Spain
18 March 2025
Following the region’s 15-year push to create a framework for securities lending by collective investment schemes, market participants discuss the current developments in Spain’s capital markets and the prospect for change
Image: stock.adobe.com/Roman
In January 2024, the Bolsas y Mercados Españoles (BME) released a whitepaper which proposed several measures to increase the competitiveness of Spain’s capital markets and, consequently, to contribute to strengthening the growth of its economy.
Following its release, participants in the market have been working diligently on new developments, namely the use of securities lending by collective investment schemes (CISs) — a motion which has been encouraged by the market over the past 15 years to no prevail, leaving Spain as the only country in Europe without this possibility.
“Spanish Undertakings for Collective Investment in Transferable Securities funds have traditionally been prohibited from engaging in securities lending, a restriction that has limited their ability to enhance returns and manage liquidity effectively,” notes Matthew Chessum, director of securities finance at S&P Global Market Intelligence.
He believes that if this rule were to change, it could open up new avenues for these funds, allowing them to participate in securities lending markets, “putting them on an equal footing with other UCITS funds across Europe”.
Poised for growth
Situated on Europe’s Iberian Peninsula, and known as the largest country in Southern Europe, Spain is admired by many, exhibiting diverse geography and cultures across its 17 autonomous regions. In terms of its securities lending market, Spain’s position in the global securities finance arena seems to be evolving.
According to José Manuel Tassara de León, head of agency securities finance at Cecabank, Spain has historically been “somewhat behind” in terms of securities lending by CIS, but with the upcoming regulatory changes, Tassara believes this market is “poised to catch up”.
There are several factors as to why Spain has traditionally lagged behind larger European markets in terms of the breadth and depth of its securities lending activity, says Roy Zimmerhansl, head of capital markets at WTS Hansuke. These factors, which include regulatory constraints on certain domestic investors, have limited the pool of lendable assets. But despite these challenges, Zimmerhansl also remains optimistic.
He explains: “Ongoing regulatory developments, combined with the presence of prominent financial institutions and a well-established exchange, underline Spain’s potential to evolve from a relatively niche securities lending market into a more active participant in the global arena.”
Over the past two years, securities lending activity in Spain has exhibited notable trends in balances, fees, and revenues. Balances have generally shown an upward trajectory, indicating a growing interest in Spanish equities among investors, explains Chessum.
In 2024, the total balances reached approximately €7.61 billion, reflecting a significant increase from the previous year, which stood at around €6.89 billion, according to S&P Global Market Intelligence data. Chessum indicates that this 10.46 per cent year-over-year growth suggests that more Spanish assets are being utilised for lending purposes, as institutions seek to optimise their portfolios and enhance liquidity through securities lending.
Exploring the market further, Enrique Verdu, senior managing director in securities finance at Santander, says the bank has been promoting securities finance for over 30 years, but so far only banking entities have been active in Spain.
He notes: “It has been a very interesting development, something I am very proud of, moving away from just equity short coverage to more sophisticated financing driven trades, including the possibility to combine cash and non-cash collateral, triparty, integration of fixed income and equity capabilities across different products, mainly repo, securities lending and TRS.”
Verdu also highlights interesting developments in this market linked to the digital space, where Santander has been active in lending and borrowing native digital assets and trading intraday digital repos.
While securities finance is core to any market or treasury division, and is constantly evolving, Verdu says that part of this development has been linked to being able to connect to asset managers across Europe — which have been a key part of this ecosystem for many years, whether through agency programmes or directly, key liquidity providers and active participants.
For Tassara, initiatives such as the Securities Financing Transactions Regulation (SFTR) and the Central Securities Depositories Regulation (CSDR) have improved market transparency and efficiency, allowing for greater integration with other European markets. Additionally, he says digitalisation has strengthened operations in Spain.
“Despite these advances, the Spanish market still faces challenges in terms of liquidity and depth compared to more established financial hubs,” he continues. “Nevertheless, the current trend shows a commitment from Spanish authorities and financial entities to continue adapting and strengthening their position in the global securities finance market.”
Moving the needle
As it stands, collective investment undertakings cannot carry out securities lending operations — except in certain limited circumstances. Although they are empowered to do so in accordance with article 30.6 of Law 35/2003, the mandatory ministerial development has not been implemented to date, despite efforts to introduce a regulatory development.
“In general, the ability to lend securities is in most other countries adhering to ownership, so investment funds have not needed to adopt regulations to be able to do this,” says Domingo García Coto, director of the BME Research Department. “But in Spain, however, the literal wording of the law requires a specific development to establish the conditions under which securities lending can be carried out.”
BME’s ‘Whitepaper on fostering the competitiveness of Spanish capital markets’ brought to light a number of underlying handicaps in the functioning of the Spanish securities and capital markets, one key point related to securities lending by CIS.
Consequently, the paper proposes to accelerate the regulation of securities lending operations for CISs and for urgent approval of the corresponding Ministerial Order to allow Spanish collective investment institutions to access these operations, without being subject to current legal limitations.
Since its release, the report has garnered much support, for example, from independent reports such as the Draghi report, the European Securities and Markets Authority (ESMA) EU Securities Financing Transactions report, and the latest Organisation for Economic Co-operation and Development (OECD) report on Spanish capital markets.
Several measures proposed in the latter report — titled ‘OECD Capital Market Review of Spain 2024’ — coincide with those in the BME whitepaper. The first position in the summary of more than 30 recommendations of the OECD report is dedicated to securities lending operations.
The Comisión Nacional del Mercado de Valores (CNMV), through its chairman Rodrigo Buenaventura, has expressed its support for the necessary regulatory development — as described by BME — to be carried out, dispelling doubts about the potential risks of encouraging short selling.
In addition, Cecabank has been actively engaged with stakeholders to support the development of securities lending by CIS, leveraging its expertise in securities lending to prepare for the launch of securities lending operations.
The BME made a call to government to accelerate the regulation of securities lending operations for CIS and requested the approval of a Ministerial Order that would authorise the Spanish regulator, CNMV, to carry out regulatory developments (dating back to 2007).
“On the 5 September 2024, after years of advocacy from our industry, the Ministry of Economy, Trade & Business issued a public consultation on a Draft Ministerial Order Regulating the Loan of Securities,” confirms Farrah Mahmood, director of regulatory affairs at the International Securities Lending Association (ISLA).
According to García Coto, the issue of securities lending by investment funds has now become a “high priority”. And fortunately, it is a change that has already enjoyed the consensus of regulators and market participants.
He adds: “The Ministry of Economy continues to adjust the content of the law, and it is expected that it will soon be sent to the Council of State. We hope that approval will occur in the short term.”
On 10 January 2025, the Spanish government issued an updated Draft Ministerial Order Regulating the Loan of Securities. Despite a need for further improvements and additions, Mahmood believes this to be “a significant improvement from the previous versions”.
Market participants agreed that the approval of the regulation could provide a number of benefits to Spain’s capital markets including the generation of additional income through lending fees — which could be reinvested to improve fund performance; enhanced competition of Spanish UCITS funds; and adding additional market liquidity.
Approval could also welcome new players into the market, including new agent lenders that can facilitate the development of the industry on behalf of the new participants.
“If the Ministerial Order is approved in the coming months, this will be a monumental development for Spain,” says Mahmood. “The ability of CISs to lend will increase supply and therefore enhance liquidity. As more funds participate in securities lending, it can attract additional borrowers, enhancing overall market participation and creating a more dynamic lending environment.”
Furthering the discussion, Tassara adds that it is critical to highlight the importance of the depositary entities in supporting CIS and asset management companies, with the aim of strengthening the processes and the confidence of unit holders.
He continues: “Management companies need to be supported by experienced and solvent partners committed to the local industry and guarantors of best market practices. In this sense, a specialised depositary enables asset management companies to stay current with changes in the market and regulations.
“Depositaries must remain prepared as regulatory pressure and operational requirements intensify. In addition to key responsibilities for settlement, collateral exchange, and custody, they also provide essential oversight across these processes.”
The approval, which is expected in the short term, is “only the first step”, according to García Coto, with more positive developments set to follow. He notes that there is a much greater awareness not only in Spain, but also in Europe, of the role of the securities and capital markets to promote the competitiveness of companies, the productivity of workers, and therefore economic growth.
In addition to the BME’s work on securities lending by CIS, it is also working on extending securities lending operations to pension funds as it, in García Coto’s words, “is a long-awaited need for the Spanish fund sector and will be important in the future”.
“The competition with the United States is important, and so it’s time to improve the framework for the European capital markets to be competitive,” he declares.
Pension funds and preparation
In line with the BME, players and representatives of the market are eager to extend securities lending operations to pension funds. ISLA sees “great merit” in creating an additional Ministerial Order to regulate securities lending for other types of institutional investors such as pension funds, which Mahmood notes is common throughout Europe.
The OECD Capital Market Review of Spain 2024 report, within its recommendation relating to securities lending operations, also proposes to extend eligibility to other vehicles, such as, in this case, pension funds.
Regarding CISs and pensions funds, Zimmerhansl says this regulatory initiative is highly significant and marks a turning point for Spain’s securities finance ecosystem. “By allowing collective investment schemes and pension funds to participate more extensively in securities lending, the market gains a much-needed increase in lendable supply.”
Furthermore, he highlights that the broader participation not only deepens liquidity but also makes Spain “more comparable to other European markets” in terms of both regulatory alignment and market robustness.
Analysing the market’s reaction to these potential regulatory changes, Zimmerhansl notes a positive outlook from local and international participants, who view these changes as a “long-overdue enhancement”, which they expect will stimulate trading volumes, attract foreign investment, and reduce lending fees through greater competition.
On the other hand, there remains a cautious optimism. Zimmerhansl explains that some stakeholders remain cautious, focusing on the precise regulatory requirements, the pace of adoption, and that the right operational structures and governance are in place.
Over the past six months, Zimmerhansl has been focussed on helping Spanish banks and other financial institutions that are new to securities lending — both as potential borrowers and lenders — prepare for the impending regulatory changes. This has involved training and education, operational assessments, and developing comprehensive Target Operating Models (TOM) that outline technology requirements, governance frameworks, and operational processes to ensure a smooth implementation.
In terms of preparation, during the last year BME has been creating working groups, including the securities lending working group which was launched jointly with Inverco — the Spanish Association of Collective Investment Institutions and Pension Funds.
The SIX Group company and operator of all securities markets and financial systems in Spain is actively promoting a number of its 56 measures, alongside the working group members which include the main entities of the Spanish securities finance sector, both domestic and international, and other trade bodies like ISLA.
On the horizon
“This piece was missing in the securities lending sector in Spain and we hope that with its approval it will be fully aligned with Europe,” says García Coto.
Gathering their final thoughts on the potential approval of the Ministerial Order Regulating the Loan of Securities, and the future of the Spanish market, participants echo its importance and look positively toward the country’s future in this respect.
For Tassara, the approval of the regulation will have a “profound impact” on Spain’s securities lending market, marking a significant milestone in the evolution of the region’s financial markets, “promising substantial benefits for both domestic and international stakeholders”.
“The new regulation will align Spain’s financial practices with international standards, fostering greater confidence among global investors. Moreover, the enhanced market liquidity resulting from the regulation will provide domestic investors with more opportunities for portfolio diversification and risk management,” he explains
“This development is anticipated to stimulate innovation in financial products and services, contributing to a more dynamic and competitive financial sector in Spain.”
As and when the regulation is approved, Verdu anticipates that Spanish asset managers will be able to leverage on the back of a “very well developed European market”, where their peers, directly or through their agent lenders, have daily interaction with other securities finance participants. He states that the Spanish asset management industry is among the biggest in Europe and should facilitate additional market liquidity across regions.
Zimmerhansl declares that a promising future for Spain’s capital markets is driven in large part by a broader involvement from domestic investors — particularly CIS and pension funds — will deepen the lending pool and boost trading volumes. Furthermore, as more assets become available for borrowing, spreads should tighten, and price discovery will improve, leading to a more efficient market overall.
He adds that with better infrastructure, technology adoption, and a supportive regulatory environment, the industry can expect new products, more sophisticated trading strategies, and a sustained uptick in market activity.
Moving forward, García Coto expects a “more favourable situation” in the next few years. He says that the BME whitepaper identifies specific points to be improved regarding fiscal or operational issues and regulations — all of which promote the role of capital markets in developing the economy.
Concluding, Zimmerhansl says: “Overall, while Spain still has ground to cover relative to other leading European hubs, its recent steps to modernise securities lending and encourage broader participation signal a positive trajectory for the country’s financial markets.”
Following its release, participants in the market have been working diligently on new developments, namely the use of securities lending by collective investment schemes (CISs) — a motion which has been encouraged by the market over the past 15 years to no prevail, leaving Spain as the only country in Europe without this possibility.
“Spanish Undertakings for Collective Investment in Transferable Securities funds have traditionally been prohibited from engaging in securities lending, a restriction that has limited their ability to enhance returns and manage liquidity effectively,” notes Matthew Chessum, director of securities finance at S&P Global Market Intelligence.
He believes that if this rule were to change, it could open up new avenues for these funds, allowing them to participate in securities lending markets, “putting them on an equal footing with other UCITS funds across Europe”.
Poised for growth
Situated on Europe’s Iberian Peninsula, and known as the largest country in Southern Europe, Spain is admired by many, exhibiting diverse geography and cultures across its 17 autonomous regions. In terms of its securities lending market, Spain’s position in the global securities finance arena seems to be evolving.
According to José Manuel Tassara de León, head of agency securities finance at Cecabank, Spain has historically been “somewhat behind” in terms of securities lending by CIS, but with the upcoming regulatory changes, Tassara believes this market is “poised to catch up”.
There are several factors as to why Spain has traditionally lagged behind larger European markets in terms of the breadth and depth of its securities lending activity, says Roy Zimmerhansl, head of capital markets at WTS Hansuke. These factors, which include regulatory constraints on certain domestic investors, have limited the pool of lendable assets. But despite these challenges, Zimmerhansl also remains optimistic.
He explains: “Ongoing regulatory developments, combined with the presence of prominent financial institutions and a well-established exchange, underline Spain’s potential to evolve from a relatively niche securities lending market into a more active participant in the global arena.”
Over the past two years, securities lending activity in Spain has exhibited notable trends in balances, fees, and revenues. Balances have generally shown an upward trajectory, indicating a growing interest in Spanish equities among investors, explains Chessum.
In 2024, the total balances reached approximately €7.61 billion, reflecting a significant increase from the previous year, which stood at around €6.89 billion, according to S&P Global Market Intelligence data. Chessum indicates that this 10.46 per cent year-over-year growth suggests that more Spanish assets are being utilised for lending purposes, as institutions seek to optimise their portfolios and enhance liquidity through securities lending.
Exploring the market further, Enrique Verdu, senior managing director in securities finance at Santander, says the bank has been promoting securities finance for over 30 years, but so far only banking entities have been active in Spain.
He notes: “It has been a very interesting development, something I am very proud of, moving away from just equity short coverage to more sophisticated financing driven trades, including the possibility to combine cash and non-cash collateral, triparty, integration of fixed income and equity capabilities across different products, mainly repo, securities lending and TRS.”
Verdu also highlights interesting developments in this market linked to the digital space, where Santander has been active in lending and borrowing native digital assets and trading intraday digital repos.
While securities finance is core to any market or treasury division, and is constantly evolving, Verdu says that part of this development has been linked to being able to connect to asset managers across Europe — which have been a key part of this ecosystem for many years, whether through agency programmes or directly, key liquidity providers and active participants.
For Tassara, initiatives such as the Securities Financing Transactions Regulation (SFTR) and the Central Securities Depositories Regulation (CSDR) have improved market transparency and efficiency, allowing for greater integration with other European markets. Additionally, he says digitalisation has strengthened operations in Spain.
“Despite these advances, the Spanish market still faces challenges in terms of liquidity and depth compared to more established financial hubs,” he continues. “Nevertheless, the current trend shows a commitment from Spanish authorities and financial entities to continue adapting and strengthening their position in the global securities finance market.”
Moving the needle
As it stands, collective investment undertakings cannot carry out securities lending operations — except in certain limited circumstances. Although they are empowered to do so in accordance with article 30.6 of Law 35/2003, the mandatory ministerial development has not been implemented to date, despite efforts to introduce a regulatory development.
“In general, the ability to lend securities is in most other countries adhering to ownership, so investment funds have not needed to adopt regulations to be able to do this,” says Domingo García Coto, director of the BME Research Department. “But in Spain, however, the literal wording of the law requires a specific development to establish the conditions under which securities lending can be carried out.”
BME’s ‘Whitepaper on fostering the competitiveness of Spanish capital markets’ brought to light a number of underlying handicaps in the functioning of the Spanish securities and capital markets, one key point related to securities lending by CIS.
Consequently, the paper proposes to accelerate the regulation of securities lending operations for CISs and for urgent approval of the corresponding Ministerial Order to allow Spanish collective investment institutions to access these operations, without being subject to current legal limitations.
Since its release, the report has garnered much support, for example, from independent reports such as the Draghi report, the European Securities and Markets Authority (ESMA) EU Securities Financing Transactions report, and the latest Organisation for Economic Co-operation and Development (OECD) report on Spanish capital markets.
Several measures proposed in the latter report — titled ‘OECD Capital Market Review of Spain 2024’ — coincide with those in the BME whitepaper. The first position in the summary of more than 30 recommendations of the OECD report is dedicated to securities lending operations.
The Comisión Nacional del Mercado de Valores (CNMV), through its chairman Rodrigo Buenaventura, has expressed its support for the necessary regulatory development — as described by BME — to be carried out, dispelling doubts about the potential risks of encouraging short selling.
In addition, Cecabank has been actively engaged with stakeholders to support the development of securities lending by CIS, leveraging its expertise in securities lending to prepare for the launch of securities lending operations.
The BME made a call to government to accelerate the regulation of securities lending operations for CIS and requested the approval of a Ministerial Order that would authorise the Spanish regulator, CNMV, to carry out regulatory developments (dating back to 2007).
“On the 5 September 2024, after years of advocacy from our industry, the Ministry of Economy, Trade & Business issued a public consultation on a Draft Ministerial Order Regulating the Loan of Securities,” confirms Farrah Mahmood, director of regulatory affairs at the International Securities Lending Association (ISLA).
According to García Coto, the issue of securities lending by investment funds has now become a “high priority”. And fortunately, it is a change that has already enjoyed the consensus of regulators and market participants.
He adds: “The Ministry of Economy continues to adjust the content of the law, and it is expected that it will soon be sent to the Council of State. We hope that approval will occur in the short term.”
On 10 January 2025, the Spanish government issued an updated Draft Ministerial Order Regulating the Loan of Securities. Despite a need for further improvements and additions, Mahmood believes this to be “a significant improvement from the previous versions”.
Market participants agreed that the approval of the regulation could provide a number of benefits to Spain’s capital markets including the generation of additional income through lending fees — which could be reinvested to improve fund performance; enhanced competition of Spanish UCITS funds; and adding additional market liquidity.
Approval could also welcome new players into the market, including new agent lenders that can facilitate the development of the industry on behalf of the new participants.
“If the Ministerial Order is approved in the coming months, this will be a monumental development for Spain,” says Mahmood. “The ability of CISs to lend will increase supply and therefore enhance liquidity. As more funds participate in securities lending, it can attract additional borrowers, enhancing overall market participation and creating a more dynamic lending environment.”
Furthering the discussion, Tassara adds that it is critical to highlight the importance of the depositary entities in supporting CIS and asset management companies, with the aim of strengthening the processes and the confidence of unit holders.
He continues: “Management companies need to be supported by experienced and solvent partners committed to the local industry and guarantors of best market practices. In this sense, a specialised depositary enables asset management companies to stay current with changes in the market and regulations.
“Depositaries must remain prepared as regulatory pressure and operational requirements intensify. In addition to key responsibilities for settlement, collateral exchange, and custody, they also provide essential oversight across these processes.”
The approval, which is expected in the short term, is “only the first step”, according to García Coto, with more positive developments set to follow. He notes that there is a much greater awareness not only in Spain, but also in Europe, of the role of the securities and capital markets to promote the competitiveness of companies, the productivity of workers, and therefore economic growth.
In addition to the BME’s work on securities lending by CIS, it is also working on extending securities lending operations to pension funds as it, in García Coto’s words, “is a long-awaited need for the Spanish fund sector and will be important in the future”.
“The competition with the United States is important, and so it’s time to improve the framework for the European capital markets to be competitive,” he declares.
Pension funds and preparation
In line with the BME, players and representatives of the market are eager to extend securities lending operations to pension funds. ISLA sees “great merit” in creating an additional Ministerial Order to regulate securities lending for other types of institutional investors such as pension funds, which Mahmood notes is common throughout Europe.
The OECD Capital Market Review of Spain 2024 report, within its recommendation relating to securities lending operations, also proposes to extend eligibility to other vehicles, such as, in this case, pension funds.
Regarding CISs and pensions funds, Zimmerhansl says this regulatory initiative is highly significant and marks a turning point for Spain’s securities finance ecosystem. “By allowing collective investment schemes and pension funds to participate more extensively in securities lending, the market gains a much-needed increase in lendable supply.”
Furthermore, he highlights that the broader participation not only deepens liquidity but also makes Spain “more comparable to other European markets” in terms of both regulatory alignment and market robustness.
Analysing the market’s reaction to these potential regulatory changes, Zimmerhansl notes a positive outlook from local and international participants, who view these changes as a “long-overdue enhancement”, which they expect will stimulate trading volumes, attract foreign investment, and reduce lending fees through greater competition.
On the other hand, there remains a cautious optimism. Zimmerhansl explains that some stakeholders remain cautious, focusing on the precise regulatory requirements, the pace of adoption, and that the right operational structures and governance are in place.
Over the past six months, Zimmerhansl has been focussed on helping Spanish banks and other financial institutions that are new to securities lending — both as potential borrowers and lenders — prepare for the impending regulatory changes. This has involved training and education, operational assessments, and developing comprehensive Target Operating Models (TOM) that outline technology requirements, governance frameworks, and operational processes to ensure a smooth implementation.
In terms of preparation, during the last year BME has been creating working groups, including the securities lending working group which was launched jointly with Inverco — the Spanish Association of Collective Investment Institutions and Pension Funds.
The SIX Group company and operator of all securities markets and financial systems in Spain is actively promoting a number of its 56 measures, alongside the working group members which include the main entities of the Spanish securities finance sector, both domestic and international, and other trade bodies like ISLA.
On the horizon
“This piece was missing in the securities lending sector in Spain and we hope that with its approval it will be fully aligned with Europe,” says García Coto.
Gathering their final thoughts on the potential approval of the Ministerial Order Regulating the Loan of Securities, and the future of the Spanish market, participants echo its importance and look positively toward the country’s future in this respect.
For Tassara, the approval of the regulation will have a “profound impact” on Spain’s securities lending market, marking a significant milestone in the evolution of the region’s financial markets, “promising substantial benefits for both domestic and international stakeholders”.
“The new regulation will align Spain’s financial practices with international standards, fostering greater confidence among global investors. Moreover, the enhanced market liquidity resulting from the regulation will provide domestic investors with more opportunities for portfolio diversification and risk management,” he explains
“This development is anticipated to stimulate innovation in financial products and services, contributing to a more dynamic and competitive financial sector in Spain.”
As and when the regulation is approved, Verdu anticipates that Spanish asset managers will be able to leverage on the back of a “very well developed European market”, where their peers, directly or through their agent lenders, have daily interaction with other securities finance participants. He states that the Spanish asset management industry is among the biggest in Europe and should facilitate additional market liquidity across regions.
Zimmerhansl declares that a promising future for Spain’s capital markets is driven in large part by a broader involvement from domestic investors — particularly CIS and pension funds — will deepen the lending pool and boost trading volumes. Furthermore, as more assets become available for borrowing, spreads should tighten, and price discovery will improve, leading to a more efficient market overall.
He adds that with better infrastructure, technology adoption, and a supportive regulatory environment, the industry can expect new products, more sophisticated trading strategies, and a sustained uptick in market activity.
Moving forward, García Coto expects a “more favourable situation” in the next few years. He says that the BME whitepaper identifies specific points to be improved regarding fiscal or operational issues and regulations — all of which promote the role of capital markets in developing the economy.
Concluding, Zimmerhansl says: “Overall, while Spain still has ground to cover relative to other leading European hubs, its recent steps to modernise securities lending and encourage broader participation signal a positive trajectory for the country’s financial markets.”
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