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MAB, the SME stock market: teething problems

More than 99% of Spanish firms are small or medium-sized (SMEs) and their business accounts for around 65% of GDP. In the past they've encountered considerable obstacles to securing good quality financing precisely because of their size: they have limited capital as well as few assets that can be used as collateral. In the last decade, and particularly during the years of crisis, it has become clear that such firms require alternative sources of financing to traditional bank loans. Early attempts were aimed at increasing their capital. In fact, although used to a lesser extent than in large companies, SMEs can also opt to increase their share capital via business angels, seed capital and venture capital, or through capital increases in organised markets, especially stock markets.

In 2008, attending to the particular needs of such firms and given the success of specific spaces for this kind of company in other countries' stock markets, the Alternative Stock Market (Mercado Alternativo Bursátil or MAB) was set up in Spain, run by the company that deals with the organisational aspects of Spain's stock exchanges and financial markets (Bolsas y Mercados Españoles or BME). The MAB is a segment of the market devoted to small cap firms looking to expand, with its own set of regulations and costs and procedures tailored to the companies' particular characteristics. In comparison with the rules for firms listed on the continuous market, the requirements to access the capital market via the MAB are more flexible. But this does not mean they are any less thorough: SMEs applying to join the MAB must be suitably transparent and supply good quality information. Two figures have been created to this end: a registered advisor and a liquidity provider. The registered advisor has the mission to help companies meet these information requirements, as well as the duty to support such firms while they are listed on the MAB. The liquidity provider is an intermediary responsible for ensuring a minimum frequency of counterparty trading in order to achieve efficient share price setting for the company, as well as providing liquidity. The supervision of these actions and control of regulatory compliance falls to the Spanish Securities and Investments Board (CNMV).

More than twenty firms are currently listed on the MAB, from a range of industries such as consumer goods, technology and telecommunications, industry, construction and consumer services. Considering the context of the financial crisis over the last few years, the overall experience of this market has been reasonable. From a quantitative point of view, the first firms to be listed on the MAB have improved their level of business, their equity position and their international exposure. In addition to using their increased funds to grow and undertake expansion projects, a lot of companies have also improved their turnover and operating profits. In qualitative terms, the MAB represents a platform for firms to increase awareness and prestige among their clients and suppliers (both commercial and financial), as well as greater corporate transparency.

However, over the last few months the MAB's reputation has been damaged by a case of alleged fraud, curiously concerning the most capitalised company within the segment. The fact that SMEs may employ small-scale auditors of questionable reliability and excessively flexible reporting requirements have turned out to be weak points for the supervisory system. In order to make sure such events do not occur in the future, the Ministry of Finance and Competitiveness has announced changes to strengthen the control of companies by extending the supervisory role of BME and establishing new reporting requirements to the CNMV. Moreover, those firms whose stock market capitalisation exceeds 500 million euros will no longer be listed on the MAB and will move to the continuous market. Such reforms to the regulatory framework should be seen as positive: they form part of the learning and  development process of a market that has only existed for six years and which, to date, has operated within an overall context of crisis but has huge potential for growth. In this respect, it should also be noted that the MAB still has a long way to go before reaching the level of its European peers such as the British AIM and the French Alternext. In short, the main challenge faced by the Alternative Market in the future is to tighten up its commitment to transparency and supervision.

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