Press Release

Close to the Investor. A report on the investor protection in Spain by BME Research Department.

In its almost eighteen years in operation, the Madrid Stock Exchange’s[1] Investor Ombudsman has dealt with a total of 2,357 complaints or contentious enquiries and 440,000 requests for information.


The legal principle of protecting the investor permeates virtually all current regulation governing the operation of stock markets. This has not always been the case. It was after the devastating effects of the 1929 stock market crash that much regulation began to be inspired by this principle. Nevertheless it has taken many years to develop a legislative framework with detailed legal precepts and provisions that provide effective public oversight of the rights of investors in their relations with the markets. The current financial crisis has highlighted the fact that the investor enjoys little protection outside the area of regulated exchanges. In Spain, legislation on the effective function of the stock markets and legal guarantees for investors are well developed and designed to effectively protect their rights. The Spanish stock market has also been aware for many years that its activities are built on trust and this is sustained when investors see the market as a safe place to deposit their savings and one which is responsive to their demands. The creation of the post of Investor Ombudsman in 1991, and the informative, educational, conciliatory and approachable nature of the role, are clear examples of self-regulation, based on the principle that "greater information is the basic source of trust, and can only stimulate investment in shares”, as clearly pointed out by José Manuel Núñez-Lagos [2] in his first book Iniciación a la Inversión en Bolsa (Guide to investing in the Stock Market), published back in 1962. 

12 November, 2009

How secure financial systems are depends on many interrelated factors. Those affecting the execution of contracts relating to products and financial services are, basically, transparency of information and the existence of markets with clear and well understood operating rules. These two aspects work relatively well in regulated markets where many savers participate in all the investment sectors available.

Another factor is the reliability and quality of human and technological systems needed to meet investors’ demands. There are, however, other important mechanisms related to the existence of sufficiently clear and flexible legal mechanisms, adapted to the markets' new uses, which serve to resolve the inevitable conflicts that arise between investors or customers and the supplier of the corresponding goods or service.

In the current rapidly changing financial climate, characterised by dynamism and growth, the existence of adequate channels for complaint provides investors and the system as a whole with the security needed for that system to function well. These channels include financial entities’ Customer Service Departments, the Customer Ombudsman and the Commissions for the Defence of Financial Services Customers, the first two of which began to operate in the second half of 2004 once their legal structure and functions had been defined. We will discuss these bodies at greater length in the second part of this article.

The origins of investors’ right to protection in the stock markets

Nobody today questions the concept of providing legal protection for investors as an integral part of the regulatory process governing stock markets. However, the idea that the basic operating rules of the stock markets should include mechanisms to directly or indirectly increase the protection of investors' rights is a relatively new trend. In Spain this process has only really been effective in the last 20 years, although some students of this subject argue that the principle of protecting savers is basic to Stock Market Law and is embedded in the Constitution where it deals with consumer protection with regard to all types of goods and services (Art. 51 of the Spanish Constitution).

The appearance of laws whose main aim is to protect investors arose out of the growing certainty, especially since the 1929 stock market crash in North America, that it is in the public and general interest that the stock markets function correctly, given their contribution to the development of the economy and the generation of wealth. It is reasonable to state that the principle of protecting investors in transferable securities, as with other fundamental market principles, did not arise directly through national and international law. It was motivated instead by the appearance of certain problems in the United States that, having been dealt with locally with the 1933 Securities Act, gradually led to more specific laws that directly or indirectly safeguarded investors’ interests. This legislation today forms the framework of a complex legal system that is nevertheless fairly clearly defined across the developed world.

In Europe, the EC's recommendation of 25 July 1977 concerning a European code of conduct relating to transactions in transferable securities set out general principles for stock markets that included investor protection. This code provided the basis and philosophical inspiration for a profusion of legislation on the issue over the last 30 years. In Spain, some Decrees approved in the 1980s, the 1989 Securities Market Act and its subsequent amendments, and a wide range of legislation passed in this decade to implement European Directives, were clearly driven by a view of the investor as the key agent in the markets, whose protection must be considered paramount.

The principle of investor protection: aims and arguments

Conceptually, the purpose of protecting the investor in his/her dealings with the market and all its different tiers and agents is to prevent illegal acts against one or many investors. Another, more general aim is to provide a framework that inspires public confidence in the operation of the markets, thereby attracting savers to facilitate the transfer of resources from said savers to projects that are seeking financing. It should be pointed out here that no amount of investor protection can ever remove the risk inherent in investing in securities, as the dynamic of markets operating under legal conditions leads naturally to a market risk which the investor can mitigate using the strategies they deem appropriate.

There are many arguments to justify the principle of protecting investors in transferable securities, which is embodied in legislation covering many areas. The most important of these include the need to provide legal protection for all the different interests involved in the stock markets, which are not always easy to reconcile, and where the priority must be to safeguard the rights of the private investor against the risk of illegal behaviour by professional agents with access to greater resources and information. Another is the legal support required by the investor as a user or consumer of financial services, which in Spain is enshrined in its Act for the Defence of Consumers and Users. Government institutions are also required to oversee the health of the markets: ensuring that stock market investors’ objectives of security, profitability and liquidity are compatible is one the regulators’ key goals. Finally, levels of equity that adequately guarantee the legal and financial security of transactions must be achieved in the market.

Market equity and efficiency as the basis of protection

The concept of equity is central to the development of regulations affecting the efficient operation of the stock markets. Any aspect that leads to inequality and allows any party involved in the markets to derive benefit from an advantageous position undoubtedly undermines investors' confidence and impacts on the quality of the stock markets. To that end, the flow of information is the central pillar on which the operation of fair and equitable markets rests. The principles of information and transparency in the stock markets are complementary to the protection of the investor.

Economic theories have been incorporated into Securities Market Law. A good example is the principle of answerability when information is released that alters the efficiency of the market. Here, the investor is protected by the provision of sufficient relevant information on the issuers of securities and on questions affecting the markets, respecting the three basic precepts of equity: completeness, reliability and equal availability. This should lead to a highly efficient market.

Information as a central concept

Reducing asymmetries in terms of information and education is thus one of the central planks on which effective investor protection rests. To achieve this, the stock markets have their own operating rules and institutional bodies. Even historically, the aims of the Spanish stock market have always included a notable commitment to the provision of information about its activities and many products and services. This can be seen in its investor services and in the free and universal distribution of many of the documents that it publishes and/or which are generated within the business platforms that it manages. The central axis around which all these activities revolve is the acceptance of a governing principle of markets that the investor’s best defence is information.

It seems clear that private investors are those most in need of protection as, generally, their level of knowledge and information about the market is notably lower than that of professional investors and of the many different professionals with whom they deal to carry out their investments. The need to protect investors and prevent them from being discriminated against stems from structural considerations affecting the average investor, who, in order to make a decision, needs to obtain certain information before executing a financial transaction.

The sources of legislation to protect investors

There are currently many wide-ranging measures and regulations to protect investors. These originate basically from three sources: specific legislation drawn up to regulate the stock markets; from within the stock markets themselves, as long-regulated institutions; and general legislation. This last area relates mainly to the Spanish Companies' Act and to laws relating to responsibility under civil and criminal law.

Many of the measures are preventive, while others prescribe processes aimed at resolving conflicts between investors and other market agents after the event. The majority of these are legal requirements while others are merely recommendations, such as the Corporate Governance Codes of listed companies.

Preventive legislation

Legislation specifically aimed at protecting investors in securities markets has advanced significantly since the creation of the single European market, in particular, legislation which indirectly protects investors by forcing issuers and intermediaries to adhere to certain practices. This indirect protection could in some cases be invoked as a direct legal mechanism to protect investors in the securities markets, as the failure to comply with or observe certain criteria by market agents, in particular intermediaries, could make them subject to legal action by the customer if said failure affects the terms and conditions of the contract. This type of protection is referred to by the Spanish stock market regulator, the CNMV, as “institutional”.

An example of this type of legislation is found in many of the new regulations that impose duties on entities that provide investment services both in terms of the contract under which such services are supplied and in terms of the supplying entity’s system of organisation. These are rules that seek to directly ensure a balanced negotiating position between investors and the market and are intended to ensure that free competition leads to better services for investors, thereby indirectly protecting their interests more fully.

The European Community recognises that the average investor suffers from structural disadvantages when dealing with the securities markets, leading to information asymmetries that must be corrected by the creation of effective codes of conduct. The MiFID (Markets in Financial Instruments Directive) introduces a legislative framework that could bring about significant changes. This is another specific package of legislation for securities markets, the key aims of which include promoting competition while upholding the principle that the purpose of doing so must be to benefit investors. A good example of this can be seen in the provisions aimed at ensuring investment services companies execute orders in the most favourable circumstances for investors, known as the duty of best execution. There are clearly many doubts as to the usefulness of this rule in terms of how applicable it really is, the problems of implementing it, the debates it raises regarding the fragmentation of liquidity that it implies, etc. Nevertheless, from the purely conceptual viewpoint, the duty of best execution represents an extremely important aspect of the regulations in place to protect the investor. The interests of the customer issuing the order to the company must always prevail over those of the investment company itself, while any structural differences between policies of best execution must always work in the customer’s favour and never that of the company.

Finally, the duty of best execution constitutes a crucial factor in the legal framework for protecting the investor. Even though legislation in EU countries until now defined more or less clearly the concepts of best execution, these new provisions impose the important duty of explaining to the customer the processes used to determine the financial services company’s execution approach. This structure should strengthen the concept of transparency in securities markets and offer additional security for investors. However, as we have already commented, how this law will be applied in practice is a different question.

“A posteriori” mechanisms of protection

We have already mentioned that most current legislation related to protecting investors in securities markets is formulated with the investor's interest as its governing principle and takes a preventive approach. Nevertheless, conflicts will inevitably arise between investors and the agents and institutions that operate in the markets. It is therefore necessary to have mechanisms to help investors make claims or complaints when they consider their rights have been breached. The Spanish stock market was at the forefront of this when it created the Investor Ombudsman in 1991, inspiring the framework of “a posteriori” protection currently in force in Spain, which was implemented in 2004 following the passing of the 2002 Financial Act. This entire structure helps make the stock market more approachable for investors, thereby minimising the damage to their confidence and giving them a greater sense of security.

More secure financial services

In recent years we have seen Spanish citizens' financial awareness grow significantly, and with it demand for financial products and services. At the same time, and even more rapidly, due mainly to the great technological strides made during these years, financial markets have grown greatly and the range of products offered by the sector has expanded, diversified and become much more sophisticated. Both of these factors have resulted in the need to design more and better mechanisms to protect investors in their dealings with markets and financial services companies. This led to the creation of three new institutions within the Spanish legal framework intended to protect the rights of investors more flexibly and effectively. These came into existence in the second half of 2004, implementing the provisions of Act 44/2002 of 22 November on the Reform of the Financial System. They are the Customer Service Departments of financial entities, the Customer Ombudsman and the Commissions for the defence of financial services customers. They are responsible for attending to the complaints of banking customers, investors and pensions plan holders, although their main aim is linked to strengthening the basic principles for the effective operation of modern financial systems: transparency, security and trust.

This security structure coexists, however, with bodies previously created by the stock markets and its regulators to meet investors’ needs for information and to provide a channel for dealing with complaints. These are the stock market’s Investor Ombudsman, the CNMV’s Customer Service and the Bank of Spain's Complaints service.

 The Investor Ombudsman

The growing popularity of investing in securities in Spain in recent years has been accompanied by a strengthening of the channels to protect shareholders. In October 1991 the Madrid Stock Exchange (now BME) decided to create an Investor Ombudsman to guarantee greater security and transparency for shareholders. The department, which is headed today by Carlos Fernández and was skilfully managed by José Manuel Núñez Lagos for its first ten years, has dealt with a total of 2,357 complaints or contentious enquiries and 440,000 requests for information in its almost eighteen years in operation. 2000 was its peak year for complaints, with 341, while the greatest number of requests for information (41,200) came in 2003.

The procedure for submitting complaints is confidential and free of charge. There is no standard format for presenting complaints, although it is essential to provide all the available documentation and both the claimant and the subject of the complaint must be duly identified. If insufficient information is provided, the affected parties are usually asked to provide additional data.

In 2008, 32 claims were processed, although most of these were characterised by a low degree of conflict, so a final report was required for just four cases . There has been less and less demand each year since 2002 for the Ombudsman to intervene in complaints or legal proceedings. Undoubtedly the requirement for financial entities to set up Customer Service Departments and their own ombudsmen has reduced the burden on the Investor Ombudsman.

The Ombudsman’s role as a conciliator has remained a constant feature during these years. Excluding purely consultational procedures regarding specific claims (780), dropped complaints (57) and the cases declared not to be within its jurisdiction (399), the Madrid Stock Exchange’s Investor Ombudsman has intervened in 1,120 cases in 18 years. An agreement has been reached in 45% (504) of these cases. Of the remaining 606 complaints, the Ombudsman has found in favour of the claimant in 71% (436) of the cases. The Investor Ombudsman’s final report includes a proposed solution and such recommendations and suggestions as are deemed appropriate. The qualifications and experience of the appointees to the role of Ombudsman, and the support of a specialised team, mean that the findings issued are generally of a notably high standard in technical, legal and practical terms. Due to this, although these resolutions are not legally binding, they are usually accepted by all the parties.

The high number of claims declared to be outside the Ombudsman's jurisdiction (17%) arises as his scope of action excludes claims whose processing or resolution could damage a third party, claims pending a legal resolution or which are subject to a tribunal, complaints which are still being processed by an entity’s own ombudsman or equivalent body, and complaints pending resolution by the CNMV or the Bank of Spain. Nevertheless, in such cases the investor is given guidance on the channels available.

In fact, most of the Investor Ombudsman’s work in the Spanish securities market resides in this role of offering guidance. Information is the best means of preventing conflict. This premise forms the basis of most of the Ombudsman’s work over the almost two decades the system has been in operation: the provision of a clear, accessible information service for all types of investor, especially the private investor. The numbers speak for themselves: 440,000 requests for information handled, including many cases where an element of education is involved as well as the mere passing on of knowledge.

Furthermore, analysing the different types of request for information received by the Ombudsman, has enabled the Spanish stock market to tailor the many training programmes in which it is involved to reflect investors’ demands.

The current framework of investor protection

Chapter V of Act 44/2002, of 22 November, on the Reform of the Financial System included a series of measures to protect financial services customers. The framework now in place was completed by Order ECO/734/2004, of 11 March, regulating financial entities’ customer service departments and ombudsmen.

This requires financial entities (credit entities, investment service companies and insurance entities) to attend to and resolve any complaints submitted by their customers, and they must, therefore, have a customer service department. They may also appoint an ombudsman to deal with and rule on complaints. Article 48 of the Act governing Collective Investment Institutions extended this to collective investment fund managers.

If a complaint is rejected or unresolved, it may be passed to the Commissions for the Defence of Financial Services Customers set up under Royal Decree 303/2004, of 20 February, to protect the rights of users of financial services. The Commissions are authorised to deal with complaints from the users of services provided by credit entities, property surveyors, bureaux de change, investment services companies and collective investment fund managers, by insurance entities and pension fund managers. In practice these bodies have not yet been set up, and their functions are assumed for the moment by the complaints services of the corresponding regulatory bodies (CNMV, the Bank of Spain or the General Directorate for Insurance).


  • CACHÓN BLANCO, J.E., “El principio jurídico de protección al inversor en valores mobiliarios. Aspectos teóricos y prácticos” (The legal principle of protecting the investor in transferable securities. Theoretical and practical issues) Revista de Derecho Bancario y Bursátil, no. 55, 1994.
  • ROJO ÁLVAREZ-MANZANEDA, CARMEN, “Mecanismos jurídicos de protección al cliente inversor” (Legal mechanisms to protect the investment customer) Revista de Derecho Bancario y Bursátil, no. 114, 2009.
  • POBORTSCHA, ALEXANDRA, “Mejor ejecución de órdenes en el mercado de valores” (Best execution of orders in the securities market), Revista de Derecho Bancario y Bursátil, no. 114, 2009.

This article was written by the Research Department of Bolsas y Mercados Españoles (BME) and published in the BOLSA magazine, issue No 181.

For further information, please visit ine/index.htm


[1] The Madrid Stock Exchange is a 100% subsidiary of Bolsas y Mercados Españoles (BME).

[2] The Investor Ombudsman for the Madrid Stock Exchange from 1991 to 2001.


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