* Customers received insufficient information - government
* Santander appeals against fine (Adds detail of other misselling and context)
By Jesús Aguado
MADRID, Feb 17 (Reuters) - Santander, the euro zone's largest bank by market value, was fined 16.9 million euros ($23.2 million) by Spain's market regulator for misselling convertible bonds to customers.
The Spanish bank committed two serious infractions in not providing clients enough information about an instrument that raised 7 billion euros in two weeks, the government said in its official bulletin on Monday.
The stock exchange regulator, the CNMV, levied two fines against the bank as a result.
Santander said on Monday it was appealing against the fine. It said the CNMV had approved the bond when it was introduced in 2007 and the ruling did not affect its legal validity.
The CNMV declined to comment.
Spain's banking system is heavily structured around local branches where customers have a named bank manager, a relationship that makes it easier for account managers to sell their customers financial products from health insurance to bonds.
Since the global financial crisis, customers have increasingly claimed banks missold them financial products.
Spain's state rescue fund FROB has estimated that banks have paid out 1.55 billion euros in arbitration agreements over alleged misselling.
Santander's customers have initiated 50 court cases in relation to the bond that the bank called Santander Valores, but the courts have only decided in favour of the customers in two of them, a source with knowledge of the situation said.
The convertible bond was paying a 4.8 percent fixed return until it was converted into shares of Santander in 2012, when the bank's share price was near historical lows.
The government bulletin also said Jaime Botin, the former head of Spanish small-cap bank Bankinter and brother of Santander Chairman Emilio Botin, received a 500,000 euro fine from the CNMV for not declaring a significant stake in Bankinter. The bulletin did not give any further details.
Ramon y Cajal, a Spanish law firm that has previously represented Jaime Botin, was not immediately available to comment.
($1 = 0.7307 euros) (Additional reporting by Tracy Rucinski; Writing by Sarah Morris; Editing by Erica Billingham)