Madrid General Index Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The Índice General de la Bolsa de Madrid (IGBM), or Madrid General Index, represents the most relevant set of indices in Spain besides the IBEX 35. The Madrid General Index is comprised of a changing number of stocks (currently more than 100) that are traded in the Bolsa de Madrid. The IGBM is made up of two sets of indices: based on price and profitability measures. It has been published since the end of the 1940s. From 1986, the IGBM, both for prices and yields, has not changed its base, and the calculations are linked to the current series with the December 31, 1985, base = 100. The base value of the new sectorial and sub sectorial indices has been 1,000 since the closing of the market on December 31, 2004.

The IGBM indices are divided into two series: the first corresponds to all the series of price indices and the second to performance indices. Composition and weightings are the same for both. The unified sectorial and sub sectorial classification for Spanish Exchanges (BME) established on January 1, 2005, applies to all IGBM companies. IGBM’s sectors are as follows:

Oil and energy
Basic materials, industry, and construction
Consumer goods
Consumer services
Financial and real estate services
Technology and telecommunications

The management of the IGBM is the responsibility of the management committee, which is supervised and appointed by the board of directors of the governing body of the Bolsa de Madrid. The management committee responsible for the IGBM indices is comprised of five members and a general coordinator (responsible for calling ordinary and extraordinary meetings) whose functions are (1) ensuring that the indices are calculated in accordance with prevailing technical rules; (2) holding half-yearly meetings to decide on the composition of the IGBM for the following six months, as well as extraordinary meetings, whenever necessary; and (3) drawing up a report, which must be approved by the board of the governing body if it is necessary to change the technical rules for calculating the IGBM indices.

IGBM is not made up of a fixed number of companies. During each six-monthly meeting, all those companies that fulfill all the requirements are admitted and those that no longer do so are excluded. The criteria to join the IGBM are based on the following liquidity features: (1) trading volume of more than €3 million; (2) turnover velocity of more than 10 percent of capitalization on an annual basis, taking into consideration only the equity capital in free float; and (3) trading frequency of more than 50 percent.

At the extraordinary meetings, those companies who, in the committee’s view, are likely to meet the requirements can join the IGBM before the next six-monthly definition. The management committee makes decisions on admission or exclusion of companies when it deems convenient and under special circumstances that are not mentioned in the prior specifications.

The weighting of each company is calculated on the basis of the market capitalization on the last day of the preceding six-month period. The following adjustments are taken into account: capitalization adjustment of Spanish companies in the IGBM, weightings of sectors and subsectors, and adjustments for foreign companies. In order to calculate the IGBM on a daily basis, the daily indices of each IGBM-listed company are used. The Index Value, with 100 as the base, is the quotient between the daily price and the so-called reference price, that is, the price at the close of the day prior to the change in the composition of the IGBM. In relation to daily adjustments for operations that affect IGBM-listed companies, capital increases, or mergers and acquisitions between two IGBM companies belonging to the same subsector, or splits, are taken into account for the daily calculation of the index, although dividends paid by companies are not.

Bibliography:

Begoña Moreno Castaño, La bolsa de Madrid. Historia de un mercado de valores europeo [Bolsa de Madrid. History of a European Stock Exchange] (Universidad de Cantabria, 2007);
IGBM Management Committee, Technical Rules for the Composition, Classification by Sectors and Calculation of the IGBM Family of Indices, version 7.0, June 27, 2007, www.bolsamadrid.es (cited March 2009);
Javier Ybáñez, “Spain: Domestic Stock Exchanges,” in World Stock Exchanges: A Practical Guide, Hugh Maule, ed. (Globe Business Publishing, 2007).

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