Spanish Stock Market Trading Phases and Order Types

Daily Trading Phases and Mechanics

1. Pre-Opening and Opening Auction (8:30 – 9:00)

The 30-minute pre-opening period allows orders to buy and sell to be entered into the system. The official opening occurs when the equilibrium point of supply and demand is reached (where the greatest volume of buyers and sellers agree). New orders cannot be entered during the calculation period. This auction ends randomly, varying by up to 30 seconds to prevent price manipulation.

2. Opening Auction

After auction orders are matched at the equilibrium price, unmatched orders remain to form the basis of the open session order book. The market then opens, and further orders may enter.

3. Open Market (9:00 – 17:30)

During this period (or 11:30 – 17:30 for LatIbex), orders can be entered, modified, or cancelled. Trades occur when coinciding buy and sell orders match at a determined price. The order queue prioritizes price first, followed by timing if prices are equal.

The order book is semi-transparent; participants see orders but not the identity of the buyer or seller. Brokers may also hide the full quantity of interest, revealing it only as the order is progressively filled.

4. Market Close and Closing Auction (17:30 – 17:35)

An additional closing auction follows the same rules as the pre-opening. The resultant price becomes the official closing price for the stock that day. This mechanism was established in 2000 for fairer price fixing.

• If fewer than 500 shares trade in the closing auction, the closing price is the one traded closest to the weighted average of the last 500 shares traded that session.
• If fewer than 500 shares trade all day, the closing price remains that of the previous day.

5. Fixing System for Less Liquid Stocks

To manage sessions with low activity, smaller companies use a system with two auctions:

1. First Auction: At 12:00 (orders accepted from 8:30).
2. Second Auction: At 16:00 (orders count from the close of the first auction).

The second auction price is used as the stock's close for the day. The minimum volume required for closing price setting in this fixing market is 200 shares.

6. Block Market

This parallel market allows the crossing of large volume blocks (“Putthroughs”) subject to minimum volumes. Trading hours are 9:00 am to 5:30 pm. Minimum volumes range from €15,000 for illiquid stocks to €650,000 for the most liquid.

7. Special Operations Market (After Hours)

Open from 5:40 pm to 8:00 pm, this market allows brokers to register special transactions, such as ownership changes or new share issuances, provided they meet specific cash and price requirements.

Financial Metrics and Terminology

Enterprise Value (EV) Calculation

Enterprise Value (EV) measures the true cost of acquiring a business, including equity value and debt obligations.

$$\text{Enterprise Value (EV)} = \text{Market Cap} + \text{Net Debt}$$

Key Acronyms in Spanish Markets

Order Types and Conditions

Basic Order Types

• Market Orders: Entered without a specific price limit; traded at the best opposite-side price available upon entry. Execution continues across multiple prices until the order is complete.
• Market to Limit Orders: Orders without a price, limited to the best opposite-side price on the order book. If no opposite order exists upon entry in the open market, the order is rejected.
• Limit Orders: Orders to be executed at the limit price or better. Buy orders execute at this price or lower; sell orders execute at this price or higher.

Conditional Orders

These conditions can be applied to market orders:

• Immediate or Cancel: Cancels any remaining balance after the highest possible amount has been matched at price.
• Minimum Volume: The system rejects the order if a minimum volume, determined by the broker, is not matched.
• Fill or Kill (All or Nothing): The order must be fully matched or it will be rejected by the system.

Hidden Orders (Iceberg)

Large in Scale (LIS) orders may hide part of their volume to mitigate adverse market reactions. The order appears in visible multiples only after each tranche is completed. Each new visible tranche retains price priority but its timing priority is reset to when it becomes visible. Hidden orders cannot be used in the fixing system.

Midpoint Orders

Orders may be inputted to automatically adjust to the midpoint of the order book.

VWAP Orders

Volume Weighted Average Price can be agreed upon to cross a block of stock. The final price is unknown to both counterparties until the period closes (often the full day). Brokers must report the transaction to the Exchange within 15 minutes of market close.

Trading Venues

Trading takes place on:

• Primary Market: Initial Public Offerings (IPOs) and capital raises from listed companies.
• Secondary Markets: Trading of previously listed shares.
• BME Growth (originally Mercado Alternativo Bursátil MAB): For small company listings.