The exchange industry, a beacon of transparency in uncertain times

Published by: The WFE Focus Team May 2020

The Covid-19 pandemic has placed humankind in unchartered territory. In addition to its fatal effects on health and human lives, the consequences of the pandemic on the economy are still unpredictable. It has put the financial sector to the test.

Without a doubt, the first priority is to overcome this pandemic as soon as possible. However, this does not undermine the importance of the continuity of the stock markets. At the beginning of the Covid-19 crisis some called for a temporary closure of stock exchanges. Naturally, the shares of companies reflect the fears of the market, but a suspension of stock exchanges would not have ended those fears. On the contrary, it would have aggravated them.

Companies and investors know they can rely on stock markets under any circumstances.

Exceptional fight 

In this exceptional fight against Covid-19, BME has taken all necessary measures to protect its employees and, at the same time, guarantee the continuity of the Spanish financial markets’ infrastructure. Following the recommendations of the health authorities, more than 97.5% of staff work from home and office facilities are regularly disinfected. The company will also carry out Covid-19 antibody tests on employees to ensure their health and safety.

Stock exchanges have a wide range of tools to guarantee their operation in adverse situations, for instance liquidity auctions. In the case of BME, since the beginning of March the fluctuation ranges of various securities have been extended to adapt to the great volatility in the market and guarantee liquidity at all times. Other common mechanisms such as volatility auctions have also been activated to prevent trading in less liquid securities from being hampered.

We have taken a further step to make sure that none of our stakeholders is left behind in these times of uncertainty. We have enhanced our collaboration with all our issuers and clients.  

We have also taken measures to enhance their visibility and implemented remote means of corporate access too. Moreover, we have changed the traditional in-person format of the forums we hold every year and increased the coverage of the listed securities that are not followed by financial firms through our research service.

Some of the fundamental lessons learnt from past crises were the key role played by regulated stock markets and the importance of diversifying sources of financing for companies, to make them less dependent on bank credit. Providing enterprises with market-based financing was vital in the crisis of 2008 and is again key to coming out of the current one.

Alternative finance

This decreased dependence on banks, which is promoted by the Capital Market Union, connects with BME's core activity, insofar as it offers companies alternatives to access finance through the markets.

Spanish companies have taken due note of this, and 2019 was a key year in transforming the financing structure of listed companies. We hope that this situation has made them less vulnerable to any difficulties that the Covid-19 crisis may have caused them.

We have also focused on being even closer to small- and medium- sized enterprises (SMEs) through MAB and MARF, BME’s Growth and Fixed Income markets respectively. This type of company often go off the radar of major investors due to their reduced size and lower liquidity. On top of that, they are usually not covered by analysts, which makes them less appealing to investors. This is why it is key for us to focus on this type of company and provide them with finance, visibility and objective valuation they will need to overcome this crisis.

The crisis has taught us yet another lesson: that close collaboration between the public and the private sector should be strongly advocated. Working together, markets and state-owned bodies and financial institutions can drive much further any efforts towards helping our businesses to thrive. Moreover, by taking bold and determined incentive measures public authorities can draw on a powerful tool to further help companies, SMEs in particular, in their search for liquidity and financing.

Broader guarantee

In this regard, ICO, a state-owned entity attached to the Spanish Government’s Ministry of Economic Affairs and Digital Transformation, recently broadened their guarantee line to cover commercial paper issued by companies listed on MARF, an initiative that stands to benefit issuers in this market.

Also, we are making efforts to help start-ups in their path to the stock market. We are doing so through the Pre-Market Environment, which aims to facilitate the access of start-ups and other growth companies to the capital markets and help them in their search for new investors.

As for the main market, BME in collaboration with ASCRI (the Spanish association of venture capital firms) is exploring ways to improve the IPO market in the aftermath of the crisis.

We have also increased our commitment to society and our community during this crisis.  BME has, for example, bought protection materials worth one million euros for the Armed Forces to help them fight coronavirus and has strengthened its long-standing collaboration with the Spanish Food Bank.

No doubt the exchange industry faces a difficult post-crisis scenario, but it is prepared to face new challenges. Exchanges have become beacons of transparency and integrity in the uncertain future. Their track record of efficiency, fairness and trust are the best guarantee of future success.