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Review of the Spanish Government Securities Market1 

Purpose and methods 

This report summarizes the results of a mandatory Federal Reserve review of the treatment of 

U.S. firms in the Spanish government debt market. This review is required under the Primary 

Dealers Act of 1988 because a U.S. bank holding company owned by a Spanish firm sought to 

acquire a U.S. broker-dealer that is currently designated by the Federal Reserve as a primary 

dealer of government securities in the United States. The central question of this review is 

whether Spain grants to U.S. firms the same competitive opportunities to underwrite and 

distribute Spanish government debt instruments that Spain accords to Spanish firms.2

 

This review draws on public information and confidential communications with market 

participants and Spanish regulators.3 More specifically, the review examines the primary dealer 

system in Spain, auction and syndication processes for debt issuance, central bank transactions in 

government securities, and access to market utilities for trading, hedging, secured financing, and 

clearing and settlement. 

Executive summary 

The Debt Management Office (DMO) of the Spanish Treasury (Tesoro Público) manages the 

government's finances and issues debt securities. A set of twenty financial firms designated by 

the Treasury as primary dealers (Creadores de Mercado; literally, “market makers”) performs 

most of the private intermediation activity in both primary and secondary markets. By 

controlling ownership, four of these primary dealers are U.S. firms (called “U.S.-owned dealers” 

in this report), six are Spanish, and the others are from France, Germany, the United Kingdom, 

and Japan.4 Primary dealers benefit from some exclusive rights, including access to auctions, 

participation in syndications, and the right to strip and reconstitute coupon securities. In turn, 

1

 December 14, 2021. 

2

 Under the Primary Dealers Act of 1988, 22 U.S.C. 5341–5342 (Act), the Federal Reserve may not designate a 

person of a foreign country as a primary dealer or allow a person of a foreign country to retain designation as a 

primary dealer, if that person’s country does not grant to U.S. companies the same competitive opportunities to 

underwrite and distribute that country’s government debt instruments as that country accords to its domestic 

companies. A “person of a foreign country” includes any foreign individual or company that directly or indirectly 

controls a primary dealer. The Board has made determinations under the Act with respect to six foreign countries: 

Japan (1989), the United Kingdom (1989), Switzerland (1989) Germany (1990), France (1992), and the Netherlands 

(1998). 

3 In addition, the Federal Reserve requested public comments in a notice published in the Federal Register on 

October 27, 2021, but none were received. 

4

 Entities operating as security dealers in Spain must be domiciled and authorized in the European Union (EU). 

Spain, as a member state of the EU, is subject to Council Directives 89/646/EEC (the Second Banking Directive or 

"2BCD") and 93/22/EEC (the Investment Services Directive or "ISD"). The 2BCD created a "single passport" for 

banks authorized in an EU member state by allowing them to branch into, or provide direct services in, host member 

states without need of a separate authorization from the host state. The ISD created a similar regime for investment 

firms authorized in an EU member state. Accordingly, (parent) firms domiciled outside the EU conduct primary 

dealer operations in Spain through controlled subsidiaries that are domiciled and authorized in an EU country. 

Nineteen firms are primary dealers in Spain for both Treasury bonds and Treasury bills. One Spanish firm is a 

Primary Dealer only for Treasury bills. 

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The yield spread of the 10-year bond over the German bund curve averaged 65 basis points in 

the first 3 quarters of 2021 but has been much higher at times in the past, exceeding 600 basis 

points in 2012. The subsequent narrowing in spreads is consistent with the upward trajectory in 

credit ratings of long-term Spanish government securities since the European debt crisis; these 

ratings are currently Baa1 (Moody’s) and A (Standard and Poor’s). 

Market utilities for trading, hedging, secured financing, and clearing and settlement 

Secondary market trading in Spanish government securities is active. Aggregate daily turnover 

for the first 9 months of 2021 averaged €14 billion for bills, €71 billion in bonds, and €5 billion 

in strips, or about 17, 7, and 10 percent of average outstanding amounts, respectively.6 Most of 

the trading is conducted on anonymous and rule-driven dealer-to-dealer platforms such as 

SENAF, Brokertec, and MTS, that have little or no scope for any discrimination by country of 

ownership. 

In principle, Spanish bond positions can be hedged with futures that are listed on Eurex, however 

these contracts are very illiquid. This market also has little scope for any discrimination by 

country of ownership. 

For secured financing, repo (repurchase agreement) markets are liquid and active and include 

significant participation by U.S.-owned dealers. Total repo volumes averaged approximately €30 

billion per day over the last year, based on data from various interdealer platforms.7

 Roughly 95 

percent of Spanish repo trading volume is executed against specific collateral sought by lenders, 

rather than general collateral.8 More than half of the volume is cleared through LCH SA, which 

applies haircuts to collateral following a pre-announced schedule (expressed as a percent of 

collateral value), which thus allows no scope for discrimination against particular market 

participants. 

Market members (including primary dealers) are required to settle their transactions with the 

Treasury on Iberclear and dealers also use Euroclear for other transactions. These systems do not 

appear to discriminate by country of ownership in any way. 

Designation of primary dealers and their obligations 

Since 1999, credit institutions and broker/dealer firms licensed in any European Union (EU) 

jurisdiction have been eligible to apply to the Spanish Treasury for primary dealership status. All 

the U.S.-owned primary dealers are German subsidiaries, but prior to Brexit, U.S.-owned 

primary dealers had been licensed in the United Kingdom. In contrast to the 1988 Primary 

Dealers Act in U.S. law, which considers the nationality of a controlling owner, no provision in 

6

 Based on figures reported in the Spanish Treasury’s monthly Central Government Debt Statistics compiled from 

activity on Iberclear and electronic trading exchanges, including transfers associated with repurchase agreements. 7

 At this level, the Spanish repo market is about half the size of German market and one-third the size of the Italian 

market. 

8

 Primary dealers with bank licenses can also fund positions in Spanish Treasury securities in European Central 

Bank (ECB) facilities that are administered by the Bank of Spain. 
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either EU or Spanish law that we are aware of calls for different treatment for U.S.-controlled 

primary dealers relative to other primary dealers licensed in Germany or in another EU country. 

An applicant for a primary dealership in Spain must demonstrate that it has a sufficient 

workforce, balance sheet, and technical capacity to provide market liquidity and distribute 

securities on a significant scale. Approval for a new applicant may be awarded by the Treasury 

after the successful completion of a probationary period. 

To fulfill their obligations in primary markets, all primary dealers must bid for at least 3 percent 

of the amount offered at each Treasury auction at credible prices. In secondary markets, primary 

dealers must post two-sided quotes at a competitive bid-ask spread for at least five hours per 

trading day. 

The DMO evaluates primary dealers’ performance on a monthly basis through an evaluation 

based mostly on objective and quantitative criteria. There appears to be no difference in the 

performance criteria applied to U.S.-owned and Spanish primary dealers. Two U.S.-owned firms 

were ranked as top-five performing primary dealers in bonds for 2020. 

Similar to the function of the U.S. Treasury’s Treasury Borrowing Advisory Committee 

(TBAC), the Spanish Treasury convenes meetings with its primary dealers. Failure to attend such 

meetings with the Treasury may count as a penalty factor against a primary dealer in their 

evaluation by the Spanish Treasury. 

Poor performers risk losing primary dealer status. A broader set of entities (mostly smaller 

Spanish banks) that also have been designated as “market members” may bid directly in 

Treasury auctions, but these additional firms do not have the other rights and privileges of 

primary dealers. 

Auctions 

The DMO conducts regular auctions of Treasury securities typically on the first and third 

Thursdays of the month. Only primary dealers and other market members may bid directly in 

auctions.9 Primary dealers can submit bids until 10:30, but the cut-off for other market members 

is 10:00. 

In a “green shoe” second round held the following Monday, only available to primary dealers, 

each primary dealer may subscribe for up to 24 percent of the amount it was awarded at the 

previous week’s auction. These additional allocations are entirely at the dealer’s discretion, and 

the price is set at the average auction outcome (the same price at which non-competitive bids 

were filled), so that an increased secondary market price for the recently auctioned bond confers 

an immediate arbitrage opportunity to primary dealers. 

9

 Other Spanish residents (including individuals) can acquire newly issued Treasury securities through direct 

accounts (cuentas directas) administered by The Bank of Spain, a program similar to Treasury Direct in the United 

States. This arrangement works best for investors who expect to hold to maturity, because securities acquired in 

these direct accounts would have to be transferred to a dealer account before they could be sold on the secondary 

market. 
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The auctions are rule-driven in essentially every respect, leading to the same competitive 

opportunities for U.S.-owned and Spanish primary dealers. 

Syndication 

The DMO’s financing programs also include syndications of securities with a narrower investor 

base, such as longer-dated tenors and green bonds, including about €58 billion of debt issued in 

2020. 

Syndicated issues are underwritten by primary dealers, for which they earn a fee from the issuer. 

As is common in other countries, we find that the Spanish DMO typically chooses lead managers 

mainly from among the dealers with the highest performance in the previous calendar year. 

Syndication mandates for 2016-2021 deals are summarized by the nationality of dealers’ 

ownership in the table. The four U.S.-owned dealers collectively were awarded a total of 26 

percent of the co-leads over this period. This share is very close to the frequency with which the 

U.S.-owned dealers were reported as top-five performers during the 2015-2020 period, both for 

bond markets and bill markets, broadly consistent with mandates being driven mainly by recent 

dealer performance rankings. 

Table: Primary dealers, syndication co-leads, and performance ratings by owner domicile

 

period

Spanish 

owners 

U.S. 

owners 

Other 

owners 

 Primary dealers in Treasury bonds (number) current 5 4 10 

Co-leadership in syndications (share) 2016-2021 30% 26% 44% 

Top-five annual ratings in bonds (share) 2015-2020 29% 29% 42% 

Top-five annual ratings in bills (share) 2015-2020 43% 23% 33% 

 

Notes: A 6th Spanish firm that is a primary dealer only in bills is excluded from the statistics reported in the table. 

Dealer counts totaling 167 co-lead mandates for 28 syndications are from Dealogic. The Spanish Treasury lists the 

top-five performing primary dealers for the previous calendar year at www.tesoro.es. Six dealers were listed in the 

top five for bonds for 2015. 

The importance of dealer performance rankings for underwriting participation is further 

supported by dealer level analysis shown in the figure below as a scatter plot. Syndication 

participation turns during 2016-2021 among the 19 current primary dealers in bonds are 

generally increasing in the frequency with which a dealer places in the top five on the Treasury’s 

performance rankings during 2015-2020. In addition, there is no evidence that foreign owned 

firms (represented by the blue squares and red circles) are chosen less often as co-leads than 

similarly rated Spanish-owned firms (the black crosses and dashed fit-line).10

10 Furthermore, formal regression analysis did not find any statistically significant national differences in the 

relationship. A caveat is that the analysis is less precise than what would have been possible using the exact 

performance rankings of each dealer instead of the frequency of top-five rankings.