How exchange operators can broaden financing options for SMEs via fixed income

By: The WFE Focus Team Nov 2016

Gonzalo Gómez-Retuerto, General Manager, BME Group tells us about the Alternative Fixed Income Market (MARF).

The Alternative Fixed Income Market (MARF), created by BME at the end of 2013, is fast becoming one of the most effective instruments for diversifying sources of funding to have been introduced in our country since the financial crisis.

The arrival of MARF is enabling a growing number of companies to wean themselves off an excessive reliance on bank lending, which has historically been more elevated in Spain than in other European countries and the United States.

MARF provides companies with access to capital markets via a platform that seeks to replicate the structure of a conventional securities markets but that is tailored to the needs of SMEs. This not only allows firms to improve their funding structure and capacity to grow and expand, but also provides institutional investors with new portfolio options.

MARF's emergence in Spain is in line with similar initiatives taking place in other European countries, such as: Italy's platform Extra MOT Pro; France's Alternext, which has a Fixed Income segment for smaller firms; or Norway's Nordic ABM platform, which belongs to Oslo Børs.

As an alternative market, MARF provides firms with a more favourable environment than official/regulated markets, with more flexible access criteria, lighter touch procedures and lower costs. A wide variety of options are available, ranging from medium and long-term fixed income assets to short-term promissory notes with 3-18 month maturities. Firms can obtain resources through MARF for various objectives, spanning from working capital needs to specific, very long-term projects, which would otherwise prove hard to finance.

Issuers also enjoy significant additional benefits associated with increased awareness and visibility, which helps form strong links with the financial community and build confidence when seeking future investment.

The Spanish government has helped to drive MARF from the outset, as part of an effort to strengthen the economy's financing mechanisms and bolster activity. The government has made a series of regulatory changes aimed at ensuring that demands and requirements are appropriate to the needs and smaller scale of the market, as well as to offer fiscal incentives to both issuers and investors.

MARF has been formally created as a Multilateral Trading System (SMN). This follows current trends in fixed income markets, which focus on setting up electronic trading platforms that can offer increased transparency and liquidity, as well as ensure that orders are effectively executed and investors are sufficiently protected.

There are two main types of participants: Members - financial entities and investment services firms authorised to trade on securities markets on a proprietary or third party basis; and Registered Advisors - legal entities which provide advice to companies issuing securities in the markets and facilitate the processing of paperwork, as well as provision of regular information to MARF.

There are currently 22 Registered Advisors and 20 Members of the market, including some of the leading banks and financial intermediaries, as well as top tier advisors and consultants.

In the three years since its launch, MARF has provided financing and facilitated trading in fixed income assets worth close to €3bn. These financial assets have been issued by 27 companies which have accessed the market directly, i.e. with the company itself as the issuer. A further 122 companies have tapped the market through Securitisation Funds, which have enabled them to use assets on their balance sheets (invoices, promissory notes and other receivables) to issue fixed income instruments on capital markets.