from growth to the tune of 3.6 percentage points, a full
point less than in the rst quarter. Conversely, the growth input of net exports
dropped from 2.6 percentage points in the rst quarter to 2.0 in the second due to
an upswing in imports (from -4.8% to 3.1%) offsetting a strong surge on the export
side (from 3.6% to 9.2%).
Spain: main macroeconomic variables (annual % change) TABLE 2
EC
1
2009 2010 2011 2012 2013F 2014F
GDP
2
-3.8 -0.2 0.1 -1.6 -1.5 0.9
Private consumption -3.7 0.1 -1.2 -2.8 -3.1 -0.1
Government consumption 3.8 1.5 -0.5 -4.8 -3.7 -0.4
Gross xed capital formation, of which: -17.9 -5.5 -5.4 -7.0 -7.6 -1.1
Construction -16.6 -9.9 -10.8 -9.7 n.a. n.a.
Equipment and others -24.2 5.1 5.6 -3.9 -5.8 0.1
Exports -9.8 11.7 7.8 2.1 4.1 5.7
Imports -16.8 9.5 0.0 -5.7 -4.0 2.0
Net exports (growth contribution, p.p.) 2.9 0.4 2.2 2.5 2.6 1.3
Employment
3
-6.5 -2.3 -1.7 -4.4 -3.4 0.0
Unemployment rate 18.0 20.1 21.7 25.0 27.0 26.4
Consumer price index -0.2 2.0 3.1 2.4 1.5 0.8
Current account balance (% GDP) -4.8 -4.4 -3.7 -0.9 1.6 2.9
General government balance (% GDP)
4
-11.2 -9.7 -9.4 -10.6 -6.5 -7.0
Public debt (% GDP) 53.9 61.5 69.3 84.2 91.3 96.8
Net international investment position (% GDP)
5
-97.9 -91.7 -83.0 -67.5 n.a. n.a.
Source: European Commission, Banco de Espaa and National Statistics Oce (INE).
1 European Commission forecasts published May 2013.
2 Data on GDP and components in the period 2009-2012 reect the updated annual estimates of Spanish
National Accounts, baseline 2008, released last August.
3 In full-time equivalent jobs.
4 Figures for 2011 and 2012 include government aid to credit institutions amounting to 0.5% and 3.3% of
GDP respectively.
5 Ex. Banco de Espaa.
n.a.: not available.
A supply side analysis shows that agriculture, hunting and forestry and most service
branches clawed back some ground in the second quarter. In industry, by contrast,
the rate of deceleration quickened slightly (from -3.0% to -3.1%), despite a better
performance on the manufacturing side buttressed by rising demand for durable
goods.
Spanish ination held to a downward course, with intermittent uctuations, that
took it from near 3% at end 2012 to 1.5% in August last. The year-on-year decline in
the headline rate reects the more moderate progress of core ination (down from
2.1% to 1.6%) and the energy component (from 7.6% to -2.2%). Spains ination
differential vs. the euro area has also narrowed sizeably, from close to one percentage
A slower contraction pace in all
sectors except for industry.
Spains headline ination slows
from around 3% at end-2012
to 1.5% in August, lowering its
dierential with the euro area to
0.3 percentage points.
point at the 2012 close to 0.3 in August. The absence of demand pressure and the
favourable comparative effect in September gures of the VAT hike of one year
before suggest this trend will persist in the short term at least.
Spain: main macroeconomic variables (annual % change) FIGURE 9
-2
0
2
4
6
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Dierential Euro area Spain
%
Source: Thomson Datastream. Data to August.
The latest labour-market gures also hint at a mild improvement under way. The
decline in employment, specically, was -3.6% in the second quarter compared to
-4.6% in the rst, while the jobless rate, still above 26% of the active population,
decreased by a thin margin. The second-quarter outcome for unit labour costs
(-2.3%) represents a slight containment in their adjustment path, which reects the
stabilisation of compensation per worker (-0.1%) coupled with a more modest ad-
vance in productivity (down from 2.6% to 2.2%).
According to advance data on budgetary execution, the general government decit
(excluding local corporations) from January to July stood at 5.27% of GDP combin-
ing the negative balances reported by central government and the autonomous com-
munities (-4.55% and -0.77% of GDP respectively) and a slight surplus in the social
security account (0.05% of GDP). Public decit targets at the time of writing are
6.5% of GDP in 2013, 5.8% in 2014, 4.2% in 2015 and 2.8% in 2016.
6
Meantime,
general government indebtedness climbed to 92.2% of GDP in the second quarter of
2013 from 90.1% in the rst, placing it over six points above the level of the 2012
close
7
(85.9% of GDP).
These past few months, the Spanish bank sector has pressed on with a repair and
restructuring process that has taken it safely past the milestones set in the Memo-
randum of Understanding signed by the Spanish and European authorities in July
2012. Aside from the higher provision charges taken by banks in 2012, the main
6 At the end of August, the government approved individual decit and debt targets to 2016 for the au-
tonomous communities, with the peculiarity that these targets are dierentiated by region in 2013 (in
the interval of -1% to -1.6% of GDP), and homogeneous for the 2014-2016 period (-1% of GDP in 2014,
-0.7% in 2015 and -0.2% in 2016).
7 Public debt amounted to 70.4% of GDP at end-2011 and 61.7% at end-2010.
The latest labour-market
gures indicate some very small
improvement.
The public decit to July stands
at 5.27% of GDP versus the full-
year target of 6.5%.
Restructuring continues in
the domestic banking sector.
Individually, however, banks
are still hobbled by low-gear
economic activity.
developments were the transfer to SAREB (Asset Management Company for Assets
Arising from Bank Restructuring) of Group 1 entities distressed real estate loans in
December 2012, followed by the Group 2 package in February 2013, for a combined
amount of over 50 billion euros. But while doubts about the quality of sector assets
have been partly allayed, domestic banks are still having to cope with the stagnation
of Spains economy and the fragmentation of European nancial markets, which by
restricting some banks access to funding have constrained the renewed ow of
credit to the economy.
In this setting, sector income statements suffered added deterioration over the
rst quarter of 2013, albeit less intensely than in earlier periods. Gross income
was down from 14.4 billion euros in the rst quarter of 2012 to 13.3 billion one
year later, though operating cost contention and slightly lower impairment losses
on nancial assets delivered a year-on-year advance at the net operating income
line, from 964 million in 2012 to 1.34 billion in 2013. Finally, lower extraordinary
income left the sectors net prots at 621 million euros compared to the 1.06 bil-
lion of rst-quarter 2012. That said, preliminary gures for the rst-half perfor-
mance of listed nancial institutions promise a considerable return to form, with
aggregate prots of 3.51 billion euros against the 9.51 billion losses of the same
period in 2012.
Lending to the non-nancial private sector has been shrinking more or less consist-
ently at year-on-year rates from 5.5% to 6.0%. According to the latest data in the
series, for the month of July, borrowings were down by 5.5% vs. the same period
last year (-5.6% in the prior month). A breakdown by sector shows a decline in lend-
ing to businesses (-6.3%) and, less so, households (-4.2%). On the business side, the
salient development was the divergent performance of bank credit (down by 9.8%
year on year) and other kinds of debt nancing (up by 8.1%). In the household sec-
tor, both home purchase and consumer lending contracted in the period, by 4.5%
and 3.4% respectively. The constriction of bank lending has been less severe in the
euro area than in Spain. Specically, bank lending to non-nancial corporations to
the month of July was 3.7% lower year on year, while credit to households rose 0.1%
due to an increase in home purchase loans (0.7%).
Bank NPL ratios resumed their ascent after the hiatus of the transfer to SAREB of
Group 1 and Group 2 problematic loans in December 2012 and February 2013
8
(see
gure 10). By June 2013, the ratio was running at a series peak of 11.6%. Real estate
and construction were again the most delinquent sectors (28.9% and 25.4% respec-
tively at the end of the rst quarter of 2013), though the earlier asset transfers to
SAREB marked a turning point for both. Meantime, the NPL ratios of remaining
productive activities climbed from 8.7% at the 2012 close to 9.3% in March 2013,
while the ratio for households inched up from 4.9% to 5.1%.
9
As to nancial sector funding conditions, the easing of debt market tensions over
the past twelve months has brought down the cost at issuance of xed-income
8 The total amount of problematic assets transfered was 50.78 billion euros.
9 The NPL ratio of loans for home purchases and improvements rose from 4.0% to 4.2% and that of loans
for the purchase of consumer durables from 6.1% to 6.2%.
Bank sector net prots sum
621 million euros in rst-quarter
2013, compared to 1.06 billion
in 2012
in a context of still tightening
credit
and a rise in bad debt that
pushed NPL ratios to a June high
of 11.6%.
Banks funding conditions stay
tight despite lower interest rates
and the recovery of deposits.
securities, though note that volumes have stayed muted to date. Despite sector
deleveraging and the lower funding needs brought by more restricted lending,
many entities are still heavily reliant on Eurosystem nance. The latest available
data, for the month of August, indicate that net Eurosystem lending to the Span-
ish nancial system has stabilised at just under 250 billion euros. Finally, one
welcome development has been the recovery of business and household deposits,
which have worked their way back by more than 55 billion euros from the lows of
August 2012.
Credit institution NPL ratios and the unemployment rate
1
FIGURE 10
0
2
4
6
8
10
12
14
J
a
n
-
0
0
J
a
n
-
0
1
J
a
n
-
0
2
J
a
n
-
0
3
J
a
n
-
0
4
J
a
n
-
0
5
J
a
n
-
0
6
J
a
n
-
0
7
J
a
n
-
0
8
J
a
n
-
0
9
J
a
n
-
1
0
J
a
n
-
1
1
J
a
n
-
1
2
J
a
n
-
1
3
6
10
14
18
22
26
Credit institutions NPL ratios (LHS)
Unemployment rate (RHS)
% %
Transfer to SAREB of the problematic assets
of Group 1 and 2* entities
Source: Banco de Espaa and National Statistics Oce (INE). NPL ratios and unemployment rate to June 2013,
unemployment rate to December 2012.
1 Percentage of the active population.
* Group 1 transfers took place in December 2012 (36.69 billion euros) and those of Group 2 in February 2013
(14.09 billion euros).
The aggregate rst-half prots of non-nancial listed companies amounted to
8.37 billion euros, 11.2% more than in the same period in 2012. Underpinning the
improvement was the notable reduction in construction and real estate sector losses,
from 1.94 billion euros in the rst half-year of 2012 to 516 million euros in 2013 (see
table 3). Industrial rms also contributed on the upside, although their aggregate
earnings are small by comparison (up from 548 million euros in 2012 to 574 million
in 2013). Energy rm prots, the largest in straight-money terms, were down 0.9%
vs. the year-ago period at 5.73 billion euros. The biggest fall, nally, corresponded to
retail and services rms, whose prots sank 16.2% to 2.56 billion.
The aggregate debt of non-nancial listed companies dropped by 5.8% vs. end-2012
in the rst half of 2013, to close the period at 283 billion euros. As much as 88% of
this decrease traced to the retail and services and construction and real estate sec-
tors. Aggregate leverage, dened as the ratio of debt to equity, held at in the period
at 1.40, though with some differences between sectors. Companies debt coverage
ratio, measuring the years needed to repay existing debt assuming constant EBITDA,
edged up from 4.3 to 4.5, while their interest cover (EBIT/interest expenses) stayed
practically unvaried in the rst half-year after deteriorating through 2011 and 2012
(see table 4).
Non-nancial corporations
grow their prots 11.2% to 8.37
billion euros in rst-half 2013
on the receding losses of the
construction and real estate
sector.
The sector reduces its debt by
5.8% to 283 billion euros from
December 2012 to June 2013,
though debt-to-equity remains
unvaried.
Earnings by sector:
1
non-nancial listed companies TABLE 3
EBITDA
2
EBIT
3
Net prot
Million euros 1H12 1H13 1H12 1H13 1H12 1H13
Energy 14,222 12,666 9,235 7,580 5,790 5,735
Industry 2,191 2,129 1,374 1,301 548 574
Retail and services 14,497 13,603 7,359 6,245 3,061 2,565
Construction and real estate 3,626 3,382 2,009 1,772 -1,937 -516
Adjustments -13 -69 39 -18 65 10
AGGREGATE TOTAL 34,523 31,711 20,016 16,880 7,527 8,368
Source: CNMV.
1 Year to date.
2 Earnings before interest, taxes, depreciation and amortisation.
3 Earnings before interest and taxes.
Gross debt by sector: listed companies TABLE 4
Million euros 2009 2010 2011 2012 Jun 2013
Energy

Debt 100,572 98,283 95,853 91,233 89,323
Debt/Equity 1.08 0.95 0.92 0.85 0.79
Debt/EBITDA
1
3.46 2.81 3.27 3.26 3.53
EBIT
2
/Interest expenses 3.38 4.15 3.30 3.14 3.01
Industry

Debt 15,953 14,948 17,586 17,232 17,158
Debt/Equity 0.69 0.58 0.63 0.63 0.95
Debt/EBITDA 3.05 2.11 2.54 2.38 4.03
EBIT/Interest expenses 3.15 5.00 3.90 3.82 2.27
Construction and
real estate

Debt 104,762 99,917 83,716 76,236 69,629
Debt/Equity 4.08 3.42 2.98 3.51 3.64
Debt/EBITDA 22.48 11.18 15.00 15.17 10.29
Retail and services

Debt 108,579 115,413 113,142 117,359 108,383
Debt/Equity 1.78 1.60 2.01 2.00 2.08
Debt/EBITDA 3.70 3.38 3.78 4.01 3.98
Adjustments
3
-1,908 -1,792 -1,404 -1,429 -1,400
AGGREGATE TOTAL

Debt 327,958 326,769 308,893 300,633 283,093
Debt/Equity 1.63 1.43 1.44 1.41 1.41
Debt/EBITDA 4.82 3.84 4.29 4.32 4.46
Source: CNMV.
1 Earnings before interest, taxes, depreciation and amortisation.
2 Earnings before interest and taxes.
3 In drawing up this table, we eliminated the debt of issuers consolidating accounts with some other Span-
ish listed group. The gures in the adjustments row correspond to eliminations from subsidiary compa-
nies with their parent in another sector.
First-quarter indicators on the net asset position of Spanish households show a drop
in both indebtedness and nancial burden as a percentage of gross disposable in-
come on a combination of decreasing liabilities and lower average debt interest.
Households net wealth was largely unaltered since the increase in value of their -
nancial assets was offset by the depreciation of real estate. Household investment
decisions, meantime, were characterised by a continuing divestment of nancial
Household debt ratios head
lower in the rst months of 2013
hand in hand with increased
investment in certain asset
categories (mutual funds and
insurance products).
assets equating in aggregate terms to 1.3% of rst-quarter GDP
10
(1.5% of GDP over
full-year 2012). However, some changes have emerged in household investment pat-
terns since the closing months of 2012. In particular, disposals of nancial assets in
the four quarters from March 2012 to March 2013 centered on xed-income instru-
ments (primarily commercial paper), while time deposits came to dominance.
11
Al-
though mutual fund investment stayed negative over the twelve months to March
2013 (-0.6% of GDP), note that the numbers turned positive in rst-quarter 2013,
with net inows topping 3.40 billion euros (0.33% of GDP). Insurance and pension
fund purchases also gathered speed in the same quarter as far as 0.46% of GDP.
Households: nancial asset acquisitions FIGURE 11
-5.0
-2.5
0.0
2.5
5.0
7.5
10.0
12.5
2005 2006 2007 2008 2009 2010 2011 2012 1Q13
Currency and deposits Other deposits and debt securities
Shares and other equity Investment funds
Insurance technical reserves Rest
Total
Source: Banco de Espaa, Cuentas nancieras. Accumulated four-quarter data.
10 Accumulated four-quarter data. The gure for the rst quarter of 2013 equates to an investment inow
of 0.7% of GDP.
11 Particularly in the fourth quarter of 2012.
New Financial Education Plan EXHIBIT 1
At the G-20 summit in Los Cabos (Mexico) in June 2012, heads of state and govern-
ment approved and endorsed the High-level Principles for National Strategies for
Financial Education developed by the OECD and its International Network on Fi-
nancial Education (INFE). These principles have been adopted by the CNMV and
Banco de Espaa in plotting their own strategy for nancial education in Spain,
and rolled out in the recent renovation, for the 2013-2017 period, of the Financial
Education Plan that these two organizations have been promoting since 2008.
In February 2013, G-20 nance ministers and the governors of central banks reaf-
rmed their stance on the importance of nancial education and asked the OECD
to provide an update on the progress of national strategies. The resulting report
devoted a full chapter to Spains Financial Education Plan, including its objectives,
development lines, the main results of the past edition (2008-2012) and the goals
set for the incoming stage. This initiative demonstrates that the promotion of -
nancial education has become a long-term policy priority for leading countries.
The new Financial Education Plan
In June 2013, the CNMV and Banco de Espaa signed the renewal of the Financial
Education Plan launched by the two institutions in 2008 for an initial phase end-
ing in 2012. This second phase will extend over a further ve years and signies a
renewed commitment to the plans goal of improving citizens nancial culture.
Concretely, the Financial Education Plan targets an across-the-board improve-
ment in Spaniards nancial knowledge, so they are better able to confront the
many nancial decisions they will encounter along lifes path.
After a ve-year period in which new groundwork has been laid for nancial edu-
cation and multiple objectives met (design of a nancial education portal for citi-
zens www.nanzasparatodos.es , production of teaching materials and re-
sources, the start-up of learning activities for diverse collectives, partnership
agreements with public and private organisations for the promotion of nancial
literacy, etc.), the time has come to pursue the actions that have proved most ef-
fective and set new goals for the next ve years.
On the basis of the results achieved and experience gained in 2008-2012, the next
phase of the plan will have the following development lines:
The inclusion of nancial education in compulsory schooling: this is a corner-
stone of the plan. To this end, the CNMV and Banco de Espaa concluded a
framework agreement with the Ministry of Education, Culture and Sport in
2009, resulting in a series of learning initiatives in concert with regional
educational authorities and sectoral associations. This development line will
continue to be pursued vigorously in the second phase.
Thanks to the work of these agents, almost 400 schools throughout Spain
are running nancial education programmes in the classroom in the 2012-
2013 academic year. The short-term goal is to extend this programme to
more centres in 2013-2014.
Last years teaching programme is currently being evaluated by reference to
its theoretical, methodological and learning achievements as part of a broad-
er study with the Ministry of Education, Culture and Sport to decide how
these contents can best be brought within the ofcial curriculum.
It should be stressed that nancial education in schools is now a standard
practice in many countries. Recently, for instance, England and Wales de-
clared it a compulsory subject in all plans of study.
Testimony to the importance attached to nancial education in schools at
international level is the OECDs inclusion of a nancial skills module in a
standard test given to 15 year olds as part of its Programme for Interna-
tional Student Assessment (PISA). This test will be repeated in 2015, and it
is important that Spanish students are equipped for the challenge.
Financial education for retirement and in the insurance sphere: in view of the
need to promote the habit of long-term nancial planning, and a better un-
derstanding of insurance and pension products and what they are used for,
attention will go to developing materials, contents and activities that raise
citizens awareness on all these counts.
Consolidation of the nanzasparatodos brand: work will go into establishing
and publicising the nanzasparatodos (nance for all) brand and logo as the
public image of the Financial Education Plan. This will be achieved through a
presence strategy informing the public of its existence and goals through the
use of social media and other instruments.
A related objective is to get more users visiting or browsing the www.nan-
zasparatodos.es portal, where they can acquire new nancial knowledge
and pick up tips and skills.
Promotion and enlargement of the plan partners network: the involvement of
numerous public and private partners in the Financial Education Plan has
been crucial in getting many of its activities off the ground and ensuring
that it reaches a growing number of collectives.
The goal in this second phase will be to conclude new partnership agreements
and leverage existing ones. Also, contact will be made with other nancial
education projects under way in Spain in order to share experiences, materi-
als and resources and by this means maximise efciency and avoid overlap.
Evaluation and research: before embarking on any nancial education pro-
ject, it is vital to set specic and, where possible, quantiable objectives, so
the effectiveness of actions can be properly assessed. Research is another
important tool to determine where and how nancial literacy needs to be
improved.
As such, an immediate objective will be to identify peoples real needs
through a national nancial education survey. This will help pinpoint the
areas where knowledge is lacking and provide a benchmark from which to
assess programmes for their effectiveness in delivering progress.
2.3 Outlook
In its July forecasts, the IMF projects global growth of 3.1% in 2013 rising to 3.8%
in 2014. These rates imply an 0.2 percentage points revise-down on its previous
forecasts published last April. The advanced economies, it now believes, will ex-
pand 1.2% and 2.1% in 2013 and 2014 respectively, still at a distance from the
emerging market economies (5% in 2013 and 5.4% in 2014).
According to the latest IMF
forecasts, 2013 output growth
will reach 1.2% in the advanced
economies and 5% in emerging
market economies.
The main risks for these projections remain tilted to the downside. Chief among
them: (i) a possible thinning-out of investment ows to emerging economies when
the United States gets round to withdrawing its monetary stimulus programme; (ii)
delays in adopting regulatory initiatives in Europe, particularly in its progress to-
wards the banking union crucial for uncoupling sovereign from nancial risk; and
(iii) the prolongation of the geopolitical instability affecting certain countries. The
risks deriving from the relatively fragile state of Europes sovereign debt markets
have stabilised in recent quarters, but remain a factor of some weight, especially in
a context of muted growth.
Gross domestic product (annual % change) TABLE 5
IMF
1
2009 2010 2011 2012 2013F 2014F
World -0.7 5.3 3.9 3.1 3.1 (-0.2) 3.8 (-0.2)
United States -3.0 2.4 1.8 2.2 1.7 (-0.2) 2.7 (-0.2)
Euro area -3.8 2.0 1.5 -0.6 -0.6 (-0.2) 0.9 (-0.1)
Germany -5.1 4.0 3.1 0.9 0.3 (-0.3) 1.3 (-0.1)
France -3.0 1.6 2.0 0.0 -0.2 (-0.1) 0.8 (=)
Italy -5.5 1.8 0.4 -2.4 -1.8 (-0.3) 0.7 (+0.2)
Spain
2
-3.8 -0.2 0.1 -1.6 -1.6 (=) 0.0 (-0.7)
United Kingdom -3.9 1.8 1.0 0.3 0.9 (+0.3) 1.5 (=)
Japan -5.5 4.7 -0.6 1.9 2.0 (+0.5) 1.2 (-0.3)
Emerging economies 2.8 7.5 6.2 4.9 5.0 (-0.3) 5.4 (-0.3)
Source: IMF, Thomson Datastream and Eurostat.
1 In brackets, change vs. the previous forecast. IMF, forecasts published July 2013 with respect to April 2013.
2 GDP growth rates for Spain in the period 2009-2012 reect the updated annual estimates of Spanish Na-
tional Accounts, baseline 2008, released on 27 August.
The IMFs projections for the Spanish economy point to a 1.6% contraction in 2013
followed by zero growth in 2014. The 0.7 percentage points cut in its 2014 forecast
with respect to April last was among the largest downward revisions dealt out to any
country. Among the plus points in its macro scenario we can cite the improved per-
formance of domestic nancial markets since the closing months of 2012, which
has helped reduce nancing costs across the economy, the tentative improvement
in labour-market data, and advances made in nancial sector restructuring. How-
ever, the growth rates being forecast are still too low to deliver solid progress in
employment, in the short term at least, and doubts persist over the real health of the
banking sector in a context of credit constriction that is barring the way to a more
dynamic recovery.
The main downside risks have
to do with capital outows from
emerging economies, delays in
adopting regulatory initiatives
and prolonged geopolitical
instability.
Spanish GDP is forecast to
decline 1.6% in 2013 followed by
zero growth in 2014. Although
improvement symptoms are
appearing on the macro front,
downside risks are material.
3 Spanish markets
3.1 Equity markets
Prices on domestic equity markets fell signicantly in the rst six months of 2013
on sluggish activity and the persistence of uncertainty factors in some economies.
The moment of maximum tension on international markets came at the end of June,
when the Federal Reserve announced that it was ready to withdraw its monetary
stimulus ahead of time if activity and employment data accompanied. In the third
quarter, however, the bear trend gave way to a sizeable rally in most sectors in re-
sponse to more upbeat news on the economy and employment and a lessening
perception of sovereign risk. After staying contained for most of the year, stock
market volatility spiked at 30% during the tension episode of late June, though this
was mild compared to the experience of past turbulence outbreaks. Liquidity condi-
tions remained in the comfort zone while trading was generally thin except for a
short-lived upturn in the middle months.
The Ibex 35 followed up its 3% and 2% losses in the rst and second quarter with a
third-quarter gain of 15.2% which placed it 9.5% ahead of its start-out value (see
table 6). By mid-September, in effect, the Spanish benchmark was testing 9,000 points,
its highest level since October 2011. Meantime, Spanish small and medium cap in-
dices progressed strongly for most of the year, with the latter rising 28.1% from
January to September ahead of the formers 20.5%. The performance of domestic
stock indices contrasted with that of the Latin American shares traded on Latibex, as
evidenced by year-to-date slides of 15.1% in the FTSE Latibex All-Share and 10.5%
in the FTSE Latibex Top.
A look at the different sectors making up the Madrid General Index (IGBM) re-
veals some starkly contrasting performances. Financial and real estate services
initially came out worst with losses of 9.4% and 6.1% in the rst and second quar-
ter respectively, compared to the 12.6% and 5.2% gains of consumer services. The
third-quarter rally, however, extended to all sectors, with rises ranging from the
5.3% of oil and energy to the 23.5% of nancial and real estate services (see table 6).
Year to date, the top performers are consumer services (34.2%), basic materials,
industry and construction (17.9%) and technology and telecommunications
(13.3%), while oil and energy (9.5%), consumer goods (7.0%) and nancial and
real estate services (5%) all lag the IGBM average. The slide in bank sector quotes
in the rst and second quarters (-10.1% and -6.5% respectively) was decisive in
this last case.
The price/earnings ratio
12
(P/E) of the Ibex 35, which had dropped from 11.7 in De-
cember 2012 to 11.3 in March and 11.0 in June, resumed an upwards path in the
third quarter as share prices rallied. By mid-September the multiple of Spains
benchmark index was up to 12.4, placing it at the upper end of the European table
(on a par with the Euronext 100 and ahead of the British and Italian indices), but
below the top US and Japanese indices, with ratios from 13.6 to 13.9.
12 On one-year forward earnings.
Share prices slide to mid-year
and later rally on more evidence
of economic improvement
and lessening perceptions of
sovereign credit risk.
The Ibex 35s year-to-date gain of
9.5% was surpassed by small and
medium cap indices.
Consumer services, basic
materials, industry and
construction, and, in third place,
technology and telecoms, are
the best performing sectors year
to date.
The P/E of the Ibex 35 rebounds
to 12.4 after a rst-half fall,
placing it at the upper end of the
European table
Performance of Spanish stock market indices and sectors (%) TABLE 6

3Q13
(to 13 September)
Index 2009 2010 2011 2012 1Q13
1
2Q13
1
%
prior qt.
%
Dec
%
y/y
Ibex 35 29.8 -17.4 -13.1 -4.7 -3.0 -2.0 15.2 9.5 12.7
Madrid 27.2 -19.2 -14.6 -3.8 -3.2 -2.1 15.9 9.9 12.8
Ibex Medium Cap 13.8 -5.6 -20.7 13.8 2.2 7.9 16.1 28.1 43.9
Ibex Small Cap 17.6 -18.3 -25.1 -24.4 7.3 -3.1 15.9 20.5 12.9
FTSE Latibex All-Share 97.2 9.0 -23.3 -10.7 -1.2 -18.8 5.8 -15.1 -21.0
FTSE Latibex Top 79.3 9.7 -17.1 -2.6 5.2 -19.0 5.1 -10.5 -13.7
Sector
2
Financial and real estate services 47.3 -31.7 -18.9 -4.7 -9.4 -6.1 23.5 5.0 4.6
Banks 50.0 -33.1 -20.3 -4.8 -10.1 -6.5 24.0 4.2 3.3
Insurance 18.9 -26.4 12.5 -2.0 8.5 3.0 13.7 27.0 32.6
Real estate and others -31.8 -53.3 -47.5 -14.4 -7.8 -2.1 15.2 4.0 30.6
Oil and energy -2.7 -8.6 -2.7 -16.0 -3.0 7.2 5.3 9.5 18.4
Oil 12.4 10.2 14.9 -35.4 3.4 2.3 14.2 20.7 17.9
Electricity and gas -8.4 -14.2 -10.8 -5.4 -5.7 9.5 1.1 4.4 18.6
Basic materials, industry and construction 22.5 -15.2 -14.3 -8.0 -0.9 3.7 14.7 17.9 27.8
Construction 17.7 -14.9 -6.9 -9.3 -0.7 4.0 15.5 19.3 37.5
Manufacture and assembly of capital goods 9.9 -29.2 -12.2 -8.8 -2.1 17.8 15.8 33.6 42.9
Minerals, metals and metal processing 36.4 -9.1 -33.7 -8.7 -9.6 -7.3 17.0 -1.9 -3.4
Engineering and others 92.7 -0.1 -29.0 3.8 -0.1 -6.8 6.7 -0.6 -6.7
Technology and telecommunications 22.8 -12.8 -20.9 -18.3 3.9 -2.9 12.3 13.3 5.1
Telecommunications and others 23.3 -12.8 -20.8 -23.0 3.2 -6.0 14.4 10.9 0.4
Electronics and software 3.0 -12.0 -21.3 39.4 8.0 15.1 3.5 28.7 40.9
Consumer goods 26.3 17.0 5.7 55.6 0.2 -5.9 13.6 7.0 26.3
Textiles, clothing and footwear 38.3 28.6 12.7 66.2 -2.0 -8.3 16.0 4.2 26.0
Food and drink 7.0 25.3 -6.3 25.0 -3.7 -1.4 6.2 0.8 14.8
Pharmaceutical products and biotechnology 14.5 -22.2 -7.3 68.3 12.5 0.9 9.2 23.9 37.9
Consumer services 32.3 -0.1 -24.2 12.7 12.6 5.2 13.3 34.2 44.9
Motorways and car parks 36.2 -10.1 -3.7 5.7 5.6 2.2 6.5 14.9 19.4
Transport and distribution 3.8 55.3 -34.9 29.7 34.3 2.8 21.8 68.1 96.1
Source: BME and Thomson Datastream.
1 Change vs. previous quarter.
2 IGBM sectors. Under each sector, data are provided for the most representative sub-sectors.
The earnings yield gap, which reects the return premium required to be invested
in equity versus long-term government bonds, widened from 3.3% to 4.5% over the
rst six months, reecting both the decrease in the P/E and the falling yields of
Spanish sovereigns. In the third quarter, however, sharply rising stock markets
boosted P/E enough to offset the run-down in bond yields, restoring the gap to 3.6%
in line with its historical average.
13
13 This indicators historical average since 1999 stands at 3.3%.
while the equity risk premium
narrows to 3.6%, near its
historical average, after pulling
higher in the rst six months.
Ibex 35 volatility has been moving around the 20% mark for most of this year
after easing from 50% to just 10% in the second half of 2012. Its mid-year spike,
coinciding with a degree of market agitation, was short-lived only and contained
at under 30% (see gure 12), compared to the heights reached in earlier out-
breaks.
Historical volatility of the Ibex 35 FIGURE 12
0
20
40
60
80
100
Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13
Source: Thomson Datastream and CNMV. Data to 15 September. The red line shows conditional volatility
and the grey line unconditional volatility. The vertical lines refer to the introduction and lifting of the
previous short-selling ban on 11 August 2011 and 16 February 2012 respectively, and the new ban starting
on 23 July 2012 and ending on 1 February 2013.
The second-half 2012 improvement in Ibex 35 liquidity conditions (measured
through the bid/ask spread) carried over into this years opening months albeit
with some uctuations (see gure 13). After deteriorating briey in June and July,
spreads narrowed once more to 0.11% in mid-September, in line with their average
since 2003.
Ibex 35 liquidity. Bid-ask spread FIGURE 13
0.00
0.05
0.10
0.15
0.20
0.25
0.30
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
%
Source: Thomson Datastream and CNMV. Data to 15 September. The curve represents the bid-ask spread of
the Ibex 35 along with the average of the last month. The vertical lines refer to the introduction and lifting
of the previous short-selling ban on 11 August 2011 and 16 February 2012 respectively, and the new ban
starting on 23 July 2012 and ending on 1 February 2013.
Ibex 35 volatility has hovered
near 20% all year except for a
second-quarter spike (at 30%) as
markets briey tensed.
Liquidity conditions remain
comfortable over the rst three
quarters of 2013
Trading volumes on Spanish stock markets shrank by 455.9 billion euros in the rst
three quarters of 2013 (to 15 September), equivalent to an 8.2% decrease vs. the
same period last year. Daily averages held more or less stable at around 2.60 billion
euros then surged to just under 5 billion in the years central weeks, coinciding with
a period of mild turbulence on international nancial markets. Since then, volumes
have tailed off anew to a multi-year low of 2.35 billion.
14
Daily trading on the Spanish stock market
1
FIGURE 14
0
2,000
4,000
6,000
8,000
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
Million euros
Source: CNMV. Data to 15 September 2013. The vertical lines refer to the introduction and lifting of the
previous short-selling ban on 11 August 2011 and 16 February 2012 respectively, and the new ban starting
on 23 July 2012 and ending on 1 February 2013.
1 Moving average of ve trading sessions.
Turnover on the Spanish stock market TABLE 7
Million euros
2009 2010 2011 2012 1Q13 2Q13 3Q13
1
All exchanges 886,135 1,037,284 925,667 698,987 162,136 164,346 129,393
Electronic market 880,544 1,032,447 920,879 694,294 160,793 163,071 128,304
Open outcry 73 165 48 50 6 4 28
of which SICAVs
2
20 8 6 0 0 0 0
MAB
3
5,080 4,148 4,380 4,330 1,238 1,171 993
Second Market 3 3 2 0 0 0 0
Latibex 435 521 358 313 99 100 67
Pro memoria: non-resident trading (% all exchanges)
64.5 75.2 81.2 78.7 n.a. n.a. n.a.
Source: CNMV and Directorate-General of Trade and Investment.
1 Accumulated data from 1 July to 15 September.
2 Open-end investment companies.
3 Alternative equity market. Data since the start of trading on 29 May 2006.
n.a.: Data not available at the closing date for this report.
14 Taking average daily volumes in the year, the low point comes in 2012 (2.61 billion euros), compared to
the higher levels of 2008 to 2011 (4.89 billion in 2008, 3.49 billion in 2009, 4.05 billion in 2010 and
3.62 billion in 2011).
but stock market trading
conserves its muted tone.
Equity issuance on domestic markets summed almost 24 billion euros in the rst
three quarters of 2013, surpassing the full-year gure for 2012 (21.14 billion). The
peak moment came in the second quarter when capital increases at one nationalised
bank raised a total of 15.5 billion euros. So far no POS have been launched com-
pared to the three in 2012, for a combined amount of 1.23 billion euros (see table 8).
Capital increases and public oerings
1
TABLE 8
2009 2010 2011 2012 1Q13 2Q13 3Q13
2
CASH AMOUNTS
3
(million euros) 11,391 16,017 17,146 21,142 4,996.0 16,372.3 2,580.4
Capital increases 11,389 15,407 17,019 19,911 4,996.0 16,372.3 2,580.4
Of which, through IPO 17 959 6,239 2,457 0.0 1,054.8 0.0
National tranche 15 62 5,827 2,457 0.0 1,054.8 0.0
International tranche 2 897 412 0 0.0 0.0 0.0
Public oering of shares 2 610 127 1,231 0.0 0.0 0.0
National tranche 2 79 125 1,231 0.0 0.0 0.0
International tranche 0 530 2 0 0.0 0.0 0.0
NUMBER OF FILINGS
4
53 69 92 105 28 37 32
Capital increases 53 67 91 103 28 37 32
Of which, through POS 2 12 8 7 0 3 0
Of which, bonus issues 11 15 22 22 9 9 10
Public oering of shares 1 3 2 3 0 0 0
Source: CNMV.
1 Incorporating issues admitted to trading without a prospectus being led.
2 Data to 15 September.
3 Excluding amounts recorded in respect of cancelled transactions.
4 Including all transactions registered, whether or not they eventually went ahead.
Equity issue volumes, at 24 billion
euros, surpass the 2012 total, but
are strongly concentrated in a
small number of banks.
First Conference on the Reform of the Securities Clearing, EXHIBIT 2
Settlement, and Registry System
On 27 June, the National Securities Markets Commission (CNMV) held its First
Conference on the Reform of the Securities Clearing, Settlement and Registry
System. The event was an opportunity for market participants to catch up with
work under way and discuss the future shape of post-trade systems in the Span-
ish market. In calling the conference, the CNMV fullled its pledge to keep the
sector informed of progress in the reform process initiated in 2010, when it set
up a Steering Committee chaired by the CNMV Vice President with members
from the Banco de Espaa, the Spanish Banking Association (AEB), the Spanish
Confederation of Savings Banks (CECA), the Investors Compensation Scheme
(FOGAIN), Bolsas y Mercados Espaoles (BME), and the main actors in the settle-
ment cycle.
The opening address was delivered by the Vice President of the CNMV, who point-
ed to the strides made in the reform process, as detailed in the report published
13 May, 2013 with the title Reforma del Sistema de Registro, Compensacin y
Liquidacin.
1
She also underlined that the heavy workload ahead would require
a sustained and coordinated effort in order to keep the reform on schedule.
The next speaker was the CNMVs Director-General of Markets, who stressed that
time was very tight for the reform to be concluded by deadline. Among the main
tasks pending, he signalled, were the design of participating entities communica-
tions with the Post Trading Interface (PTI), the detailed protocol for the optional
settlement model, and the settlement of OTC trades involving a central counter-
party. He also stressed the need to complete detailed planning for migration to
the new system and an assessment of its risks before end-2013, and to get the
required regulatory amendments in place in as short a time as possible.
The meeting then broke up into four themed workshops. The rst focused on the
practical aspects of the new opportunities yielded by the reform, a crucial point
given its potential impact on bank sector strategic business. At the heart of the
debate were certain still undened features of the reform project which could
limit banks decision-making power over their own business model. Doubts were
raised on issues like the requirements to be met by clearing members of the cen-
tral counterparty (CCP), which, it was agreed, should be cleared up as a matter of
urgency. Participants also analysed the steps banks should take in designing their
positioning strategies and setting in train their changeover plans. The consensus
was that the entry conditions for each infrastructure would inuence the decision
to become an individual clearing member or, alternatively, to sign a contract with
a general clearing member, and that this, in turn, would affect the number of
entities and the organisation of the market.
On the topic of the reforms advantages and drawbacks for end investors, partici-
pants in this workshop were adamant that it should proceed smoothly enough for
retail investors not to notice the changes, and that it was important to keep an eye
on costs and to ensure that nal customers were properly informed with maxi-
mum disclosure. Finally, they felt that the exible design of the reform would
give entities more operational scope and allow them to choose which services to
offer, with some opting to extend their existing suite while others specialise.
The second workshop turned on the functionalities of CCPs in the context of
Regulation (EU) No. 648/2012 of the European Parliament and of the Council on
OTC derivatives, central counterparties and trade repositories, known as EMIR.
The introduction of a CCP would, it was felt, contribute to optimising settlement
procedures and the detailed information sent to participants.
The following novelties of CCP design were mentioned in discussions: the possi-
bility of netting trades before settlement instructions are generated; the imple-
mentation of transaction management procedures in order to delimit the scope of
netting; the option for trading members to be either ordinary or segregated; and
the option of assigning a trade to a particular account from the time of execution,
or else sending a give-up (transfer of trade), likewise upon execution, to another
clearing or non-clearing member. This facilitates the transfer of risk and subse-
quent calculation of the margin required by the CCP from the denitive clearing
member.
Participants were agreed that the cost of the reform should be considered as a
whole, and did not rule out the need to make investments, while admitting that
netting in the CCP should provide some offset. Interoperability was seen as vital,
and it was felt that the EMIR should encourage the trend of providing cash col-
lateral to the CCP. International investors, they said, had welcomed the reform
and were hopeful that it would improve what they see as the sub-optimal proce-
dures now in place for the settlement of trades originating in other, non-resident
CCPs. Finally, care should be taken to keep failed trades to a moderate level, as
they have been to date.
Discussions in the third workshop ranged over aspects of the new settlement by
balances system envisaged in the reform. Participants were keenly aware of the
challenges involved in the eventual shortening of the settlement cycle from three
to two business days counting from the trade date, and Iberclears integration
within T2S. They stressed that T+2 settlement, while aiding harmonisation with
Europe, could cause a short-term spike in failed trades, particularly for non-resident
institutional investors, though it would also cut collateral requirements by a
third in tandem with the reduction in the settlement period and, therefore, in
default risk.
Another subject of debate was how the reform would affect the timing of when a
transaction becomes nal. Iberclear currently dates nality from the moment the
transaction is accepted, in accordance with the principle of assured delivery. But
the nascent CCPs will need to be recognized as systems pursuant to Directive
98/26/EC of the European Parliament and of the Council, of 19 May 1998, on set-
tlement nality in payment and securities settlement systems. With the CCP,
trades will become nal on being accepted from the market, while with Iberclear,
nality will shift to the settlement environment once the principle of assured
delivery has disappeared.
Participants also welcomed the exibility of the account structure mooted for
the CCP and central securities depository (CSD) at the preparatory stage of the
reform, with particular regard to the following points: (i) the possibility of
opening individual accounts in the name of members clients, so their collat-
eral is kept separate from that of the clearing members other accounts; (ii) the
possibility that transactions can be recorded in accounts on a gross or net basis,
determining, in turn, both the gross or net calculation of margin requirements
and the application or otherwise of cleared balances when processing settle-
ment instructions; and (iii) the possibility for nancial intermediary orderers
to open individual accounts supporting the entry of operations in the CSD in
the name of the nal owner for whom they are operating, within the space of
the settlement cycle and in the terms permitted by CSD and CCP internal regu-
lations.
Finally, the point was made that the settlement by balances which is a feature of
the reform will remove the need to use registry information in the market phase,
which will simplify processes and foreseeably encourage more trading going for-
ward, especially from the non-resident investors who account for 60% of stock
exchange trading volumes.
The fourth and last workshop dealt with aspects of the new securities registry ar-
rangements. Regarding the new registry and settlement system managed by Iber-
clear, it was explained that there will be a single system for all securities (equities
and xed-income, public and corporate debt), to be implemented in two phases
according to the project timeline. The registry system will be in two tiers and will
be based on balances or aggregated positions. On the matter of how accounts are
organized, participants were told that they could have one or more proprietary or
general client accounts or individual accounts per client, and even nancial inter-
mediary special individual accounts for use in the optional order settlement pro-
cedure.
Discussion then moved on to the changes in legal relations (including nality) that
would ensue from the reform, and its t with other changes in the European regu-
latory framework touching on the rights attached to securities. Finally, after ana-
lysing how these developments would affect participants in different platforms,
attention turned to the new standardised system of reporting participants entries
in the detailed register. It was stressed that for supervisory purposes its features
are equivalent to those of the current system based on register references (RR).
The Conference was closed by the Director-General of General Operations, Mar-
kets and Payment Systems at Banco de Espaa and the General Secretary for the
Treasury and Financial Policy of the Ministry of Economy and Competitiveness.
The former talked of the usefulness of having this kind of event and the interest
it had generated. He stressed that the reform was a agship project for the Span-
ish nancial industry in the light of the harmonising legal measures being devel-
oped in the European post-trade environment, and that entities should make
every effort to adapt their operations. Two points, he said, merited special atten-
tion: the shortage of time available for the huge amount of work that still needs
doing, and the coming onstream of T2S, whose start-up and migration will re-
quire an enormous and concerted effort from the market as a whole. And the next
challenge, he concluded, would be the shortening of the settlement cycle from
three to two days envisaged in the new regulation for Central Securities Deposi-
tories currently under consideration by the European Parliament and the Council.
The General Secretary of the Treasury and Financial Policy began his address say-
ing that efcient markets rely on the proper functioning of all the processes in-
volved concluding with payment and transfer of ownership. He added that
the post-trade stage encompassing securities clearing, settlement and registry is the
cornerstone of any nancial system, supporting the exchange of securities and
cash. Europe is on the brink of major changes in the post-trade sector comparable
to the shake-up in the trading landscape brought by the rst MiFID a decade ago.
And Law 32/2011 amending the Securities Market Law acknowledged this fact by
launching the reform of the clearing, settlement and registry system in which we
are now immersed. In closing, the General Secretary expressed his condence
that the determination of regulators, supervisors and the nancial industry would
bring the reform to a successful conclusion and ensure that migration to the new
system went through as smoothly as possible.
1 Available at http://www.cnmv.es/docportal/aldia/SituacionReforma090513.pdf
3.2 Fixed-income markets
The easing of European debt market tensions meant domestic xed-income markets
had an altogether smoother run in 2013, only briey interrupted by minor stress
episodes in the months of May and June. Public and, less so, corporate debt yields
traced a rm downwards course which restored risk premiums to levels unseen
since spring 2011. However, xed-income markets are still looking less than robust,
and the hefty decrease in agents nancing costs has so far failed to translate as an
upswing in issuance. One cause of the fading popularity of this kind of instrument
could be the availability of other, cheaper funding sources at a time when ongoing
deleveraging coupled with low-gear economic activity have sizeably eroded the bor-
rowing needs of the resident private sector.
Spanish government debt yields FIGURE 15
0
1
2
3
4
5
6
7
8
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
1-year bills 5-year bonds 10-year bonds
%
Against this backdrop, short-term treasury yields continued their downward path
from the 1.1%, 1.7% and 2.2% of last years close in three, six and twelve-month
tenors respectively, broken only by rises in the spring months coinciding with mo-
ments of market unease. At the closing date for this report (15 September), three, six
and twelve-month bills were yielding 0.2%, 0.9% and 1.3% respectively (in average
monthly terms), between 75 bp and 96 bp down on their end-2012 rates (see table 9).
Commercial paper yields, meantime, experienced a sharp reduction in the rst quar-
ter that tended to level off in subsequent months. The decline, nally, took them to
mid-September levels of 1.2%, 1.6% and 1.6% at three, six and twelve-month ma-
turities, between 162 bp and 224 bp down on the equivalent levels at the 2012 close
(2.8%, 3.6% and 3.8% respectively).
Long government bonds followed a similar path to short-term treasuries, namely a
run-down in yields breaking off only in May and June. As we can see from table 10,
average monthly yields of three, ve and ten-year bonds stood at 2.6%, 3.4% and
4.5% respectively in September 2013, around 80 bp lower than at the 2012 close.
15

Long-term corporate bond yields also fell sharply to April and turned atter thereaf-
ter, as far as mid-September averages of 2.9%, 3.7% and 5.3% in three, ve and
ten-year tenors, between 93 bp and 146 bp down vs. year-end 2012.
15 Already a long way short of the historical highs of summer 2012.
Spanish xed-income markets
reect the calmer mood
prevailing in European sovereign
debt markets since summer
2012, though certain elements of
fragility remain.
Short-term treasury yields have
fallen from 75 to 96 bp year to
date depending on the maturity,
with occasional rises in May and
June.
Long-term government
yields have also come down
substantially; from 5.3% at end-
2012 to 4.5% in mid-September
in the case of the ten-year bond.
Short-term interest rates
1
(%) TABLE 9
Dec 10 Dec 11 Dec 12 Mar 13 Jun 13 Sep 13
3
Letras del Tesoro
3 month 1.60 2.20 1.14 0.29 0.58 0.22
6 month 2.71 3.47 1.68 0.85 0.79 0.93
12 month 3.09 3.27 2.23 1.37 1.34 1.27
Commercial paper
2

3 month 1.37 2.74 2.83 1.49 1.25 1.21
6 month 2.52 3.52 3.58 1.72 1.43 1.61
12 month 3.49 3.77 3.83 1.90 1.67 1.59
1 Monthly average of daily data.
2 Interest rates at issue.
Medium and long bond yields
1
(%) TABLE 10
Dec 10 Dec 11 Dec 12 Mar 13 Jun 13 Sep 13
2
Government bonds
3 year 3.87 4.01 3.40 2.85 2.86 2.62
5 year 4.65 4.65 4.22 3.65 3.47 3.36
10 year 5.38 5.50 5.33 4.93 4.67 4.49
Corporate bonds
3 year 4.39 5.43 4.19 2.81 3.00 2.90
5 year 4.96 5.91 4.66 3.45 3.81 3.73
10 year 6.28 8.06 6.79 5.40 5.38 5.33
Source: Thomson Datastream, Reuters and CNMV.
1 Monthly average of daily data.
Spains sovereign risk premium, as derived from ve-year CDS spreads and the yield
spread between the Spanish and German benchmark, has held to a narrowing trend,
with some ups and downs, in tune with the drop in tensions on European debt mar-
kets. The CDS spread, specically, decreased to 237 bp in mid-September from the
295 bp of last years close (see gure 16), while the Spanish/German spread narrowed
to 255 bp from 396 bp. This downward movement was strongest in the third quarter
as bund yields edged higher. The decline in perceived sovereign risk extended to
practically all of Europe
16
(with Portugal as sole exception). And indicators of sover-
eign risk contagion have moved in the moderation zone despite straining temporar-
ily higher in the summer months. The only blip we can point to is the higher rise in
the contagion indicator for Portuguese sovereign credit risk (see gure 17).
16 It bears mention that Spanish sovereign spreads declined faster than their Italian equivalents over the
reference period, to the extent that Spanish/German spreads dipped below Italian/German spreads on
10 September 2013, the rst such occasion since March 2012.
After an uncertain start,
sovereign spreads head steadily
lower to reach 255 bp in mid-
September vs. 396 bp at the 2012
close.
Aggregate risk premium
1
based on the ve-year CDS of Spanish issuers FIGURE 16
basis points
0
200
400
600
800
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
Financial corporations Non-nancial corporations
Total private sector Spanish bond
1 Simple average. Data to 15 September.
Indicators of sovereign credit risk contagion in the euro area
1
FIGURE 17
Since 2007 Since 2012
0
2
4
6
8
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13
0
8
16
24
32
Spain
Ireland Italy
France Portugal
Greece (RHS)
Spain
Ireland Italy
France Portugal
Greece (RHS)
basis points basis points basis points basis points
0
2
4
6
8
Jan-12 Jul-12 Jan-13 Jul-13
0
8
16
24
32
Source: Thomson Datastream and CNMV. Data to 15 September 2013.
1 Dened as the impact on German sovereign CDS of contemporaneous shocks in the CDS of Spain, Italy, Ire-
land, Portugal, Greece and France equivalent to 1% of the CDS spread at that point in time. Results are the
product of two components. The rst measures the degree of contagion from one country to another, taken
as the percentage change in the CDS of the German sovereign bond that is exclusively explained by a con-
temporaneous variation in the CDS spread of one of the above six countries. This percentage is based on the
decomposition of the variance of the estimated prediction error using an autoregressive vector model (ARV)
with two variables the impacted variable (change in the German sovereign CDS) and the shock-generating
variable (change in the sovereign CDS of Spain, Italy, Ireland, Portugal, Greece or France) and two retarda-
tions. Estimates are implemented through a moving window of the one hundred periods prior to the rst
prediction period. The second component measures the credit risk of the shock emitter, as approximated
from its CDS. Finally, the resulting series is smoothed using a moving average of thirty trading sessions.
Corporate bond spreads performed similarly to their sovereign equivalents, namely
a descending trend as of end-2012 broken off occasionally in the second quarter. As
gure 16 shows, the average credit spreads of resident private-sector issuers tended
to align with sovereign risk premiums, reaching mid-September levels of 262 bp
and 237 bp respectively. But despite this notable reduction in the perception of risk
The risk premium of the private
sector of the economy has tended
to mirror the progress of sovereign
spreads, though note that nancial
institutions are still paying more.
attached to domestic borrowers, we still nd a large gap between the (average)
spreads of nancial institutions (332 bp in the month of September) and the 191 bp
of the non-nancial sector.
The gross volume of xed-income issues registered with the CNMV between Janu-
ary and September 2013
17
came to 94.12 billion euros, 65% less than in the same
period last year (see table 11). The largest reductions in straight-number terms cor-
responded to commercial paper (-77.66 billion euros), mortgage covered bonds
(-64.55 billion) and, in smaller measure, non-convertible bonds (-26.73 billion). Vari-
ous factors underlie the slump in primary activity in these instruments, precisely
the most popular in 2012, though the common denominator is issuers more modest
nancing needs.
In the case of commercial paper up by 28% in 2012 sales plunged by 71% vs. the
year-ago period to a lowly 32.5 billion euros. Direct causes here can be presumed to
include the recovery of bank deposit levels in the household and business sectors
and the increased inows registered by certain lower-risk categories of investment
funds.
Meantime, sales of mortgage covered bonds shrank by 75% in year-on-year terms
to 21.8 billion euros, and those of non-convertible bonds by 57% to a September
total of just under 19.9 billion. These large percentage reductions reect both
lighter funding needs and the abnormally high comparative baseline of 2012,
when nancial institutions engaged in heavy selling of these instruments to en-
sure themselves a stock of high-quality assets for use in Eurosystem nancing
operations.
The exception to this widespread slowdown was asset-backed securities. Issuance of
these instruments climbed by 10% to around 14 billion euros, without of course
coming anywhere near to recouping their pre-crisis levels. Sales of territorial cov-
ered bonds summed 5.61 billion between January and September, 37% less than in
2012. Again, no preference share issues were reported in the period.
Foreign debt nancing also tailed off considerably between January and July 2013.
As table 11 shows, the amount placed abroad by Spanish xed-income issuers was
43% lower than in the year-ago period at 32.89 billion euros. Most of this decline
corresponded to short-term sales, down by 73% to 8.39 billion, against an 8% de-
cline to 25 billion for longer-dated instruments.
The amount of xed-income
issues led with the CNMV from
January to September drops 65%
to 94 billion euros
due to falling sales of
commercial paper amid sti
competition from deposits and
investment funds,
and lower issuance of
mortgage and non-convertible
bonds.
Asset-backed securities buck
the trend with a 10% increase,
although the baseline is low.
International issuance sinks back
in 2013.
Gross xed-income issues TABLE 11
2013
led
1
with the CNMV 2009 2010 2011 2012 1Q 2Q 3Q
2
Number of ISSUES 512 349 353 334 61 74 47
Mortgage bonds 75 88 115 94 15 14 5
Territorial bonds 1 9 42 18 1 2 2
Non-convertible bonds and debentures 244 154 87 134 27 47 31
Convertible/exchangeable bonds and debentures 6 3 9 7 3 1 0
Asset-backed securities 76 36 45 35 11 5 3
Commercial paper facilities 73 59 53 46 4 5 6
Securitised 2 2 2 1 0 0 0
Other commercial paper 71 57 51 45 4 5 6
Other xed-income issues 0 0 0 0 0 0 0
Preference shares 37 0 2 0 0 0 0
NOMINAL AMOUNT (million euros) 387,476 226,449 288,992 357,830 44,462 30,406 19,255
Mortgage bonds 35,574 34,378 67,227 102,170 9,195 7,340 5,265
Territorial bonds 500 5,900 22,334 8,974 95 1,520 4,000
Non-convertible bonds and debentures 62,249 24,356 20,192 86,442 15,595 4,136 166
Convertible/exchangeable bonds and debentures 3,200 968 7,126 3,563 425 15 0
Asset-backed securities 81,651 63,261 68,413 23,800 8,052 4,942 904
Domestic tranche 77,289 62,743 63,456 20,627 6,965 4,309 904
International tranche 4,362 518 4,957 3,173 1,087 633 0
Commercial paper
3
191,342 97,586 103,501 132,882 11,100 12,453 8,920
Securitised 4,758 5,057 2,366 1,821 180 390 440
Other commercial paper 186,583 92,529 101,135 131,061 10,920 12,063 8,480
Other xed-income issues 0 0 0 0 0 0 0
Preference shares 12,960 0 200 0 0 0 0
Pro memoria:
Subordinated issues 20,989 9,154 29,199 7,633 1,557 978 92
Covered issues 4,794 299 10 0 0 193 0
2013
abroad by Spanish issuers 2009 2010 2011 2012 1Q 2Q 3Q
4
NOMINAL AMOUNT (million euros) 149,686 127,731 120,043 91,882 19,246 11,506 2,133
Long-term 47,230 51,107 51,365 50,312 16,076 7,793 628
Preference shares 3,765 0 0 0 0 1,500 0
Subordinated debt 2,061 0 242 307 0 0 0
Bonds and debentures 41,404 50,807 51,123 50,005 16,076 6,293 628
Asset-backed securities 0 300 0 0 0 0 0
Short-term 102,456 76,624 68,677 41,570 3,170 3,713 1,505
Commercial paper 102,456 76,624 68,677 41,570 3,170 3,713 1,505
Securitised 108 248 322 11,590 0 0 0
Source: CNMV and Banco de Espaa.
1 Incorporating issues admitted to trading without a prospectus being led.
3 Figures for commercial paper issuance correspond to the amount placed.
4 Data for the month of July. No data are available for foreign sales of securitised commercial paper in this month.
4 Market agents
4.1 Investment vehicles
Financial UCITS
18
After ve years of non-stop decline, assets under management in investment funds
climbed by 4.3% in the rst half of 2013 as far as 135.93 billion euros (see table 13).
Around 80% of the increase, moreover, owed to net subscriptions in these two quar-
ters summing over 9 billion euros (see table 12). The most copious inows found their
way into xed-income and passively managed products. Conversely, guaranteed xed-
income and equity, absolute return and global funds registered net redemptions in the
period. These investment and divestment ows represent a switch in the pattern that
has dominated for several years, in which guaranteed xed-income and equity catego-
ries were the main subscription beneciaries to the detriment of xed-income funds.
Investment fund returns were a positive 2% over the rst six months of 2013, but
lagged some way behind the returns obtained in 2012 (see table 13). The best per-
forming categories in the rst half-year were euro and international equity (4.4%
and 7% respectively), while all categories, generally speaking, fared better in the
rst than in the second quarter. Despite this improved tone, fund numbers contin-
ued to dwindle as far as 2,117 at the end of June. This was 68 fewer than at end-2012,
with the biggest losses (46) in the xed-income category.
Net investment fund subscriptions TABLE 12
2012 2013
Million euros 2010 2011 2012 3Q 4Q 1Q 2Q
Total investment funds -25,580.9 -10,839.0 -11,495.4 -3,176.6 -3,570.7 4,224.4 5,205.5
Fixed income
1
-27,150.0 -10,427.7 -5,662.5 -1,880.9 -1,273.4 1,729.5 3,934.9
Mixed xed income
2
-1,416.9 -1,925.7 -651.6 -173.6 -116.5 419.0 668.7
Mixed equity
3
-90.1 -320.5 -281.6 -68.3 -53.3 349.0 315.7
Euro equity -696.9 152.0 -109.7 -2.1 -23.9 275.0 104.6
International equity 1,151.9 -817.6 -370.2 -55.9 -186.5 122.3 133.3
Guaranteed xed-income 4,716.0 7,228.3 -334.5 58.5 -974.5 537.8 -602.6
Guaranteed equity
4
-2,500.1 -3,061.6 -3,353.1 -805.1 -1,115.8 -651.9 -952.7
Global funds 323.7 945.3 -7.8 -101.1 7.5 -61.0 -197.9
Passively managed -790.3 -274.5 572.1 67.8 360.4 1,477.0 1,851.1
Absolute return 871.8 -2,337.0 -1,296.5 -215.9 -194.7 27.7 -49.5
Source: CNMV. Estimates only.
1 Includes: Euro and international xed income and money market funds (as of 3Q 2011, money market funds
encompass those engaging in money market and short-term money market investments, Circular 3/2011).
2 Includes: Euro and international mixed xed income.
3 Includes: Euro and international mixed equity.
4 Includes: Guaranteed and partial protection equity funds.
18 Although this classication includes hedge funds and funds of hedge funds, we make no separate refer-
ence to them here, since they are the subject of their own sub-section further ahead.
Five years of decline are brought
to a halt in the rst half of 2013
by a 4.3% increase in investment
fund assets to nearly 136 billion
euros.
The long-awaited increase owes
80% to net subscriptions and the
remainder to fund returns (2%).
Main investment fund variables* TABLE 13
Number 2010 2011 2012
2012 2013
3Q 4Q 1Q 2Q
Total investment funds 2,408 2,310 2,185 2,197 2,185 2,185 2,117
Fixed income
1
537 508 454 459 454 448 408
Mixed xed income
2
160 140 125 128 125 126 129
Mixed equity
3
138 128 117 119 117 120 124
Euro equity 172 148 127 129 127 126 116
International equity 232 220 211 214 211 209 198
Guaranteed xed-income 276 351 398 393 398 409 402
Guaranteed equity
4
499 420 361 369 361 348 336
Global funds 192 203 192 194 192 182 174
Passively managed 61 59 85 75 85 103 126
Absolute return 141 133 115 117 115 114 104
Assets (million euros)
Total investment funds 143,918.2 132,368.6 124,039.9 125,108.2 124,039.9 130,295.4 135,933.5
Fixed income
1
56,614.6 46,945.5 40,664.6 41,512.2 40,664.6 42,690.3 46,736.8
Mixed xed income
2
7,319.0 5,253.6 5,500.9 5,512.9 5,500.9 5,965.6 6,618.4
Mixed equity
3
3,470.5 2,906.1 3,179.9 3,116.2 3,179.9 3,593.6 3,911.9
Euro equity 5,356.8 4,829.2 5,270.2 4,891.7 5,270.2 5,691.8 5,867.8
International equity 8,037.3 6,281.2 6,615.0 6,663.2 6,615.0 7,224.0 7,297.3
Guaranteed xed-income 26,180.2 35,058.0 36,445.0 36,489.9 36,445.0 37,653.1 37,316.1
Guaranteed equity
4
22,046.5 18,014.5 14,412.7 15,383.0 14,412.7 13,925.5 13,032.2
Global funds 4,440.3 5,104.7 4,358.6 4,288.4 4,358.6 4,366.9 4,157.3
Passively managed 2,104.8 1,986.2 2,991.2 2,456.2 2,991.2 4,511.4 6,402.4
Absolute return 8,348.1 5,989.7 4,601.9 4,794.4 4,601.9 4,673.3 4,593.4
Unit-holders

Total investment funds 5,160,889 4,835,193 4,410,741 4,531,940 4,410,741 4,523,140 4,646,619
Fixed income
1
1,622,664 1,384,946 1,261,634 1,297,686 1,261,634 1,283,052 1,347,295
Mixed xed income
2
270,341 206,938 188,574 193,992 188,574 194,084 203,705
Mixed equity
3
171,336 145,150 138,096 140,387 138,096 140,132 141,715
Euro equity 266,395 237,815 220,433 220,342 220,433 231,881 239,309
International equity 501,138 448,539 398,664 417,276 398,664 409,552 427,789
Guaranteed xed-income 790,081 1,042,658 1,075,852 1,082,897 1,075,852 1,114,875 1,124,209
Guaranteed equity
4
1,065,426 912,298 727,867 783,203 727,867 703,587 655,760
Global funds 105,720 127,336 101,321 105,824 101,321 104,718 111,567
Passively managed 90,343 100,416 125,003 110,678 125,003 170,399 224,481
Absolute return 277,445 229,097 173,297 179,655 173,297 170,860 170,789
Return
5
(%)
Total investment funds 0,35 -0,08 5,50 2,72 2,08 1,64 0,37
Fixed income
1
0,11 1,56 3,54 1,35 1,12 0,76 0,31
Mixed xed income
2
-0,54 -1,34 4,95 2,41 1,75 0,83 -0,19
Mixed equity
3
-0,98 -5,64 7,83 4,12 3,30 2,02 0,17
Euro equity -2,94 -11,71 12,31 8,16 7,28 3,05 1,32
International equity 14,22 -10,83 13,05 5,27 2,32 7,49 -0,45
Guaranteed xed-income -0,67 3,28 4,85 2,42 2,27 1,72 0,68
Guaranteed equity
4
-1,79 0,14 5,07 3,89 1,99 1,16 0,42
Global funds 3,22 -4,64 7,44 2,95 2,03 1,75 -0,26
Passively managed -2,36 -7,33 7,10 5,50 4,04 0,96 0,77
Absolute return 1,53 -1,87 3,84 1,81 1,36 1,01 -0,57
Source: CNMV.
* Data for funds that have led nancial statements (i.e., not including those in the process of winding-up or liquidation).
1 Includes: Euro and international xed income and money market funds (as of 3Q 2011, money-market funds encompass those engaging in
money market and short-term money market investments, Circular 3/2011).
2 Includes: Euro and international mixed xed income.
3 Includes: Euro and international mixed equity.
4 Includes: Guaranteed equity and partial protection equity funds.
5 Annual return for 2010, 2011 and 2012. Quarterly data comprise non-annualised quarterly returns.
The number of fund unit-holders expanded by more than 200,000 vs. December last
year to 4,646,619 at the June close. As with assets under management, the increase
of fund unit-holders was greatest in xed-income and passively managed funds,
with 86,000 and 99,000 respectively. Only guaranteed equity and absolute return
funds lost members in the reference period (72,000 and 2,500 respectively).
Preliminary data for July 2013 suggest that the expansion trend in assets and unit-
holders numbers has not let up. They also suggest, to judge by the number of merg-
ers, that sector rationalisation still has some way to go.
The liquidity conditions of fund xed-income portfolios continued to improve to
mid-year 2013, with the amount of less-liquid assets down by 25% from 5.39 billion
in December 2012 to 4.05 billion in June 2013 (see table 14). On this showing, the
ratio of less-liquid assets dropped from 4.3% of total fund assets at end-2012 to 3.1%
at the rst-half close. The composition of these less-liquid holdings was largely un-
changed except for a small rise in the weight of non-nancial xed income, though
note that a continuing characteristic is the large balance of nancial xed-income
instruments rated below AA.
Estimated liquidity of investment fund assets TABLE 14
Type of asset
Less-liquid investments
Million euros % total portfolio
Dec 12 Mar 13 Jun 13 Dec 12 Mar 13 Jun 13
Financial xed income rated AAA/AA 348 330 210 23 29 21
Financial xed income rated below AAA/AA 4,120 4,018 3,114 19 20 17
Non-nancial xed income 148 175 186 5 7 8
Securitisations 774 605 541 42 35 30
AAA-rated securitisations 44 37 35 97 98 99
Other securitisations 730 568 506 40 34 28
Total 5,390 5,127 4,051 20 21 17
% of investment fund assets 4.3 3.9 3.1
Source: CNMV.
Real estate schemes
The downturn in Spanish construction and real estate continued to make life hard
for this category of funds, and the bottom of the market has still to be reached. That
said, a small performance gap has recently opened up between funds and compa-
nies, with the formers main variables still in retreat and the latters experiencing a
small advance.
In the case of real estate investment funds, the rst thing to note is that of the six
funds registered at end-June (an identical number to December 2012), only ve
were active, while the sixth was being wound up. Meantime, unit-holder numbers
contracted 10.3% more to 21,563, and managed assets shrank by 2.9%. Fund re-
turns, nally, closed the rst-half period in negative territory with losses on a simi-
lar scale to those of past years (-1.86% in the rst quarter and -0.76% in the second).
200,000 more unit-holders in the
rst six months of 2013.
The expansion trend continues
through July, according to
preliminary data.
A renewed decline in the balance
of less-liquid assets as far as 3.1%
of the industry total in June.
Real estate schemes again
have to cope with a dicult
environment
which has made further
inroads into main fund variables.
The number of real estate investment companies rose from eight to ten between
January and June 2013. The three-fold increase in sub-sector assets in the rst quar-
ter of the year (from 284 to over 800 million) was down exclusively to one new en-
trant, which changed its form in January from that of a public limited company.
Shareholder numbers, nally, increased by 80 to an end-June total of 1,017.
Main real estate scheme variables TABLE 15
2012 2013
2009 2010 2011 2012 3Q 4Q 1Q 2Q
FUNDS
Number
1
8 7 6 6 6 6 6 6
Unit-holders 83,583 75,280 29,735 25,218 27,587 25,218 24,048 21,541
Assets (million euros) 6,465.0 6,116.0 4,495.0 4,202.0 4,314.0 4,202.0 4,071.4 3,985.5
Return (%) -8.31 -4.74 -3.23 -5.96 -1.83 -2.17 -2.59 -1.88
COMPANIES
Number 8 8 8 8 8 8 9 10
Shareholders 928 943 943 937 935 937 1,021 1,017
Assets (million euros) 309.0 322.0 313.0 284.1 294.7 284.1 843.8 854.0
Source: CNMV.
1 Schemes ling nancial statements.
Hedge funds
The hedge fund landscape continued to be dominated by two main trends originat-
ing in the crisis, with the fund of hedge funds segment deep in depression, and the
hedge fund segment continuing to perform well, albeit less so than last year. Note
also that a signicant number (eight hedge funds and one fund of hedge funds)
were being liquidated at the end of the second quarter of 2013.
Funds of hedge funds shed 2% of their assets as far as 529 million euros between
December 2012 and May 2013, while unit-holder numbers reduced by 153 to 3,185
(see table 16). Redemptions outstripped subscriptions in the opening quarter, re-
peating the pattern of all of last year (no second-quarter data were available at the
closing date for this report).
By way of contrast, hedge funds grew their assets 8.3% in the rst ve months of
2013 to a May total of 995 million euros (against over 26% growth in the twelve
preceding months). This advance drew on both unit-holder subscriptions and port-
folio gains, which extended to 6.1% between the same months of January and May.
Unit-holder numbers, however, fell by 81 to 2,346, marking an end to two years of
solid growth.
Figures for real estate companies
were bolstered by the entry of
two new competitors.
Another divergent performance
within the hedge fund industry
with funds of hedge funds
losing assets
and further progress for pure
hedge funds.
Main hedge fund and fund of hedge fund variables TABLE 16
2012 2013
2009 2010 2011 3Q 4Q 1Q 2Q
2
FUNDS OF HEDGE FUNDS
Number
1
38 28 27 26 24 24 22
Unit-holders 5,321 4,404 3,805 3,513 3,338 3,211 3,185
Assets (million euros) 810.2 694.9 573.0 561.3 540.0 536.2 529.2
Return (%) 7.85 3.15 -1.70 1.38 0.60 2.73 0.72
HEDGE FUNDS
Number
1
29 33 36 36 36 33 33
Unit-holders 1,917 1,852 2,047 2,305 2,427 2,384 2,346
Assets (million euros) 652.0 646.2 728.1 828.7 918.6 964.8 995.3
Return (%) 14.94 5.37 -2.60 2.85 3.03 3.72 2.34
Source: CNMV.
1 Funds ling nancial statements.
2 Data to May 2013.
Foreign UCITS marketed in Spain
This segment kept up the strong expansion begun in 2012 in terms of both invest-
ment and unit-holders. Investment volumes, concretely, rose 26.9% in the rst six
months to 48 billion euros. Both funds and companies shared in the advance with
growth of 25.6% and 27.2% to 8 billion and over 40 billion respectively, while investor
numbers rose by 16.4% to 950,000. The rst-half period also brought changes in
the mix, with the addition of 14 companies, making 347, and 15 fewer funds, mak-
ing 406.
Outlook
Assets under management in the collective investment industry have slumped to
almost half since the crisis broke, due to a continuous outpouring of investor
funds. However, these rst-half data suggest the tide may be turning. The growth
trend, moreover, could rm in the coming months due to the fading attractiveness
of alternatives like bank deposits or commercial paper, and investors renewed
condence in this type of product after the nancial market turbulence of previ-
ous years. The stabilisation of household disposable income may also free up
some investment capacity, and indeed savings rates pulled a little higher in the
rst months of 2013.
The industry outlook is also partly conditioned by banks product policies and mar-
keting strategies. One development of note here is the recent selling spurt in non-
guaranteed funds with a target return. It is important that investors are properly
apprised of how these products operate, so they can make informed decisions in
keeping with their risk prole and expectations and in full awareness of their rights.
On this score, exhibit 3 describes recent measures taken by the CNMV to strengthen
transparency in the marketing of certain types of investment fund.
Foreign UCITS marketed in Spain
enjoy another strong run in
rst-half 2013 in terms of both
investment and unit-holder
numbers.
The improved industry outlook
will foreseeably consolidate
thanks to less competition from
alternative investment products.
Full disclosure of investor-
relevant information is
vital not only to individual
decision-making but also to the
sustainability of the nancial
industry.
Strengthening transparency in the selling of target funds EXHIBIT 3
The cost of securing guarantees for investment funds alongside management compa-
nies need to keep up a stream of new fund launches to compete with the returns of-
fered by other nancial products particularly deposits have fuelled the recent
trend towards the phasing out of guaranteed funds in favour of others incorporating
a non-guaranteed target return. The risk is that investors will not pick up on this
change of policy, since their formal acceptance will not be sought (quite simply, their
tacit acceptance will be presumed if they do not exercise the associated exit right).
And the experience of the past suggests that such concerns are fully justied. In effect,
what usually happens when a fund guarantee expires is that some investors either
sell or switch to another fund, while others leave their money in and nd themselves
holding a fund which resembles its forerunner but without any third-party guarantee.
For preventive purposes, therefore, the CNMV has taken steps to strengthen in-
vestor disclosure requirements in respect of the transformation of guaranteed
into non-guaranteed funds. Some of these measures, moreover, have been ex-
tended to target funds (guaranteed or otherwise) in certain situations.
On 12 July, the CNMV posted a communication on its website stating that entities
should, where possible, refrain from replacing guaranteed funds with non-guaranteed
target funds, and, failing this, make every reasonable effort to ensure that unit-holders
of the pre-existent fund are aware that the new product carries no guarantee.
The measures taken are set out below:
Prospectuses and key investor information (KII) documents in respect of non-
guaranteed target funds should bear the following warning in capital letters:
THIS FUND CARRIES NO THIRD-PARTY GUARANTEE SO NEITHER THE
CAPITAL INVESTED NOR THE LEVEL OF INCOME ARE GUARANTEED.
A statement that the target return is not guaranteed should gure in the
prospectus, KII document and, where relevant, the communication sent to
unit-holders. Whenever the APR is cited, it should come with the warning
(in capital letters) NOT GUARANTEED.
The correspondence sent to investors in funds whose guarantee is due to ex-
pire and which will be switching to a new, non-guaranteed policy should draw
their attention to the fact that THIS FUND IS NO LONGER GUARANTEED (in
capital letters), with copies of the corresponding draft furnished to the CNMV.
Also, the following warning should appear (in capitals) at the end of the letter:
IF YOU CHOOSE NOT TO REDEEM BUT TO MAINTAIN YOUR INVESTMENT,
YOU ARE AGREEING TO STAY ON AS A UNIT-HOLDER WITH THE CHANGES
DESCRIBED ABOVE.
This same warning should be displayed in standard letters to investors de-
tailing their information and exit rights, whether or not the fund in ques-
tion is guaranteed.
Existing funds which are planning to change their investment policy to pur-
sue a specic target return (guaranteed or otherwise) should accompany the
letter notifying investors with a copy of the new KII document led with
the CNMV. This represents a change of practice in prospectus and KII reg-
istration, in that both documents must henceforth be led before the noti-
cation letter is sent out. By this means, investors in the existing fund will
have more complete information at their disposal.
Finally, in the case of funds with a set target return (guaranteed or other-
wise) which accept subscriptions and/or redemptions after the marketing
period has concluded, management companies must:
(i) Adopt measures to avoid potential conicts of interest between in vest-
ors acquiring or redeeming holdings and those remaining in the fund.
(ii) Adopt measures to ensure that those subscribing to the fund after the
marketing period is over receive appropriate post-sale information
about the investments expected return.
4.2 Investment rms
Investment rms reported aggregate rst-half prots 15.3% down on the year-ago
period, due primarily to a stall in revenues from order processing and execution,
their main business line. Note however that the prots slide was conned to the
broker-dealer segment accounting for 95% of sector earnings, while both brokers
and portfolio management companies managed to grow their prots in the opening
half. The number of loss-making rms reduced substantially, along with the volume
of their losses, while capital adequacy remained within the comfort zone.
Broker-dealers, as stated, lost further business in the rst half of 2013, as evidenced
by a 15.8% fall in fee income from investment services vs. the same period last year.
The result was a 22.5% decline in pre-tax prots to 78 million euros (see table 17).
Income from order processing and execution, which brings in around two-thirds of
fees, dropped by 15.8% to 175.7 million euros. Other captions suffering reverses
were investment advisory income, down from 23.7 to 4.5 million euros, and other
fee income. UCITS marketing fees, meantime, edged up slightly to 24.4 million
euros, reecting the improved performance of the investment fund industry in rst-
half 2013. Continuing down the income statement, the results of nancial invest-
ments almost doubled in the period, while exchange losses swelled by 116.2% to
132.7 million, translating as gross income of 271.1 million, 10.7% less than in the
same period in 2012.
Despite this notable year-on-year contraction in rst-half earnings, these same g-
ures, extrapolated to the full-year period (i.e., annualising their amount) would
stand signicantly above the 2012 total (see gure 18). This is because one rm
posted heavy losses in December last year which made a large dent in broker-dealer
aggregate earnings. Stripping out this effect, aggregate 2013 prots (with June g-
ures annualised) would stand around 6% lower than those of last year.
Investment rms again had to
negotiate a challenging market
landscape. Sector earnings
decreased 15%, but the number
of loss-making rms was sizeably
lower and capital adequacy
remained satisfactory.
Broker-dealer prots contracted
22% in the rst-half period on
a combination of falling fee
income and spiralling exchange
losses.
These same gures, on an
annualised basis, compare
favourably with 2012 due to
heavy losses at one rm.
Investment rm pre-tax prots
1, 2
FIGURE 18
0
100
200
300
400
500
600
700
800
900
1,000
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
million euros
Broker-dealers
Brokers
Portfolio management
companies
Source: CNMV.
1 Except IAFs.
2 2013 earnings on an annual basis.
Brokers, meantime, grew their pre-tax prots to 9.1 million euros from the 2.7 mil-
lion of rst-half 2012. Underpinning the advance was the fact that many rms re-
porting heavy losses in 2012 either entered prot or reduced their scale. Fee income,
as table 17 shows, rose by 10.4% year on year to 59.2 million euros on the strength
of gathering inows from order processing and execution and UCITS marketing
(up by 12% to 20.2 million and 56% to 15.4 million respectively). Gross income in
this sub-sector climbed 8.7% to 51.6 million euros, while operating expenses kept to
a descending path (down by 4.3% to 41.9 million).
Finally, the aggregate pre-tax prots of portfolio management companies rose by
60.9% to just over one million euros. This improvement drew on both income and
expense headings, with gross income up by 5.2% to 4.4 million euros on strongly
performing fee income, and operating costs down by 4.3% to 3.4 million euros.
Sector-wide return on equity (ROE) jumped from 3.0% to 12.2% between Decem-
ber 2012 and June 2013, remembering though that the ROE reading for December
last year was depressed by heavy losses at one broker-dealer. By sub-sector, the
ROE of broker-dealers rose from 2.9% to 11.8%, although without the impact of
this one rm it would have dropped from 12.8%. Other intermediaries performed
better by this measure in line with their earnings performance to June 2013, with
an increase of 14 percentage points (to 20.3%) in the case of brokers and a more
modest 4.2% (to 5.9%) among portfolio management companies (see left-hand
panel of gure 19).
Against this sector-wide backdrop, the number of rms in losses fell to 25 in June
2013, compared to 38 one year before and 31 at the 2012 close. The scale of losses,
at 11.5 million euros, was also 10.6% less in year-on-year terms. Of the total of loss-
making rms as at June 2013, 13 were broker-dealers (15 in December 2012), ten
were brokers (14 in December), and two were portfolio management companies
(the same number as in December).
Brokers post a sturdy advance in
pre-tax prots driven by rising
fee income and operating cost
contention.
Portfolio managers grow their
pre-tax prots to over one million
euros in the rst half of 2013.
The ROE of all industry segments
expands to the month of June,
though note that among broker-
dealers the advance owes to one
rms heavy losses in 2012.
The number of loss-making
rms and the scale of their losses
dwindle in 2013
Aggregate income statement (June 13) TABLE 17
Thousand euros
Broker-dealers Brokers Portfolio managers
Jun 12 Jun 13 % var. Jun 12 Jun 13 % var. Jun 12 Jun 13 % var.
1. Net interest income 32,651 26,865 -17.7 946 924 -2.3 390 341 -12.6
2. Net fee income 234,842 187,136 -20.3 46,665 51,267 9.9 3,832 4,102 7.0
2.1. Fee income 331,330 278,910 -15.8 53,625 59,204 10.4 8,864 9,384 5.9
2.1.1. Order processing and execution 200,721 175,651 -12.5 17,993 20,178 12.1
2.1.2. Issue placement and underwriting 4,089 8,366 104.6 1,620 1,957 20.8
2.1.3. Securities custody and administration 10,091 8,944 -11.4 311 306 -1.6
2.1.4. Portfolio management 6,881 6,960 1.1 5,487 6,341 15.6 8,115 8,564 5.5
2.1.5. Investment advising 23,684 4,508 -81.0 2,445 1,800 -26.4 749 819 9.3
2.1.6. Search and placement 25 30 20.0 0 55
2.1.7. Margin trading 6 84 1,300.0 14 11 -21.4
2.1.8. UCITS marketing 23,113 24,433 5.7 9,881 15,401 55.9 0 0
2.1.9. Others 62,720 49,934 -20.4 15,874 13,155 -17.1 0 1
2.2. Fee expense 96,488 91,774 -4.9 6,960 7,937 14.0 5,032 5,282 5.0
3. Result of nancial investments 92,439 184,105 99.2 786 35 -95.5 -52 -11 78.8
4. Net exchange income -61,398 -132,712 -116.2 25 -33 23 7 -69.6
5. Other operating income and expense 5,043 5,737 13.8 -978 -643 34.3 25 -2
GROSS INCOME 303,577 271,131 -10.7 47,444 51,550 8.7 4,218 4,437 5.2
6. Operating expenses 205,085 194,152 -5.3 43,785 41,906 -4.3 3,528 3,378 -4.3
7. Depreciation and other charges 5,705 6,405 12.3 1,022 902 -11.7 53 34 -35.8
8. Impairment losses 501 447 -10.8 45 9 -80.0 0 0
NET OPERATING INCOME 92,286 70,127 -24.0 2,592 8,733 236.9 637 1,025 60.9
9. Other prot and loss 8,348 7,843 -6.0 129 390 202.3 0 0
PROFITS BEFORE TAXES 100,634 77,970 -22.5 2,721 9,123 235.3 637 1,025 60.9
10. Corporate income tax 22,174 15,870 -28.4 361 580 60.7 200 337 68.5
PROFITS FROM ONGOING ACTIVITIES 78,460 62,100 -20.9 2,360 8,543 262.0 437 688 57.4
11. Prots from discontinued activities 0 0 0 0 0 0
NET PROFIT FOR THE YEAR 78,460 62,100 -20.9 2,360 8,543 262.0 437 688 57.4
Source: CNMV.
Pre-tax ROE of investment rms and loss-making entities FIGURE 19
ROE
1
No. of rms reporting losses
0
10
20
30
40
50
60
70
80
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
J
u
n
-
1
3
0
5
10
15
20
25
30
35
40
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
J
u
n
-
1
3
Broker-dealers
Brokers
Portfolio management companies
Source: CNMV.
1 ROE based on annualised pre-tax prots.
Investment rms remained comfortably compliant with capital standards. The
slight narrowing movement observable in the rst six months of 2013 (see gure
20) refers only to broker-dealers and portfolio management companies, whose sur-
plus to the minimum requirement dropped from 3.3 to 3.2 and 7.9 to 6.2 respec-
tively, against the 1.6 to 1.8 increase in the securities broker segment.
Investment rm capital adequacy FIGURE 20
(surplus of qualifying equity to the minimum requirement)
0
100
200
300
400
500
600
700
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun-13
%
Broker-dealers
Brokers
Portfolio management
companies
Source: CNMV.
Investment advisory rms (IAF), which have been operating in Spain since 2009
and the transposition of the MiFID, have shaken off the slowdown symptoms of
2012 year and turned in a healthy performance year to date (see table 18). A total
of 112 IAFs were registered in June 2013, 11 more than at end-2012 and 15 more
than in June last year. Meantime, assets under advice expanded by 5.1% (to 15.44 bil-
lion euros) and the number of contracts by 12.3% (to 3,680 million). Approximately
half the amount of assets under advice (52% to be exact) corresponded to eligible
counterparties
19
(the others heading), with a further 22% and 26% drawn from
professional and retail clients respectively. It is also in this last group where assets
under advice have grown most (62.6%) vs. the rst half of 2012. Against this more
upbeat backdrop, sector fee income rose by 6% year on year to 14.7 million euros,
while prots advanced by 5% to 3 million euros.
The outlook for investment rms remains muddied in view of the prolonged slide
in stock market trading, their main source of income. But signs of recovery are
showing though in other business lines, particularly the collective investment in-
dustry and, to a lesser extent, issue placements, and this should hopefully boost
income statements going forward. The rollout of bank sector restructuring meas-
ures has so far had little impact on the number of rms in operation. Only one reti-
ral in 2012 was due to merger of the parent entity, while the three retirals to August
this year resulted from changes in corporate form. Note nally that four rms joined
the register in this same period, comprising three brokers and one broker-dealer.
19 Eligible counterparty is the classication the MiFID typically assigns to banks, other nancial institutions
and governments. It is also the category requiring the lowest level of protection.
while capital ratios remain
comfortably clear of minimum
requirements.
IAF business resumes growth in
rst-half 2013 after a slow 2012.
The prospects for the investment
rm sector remain complicated
while stock market trading
continues to languish, but help
could be forthcoming from other
business lines.
Main investment advisory rm variables TABLE 18
2012 2013
% annual
change Thousand euros 2010 2011 2012 1H 2H 1H
NO. OF FIRMS 52 82 101 97 101 112 15.5
ASSETS UNDER ADVICE
1
16,114,880 16,033,108 14,776,498 14,694,319 14,776,498 15,437,210 5.1
Retail customers 1,710,385 2,181,943 3,267,079 2,443,271 3,267,079 3,973,782 62.6
Professional customers 3,854,641 3,151,565 3,594,287 3,396,260 3,594,287 3,472,835 2.3
Others 10,549,854 10,699,600 7,915,132 8,854,788 7,915,132 7,990,593 -9.8
NO. OF CONTRACTS
1
2,431 3,673 3,484 3,276 3,484 3,680 12.3
Retail customers 2,345 3,540 3,285 3,097 3,285 3,455 11.6
Professional customers 70 117 175 157 175 194 23.6
Others 16 16 24 22 24 31 40.9
FEE INCOME
2
20,745 31,053 26,177 13,915 26,177 14,685 5.5
Fees received 20,629 30,844 26,065 13,833 26,065 14,660 6.0
From customers 17,132 26,037 20,977 11,642 20,977 12,058 3.6
From other entities 3,497 4,807 5,088 2,191 5,088 2,601 18.7
Other income 116 209 112 82 112 25 -69.5
EQUITY 10,062 12,184 13,402 13,123 13,402 12,153 -7.4
Share capital 3,014 3,895 4,365 4,328 4,365 4,820 11.4
Reserves and retained earnings 247 950 4,798 5,912 4,798 4,306 -27.2
Prot/loss for the year
2
6,801 7,338 4,239 2,883 4,239 3,027 5.0
1 Period-end data at market value.
2 Cumulative data for the period.
New customer information requirements with regard to EXHIBIT 4
appropriateness and suitability assessment in the realm of
nancial services
On 19 June 2013, the CNMV published its Circular 3/2013, of 12 June, implement-
ing certain obligations to provide information to investment services customers in
relation to the assessment of the appropriateness or suitability of determined nan-
cial instruments.
The Circular sets out the terms in which entities must advise their clients of the non-
appropriateness of a transaction or that no assessment has been performed in its
regard, the specic wording of the handwritten statements to be provided and
signed by the customer, and the requirement to keep a register of the products
found to be unsuitable, pursuant to the amendments made to article 79 bis numbers
6 and 7 of the Securities Market Law (LMV for its initials in Spanish) by the third
nal provision of Law 9/2012 on restructuring and resolution of credit institutions.
The purpose of the handwritten statement, as envisaged in the new text, is to
ensure that when a product is not suitable for a customer or cannot be properly
assessed due to insufcient information, he or she is fully aware of that fact. And
the idea of keeping a register of assessed clients and inappropriate products is so
customers are not later approached with personalised offers of products whose
appropriateness has already been tested with negative results.
The main changes introduced by Circular 3/2013 are set out below:
Information disclosures during suitability testing. The description envis-
aged in article 79 bis (6) of the LMV justifying that the recommendation
matches the characteristics and objectives of the investor must at least
include the terms in which the investment product or service has been clas-
sied from the point of view of market, credit and liquidity risk, and its
complexity, and the corresponding customer suitability assessment. The de-
scription, it adds, can be abridged in the event of repeated recommenda-
tions on the same type or family of instruments. The entity must also estab-
lish mechanisms to corroborate its compliance with this requirement.
Information disclosures during appropriateness testing.
(i) Delivery to the customer of a document with the results of the test. The
Circular species that entities must demonstrate compliance with the
obligation to supply customers with the results of the test referred to
in article 79 bis (7) of the LMV, and that this assessment must be con-
sistent with all the information available to the entity or provided by
the customer and used in the test.
(ii) Content of cautionary notices specifying non-appropriateness or lack
of assessment, and handwritten statements in the case of transactions
involving complex instruments. The Circular species the wording of
the cautionary notice to be delivered to the customer in the event that
the assessment cannot be performed or that it has found the product
to be inappropriate, and also of the handwritten statement to be pro-
cured from customers when the transaction involves a complex instru-
ment, as referred to in article 79 bis (7) of the LMV.
(iii) Unadvised transactions. When the entity wishes to include a state-
ment to the effect that no advisory services have been given in connec-
tion with a transaction in the documentation the customer is to sign, it
must obtain his or her signature together with a handwritten state-
ment that they have not been given advice.
Up-to-date register of assessed customers and unsuitable products. The Cir-
cular species that the up-to-date register referred to in article 79 bis (7) of
the LMV, should reect the date from which the entity deemed each type
of instrument unsuitable for each customer individually, and, if relevant,
the date as of which this limitation ceased to exist. Entities must also fur-
nish customers with this information on request, free of charge.
All these requirements will come into force two months from the Circulars
publication date, except those referring to the wording of cautionary notices
and the up-to-date register of assessed customers and unsuitable products,
which will do so ve months from the same date.
4.3 UCITS management companies
Assets under management in UCITS management companies summed almost
166.7 billion euros in June this year, an increase of 9% over the 2012 close. As we
can see from gure 21, this is the rst rise in assets managed since the start of the
crisis in mid-2007. As much as 83% of the advance was drawn from mutual funds,
though the investment company segment also contributed on the upside.
UCITS management companies: assets under management FIGURE 21
and pre-tax prots
1
0
50
100
150
200
250
300
350
Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Jun-13
0
100
200
300
400
500
600
700
800
900
Assets (LHS) Earnings (RHS)
Billion euros Million euros
Source: CNMV.
1 The prots gure for June 2013 has been restated on an annual basis.
UCITS management companies: assets under management, TABLE 19
management fees and fee ratio
Million euros
Assets under
management
UCITS management
fee income
Average UCITS
management fee (%) Fee ratio (%)
1
2006 308,476 3,281 1.06 71.5
2007 295,922 3,194 1.08 70.5
2008 209,014 2,302 1.10 70.8
2009 203,730 1,702 0.84 68.6
2010 177,055 1,622 0.91 68.1
2011 161,481 1,479 0.90 66.6
2012 152,644 1,416 0.93 64.6
June 13
2
166,669 1,446 0.87 63.9
Source: CNMV.
1 Ratio of fee expenses for fund marketing to fee income from UCITS management.
2 Figures for fee income and average management fees have been restated on an annual basis.
The recovery in managed assets was reected in the main captions in sector income
statements. Income from management fees, specically, was 1.45 billion euros (in
annualised terms), 2.1% more than in 2012, while annualised pre-tax prots grew
by 11.1% to almost 318 million euros (see gure 21). Sector-wide return on equity
Assets under management in
UCITS management companies
climb by 9% in the rst half of
2013 (the rst rise since the crisis
broke in mid-2007)
delivering an advance in sector
income and prots, along with a
reduction in the number of loss-
making companies.
(ROE) inched up from 23.1% at the 2012 close to 23.7% in June 2013, while the
number of loss-making entities shrank from 28 to 19, generating combined red
numbers of just 3.7 million compared to the 10 million euros of end-2012.
Sector reorganisation continued to progress albeit at a rather slower pace, with bank
sector restructuring as the main driver. In the rst eight months of 2013, one compa-
ny joined the register while ve more withdrew, two of them due to movements in the
banking sector. This left the sector ranks at 101 entities as of 31 August this year.
The ranks of management
companies thin once more,
due in part to the ongoing
restructuring of the Spanish
banking sector.
ESMA report on the selling of complex products to retail investors EXHIBIT 5
The sale of complex nancial products to retail investors has increased signi-
cantly in the past few years. As a result, these investors are exposed to a series of
risks of which they have no previous experience. It is accordingly important to be
able to identify and analyse these risks.
The European Securities and Markets Authority (ESMA) published a report on
July 2013 examining two classes of complex products which, by their nature,
have been marketed extensively among retail investors in the euro area; namely,
structured products and UCITS pursuing alternative investment strategies.
1
Structured products
The sale of structured products involves specic risks which must be borne in
mind when analysing them from the standpoint of investor protection. In par-
ticular, many such products have risk proles that are difcult to grasp without a
degree of expertise and access to specic tools. Also, they often have implicit
costs embedded in the selling price which are hard to quantify.
In order to investigate these risks, the ESMA report presents the results of a risk/
reward analysis run on a sample of structured products at the date of issuance
and assuming the investment is held to maturity:
Analysis at date of issuance: The ESMA report analyses a sample of 76 struc-
tured products, comparing each ones notional value with the price at which
it is sold to retail investors. The conclusion they reach is that structured
products are sold with an average issuance premium of 4.6%. However, if
we also factor issuer credit risk, this average premium increases to 5.5%. In
other words, in the case of a product sold at 100% of its nominal value, its
intrinsic value would stand on average at between 94.5% and 95.4% of the
sale price, according to whether or not we consider issuer credit risk.
Analysis at date of maturity: The ESMA report also looks at the performance
of a sample of 2,760 structured products incorporating capital protection on
the assumption that investors hold them in their portfolio to maturity. Its
ndings, in this case, are that the annual return on these products would
have been 0.5% less than the risk-free rate (Euribor or Libor) available at
the time of sale.
This analysis, in which the CNMV was an active partner, was conducted on struc-
tured products issued in the euro area between 1996 and 2011.
UCITS pursuing alternative investment strategies
The ESMA report also examines the returns obtained by a sample of 623 UCITS
(Undertakings in Collective Investments in Transferable Secturities)
2
pursuing
similar investment strategies to hedge funds. Specically, it compares the returns
of these alternative UCITS to those of various hedge funds and market indices in
the same period.
The results indicate that alternative UCITS outperformed equity indices over the
2006-2011 period while underperforming hedge funds. However, when we calcu-
late return in relation to risk, as measured by volatility and Conditional Value-at-
Risk (CVaR), we nd that the alternative UCITS had a risk-adjusted return close
to zero, slightly lower than the return obtained by various equity and bond indi-
ces in the same period.
The reports conclusions
The main conclusions ESMA draws from its study are summarised below:
Understanding complex nancial products requires signicant knowledge
of quantitative tools and valuation methods as well as access to market in-
puts. To ensure their proper supervision it is vital that the competent au-
thorities have specic means at their disposal to analyse their performance
mechanisms and associated risks.
The intrinsic value, expected return and risk drivers of structured products
are challenging concepts for a majority of retail investors. This being so, it
is essential that they are supplied with all the information needed to judge
each product appropriately. Information disclosure to investors can be im-
proved by including: (i) a higher degree of transparency regarding the total
costs of structured products, including the implicit costs embedded in the
selling price, and (ii) detailed information regarding the specic risks of
each product, in particular issuer credit risk and its possible quantication.
1 The report can be consulted or downloaded from the ESMA website: http://www.esma.europa.eu/sys-
tem/les/2013-326_economic_report_-_retailisation_in_the_eu_0.pdf
2 UCITS are collective investment schemes established in conformity with European legislation, such
that a single authorisation from one Member State allows them to be sold freely throughout the Euro-
pean Union.
4.4 Other intermediaries: venture capital
Of the 340 venture capital entities (VCEs) in operation at end-August 2013, the same
number as at end-2012, 137 were venture capital companies (VCCs), 124 venture
capital funds (VCFs) and 79 VCE management companies (see table 20). Twelve
entities joined the register during the rst eight months of 2013 (six VCCs, ve
The number of venture capital
entities remains unvaried vs. 2012,
but with some changes in the mix
(more funds and fewer managers).
VCFs and one VCE manager) with the same number of retirals (eight VCCs and four
VCE managers).
Movements in the VCE register in 2013 TABLE 20
Situation at
31/12/2012 Entries Retirals
Situation at
31/08/2013
Entities 340 12 12 340
Venture capital funds 119 5 0 124
Venture capital companies 139 6 8 137
Venture capital management companies 82 1 4 79
Source: CNMV.
In 2012, VCE assets expanded a bare 0.7% to close the year at just over 8.50 billion
euros. VCFs and VCCs enjoyed unequal fortunes, with the former growing their as-
sets 9.7% to 4.74 billion euros, against the 8.6% contraction to 6.78 billion reported
by the latter group (see table 21). The jump in VCF assets owed mainly to increased
investment by foreign entities (whose assets rose in consequence by 64.5% to
927 million euros) and, to a smaller extent, domestic VCEs (whose assets rose 126%
to 227 million). By contrast, the principal investors in VCCs banks and non-nancial
corporations cut back their investments by 27.7% and 14.9% respectively.
Venture capital entities: assets by investor group TABLE 21
Million euros
VCF VCC
2011 2012 2011 2012
Natural persons
Residents 212.7 209.3 80.8 73.7
Non-residents 2.8 4.0 0.8 1.2
Legal persons
Banks 526.4 524.6 1,265.4 915.1
Savings banks 281.8 198.8 102.7 41.5
Pension funds 417.6 422.0 23.6 14.2
Insurance corporations 111.2 130.2 26.0 30.4
Broker-dealers and brokers 0.0 0.0 0.0 0.1
UCITS 27.2 34.9 10.7 6.6
Domestic VCEs 100.0 225.7 56.1 32.3
Foreign VCEs 394.0 328.1 3.7 1.1
Public authorities 588.4 574.5 165.2 237.0
Sovereign funds 38.2 27.1 0.0 0.0
Other nancial corporations 309.1 358.6 676.0 997.9
Non-nancial corporations 594.1 586.3 1,541.1 1,311.9
Foreign entities 563.3 926.5 46.8 40.0
Others 157.3 191.7 134.8 73.8
TOTAL 4,324.1 4,742.2 4,133.8 3,776.8
Source: CNMV.
VCE assets rose by 0.7% in 2012
with growth in funds contrasting
with a degree of shrinkage in the
company segment.
According to preliminary data furnished by industry association Asociacin Espa-
ola de Entidades de Capital Riesgo (ASCRI), venture capital investment in Spain in
the rst six months of 2013 was a lowly 508 million euros, compared to 2.53 billion
in the same period last year. It bears mention, however, that investment in early-
stage companies has held up well, accounting for 63% of the total amount (10% in
seed and start-up transactions and 53% in expansion projects). This also explains
why 73% of funds went on transactions of under one million euros. Lack of ready
credit, meantime, drove down the volume of leveraged buyouts, as far as 21% of the
total versus 54% in the year-ago period. International funds were again prominent,
as the source of 47% of rst-half investment (60% to June last year).
The short-term outlook for the venture capital sector remains hard to judge, since
there are various factors which could help or hinder its development. On the one
hand, the dearth of bank lending, which will foreseeably persist until sector restruc-
turing is complete, means VCEs are missing out on investment opportunities. And
nor is the domestic economy especially supportive. However, other factors could
serve to energise the sector, among them the imminent transposition to Spanish law
of the AIFM Directive, which pursues an improved climate for industry growth, or
the creation of the FOND-ICO Global fund of funds, a public initiative that will in-
ject large sums into promoting private equity funds to invest in Spanish companies
at all development stages.
The shortage of bank nance has
eroded sector assets in the rst
half of 2013.
The sectors near-term prospects
remain hazy while the credit
shortage persists, though certain
factors could help energise
business in the medium term.

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