Author: | Published: 1 Jan 2000
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A new Securities Code has just been enacted and will enter into force on March 1 2000, This article highlights certain aspects of the new Code relevant in international transactions.

Territorial application

The former Securities Market Code contained quite a broad territorial rule governing any securities issued, negotiated or traded in Portuguese territory. The Securities Commission (CMVM) had the understanding that any offers targeted at investors located in Portugal came under the rules of that Code. Accordingly, a strict interpretation of the former Code could lead, for instance, to the understanding that it applied to any offer of securities on the internet, to which investors located in Portugal had access, even though no other connection to the Portuguese territory existed. This would require public offers to be registered with the CMVM and placed through an authorized intermediary.

The new Code is clearer with regard to multi-jurisdictional situations. On the one hand, its rules apply in general to protect non-institutional investors whenever there is a relevant connection with the Portuguese territory. Orders given to Portuguese-registered financial intermediaries, operations in the Portuguese markets, as well information made accessible in Portugal related with transactions ruled by Portuguese law, are all considered by the Code as having a relevant connection to the Portuguese territory. On the other hand, the Code contains specific territorial rules. With regard to public offers, its rules only apply to those offers addressed specifically at entities based in Portugal.

Public offers v private placements

An offer is considered a public offer when it is targeted at unidentified investors. It is also considered public if it consists of multiple standard communications to individually identified addressees, if it is addressed to more than 200 investors, if it is publicly advertised, or if includes a bookbuilding phase.

Other offers including those addressed only to institutional investors, are considered as private placements and are merely subject to subsequent notification to the CMVM.

Public offers are subject to prior registration with the CMVM and to advertising restrictions. They should be carried out through a financial intermediary authorized to act in Portugal. This includes not only intermediaries established in Portugal, but also those acting under the passport rules of the Investment Services Directive or the Second Banking Directive. A prospectus is mandatory for most public offers. If the offer is made in more than one EU member state, a prospectus approved by another member state is recognized in Portugal, under the Prospectus Directive, provided it includes information specifically relevant to Portuguese investors, such as applicable tax regime, paying agent and means to be used for announcements to investors.

The above requirements do not apply to offers of short-term debt securities (of one year or less), nor to securities issued and offered by or on behalf of open-ended UCITS.

Restrictions on the marketing of foreign securities

The new Code does not restrict the marketing of foreign securities in Portugal. It rather provides for the marketing of those securities, by adapting stock exchange admission requirements to the case of securities subject to a foreign law. It also contains a first step towards defining the operational relationship between domestic and international settlement systems.

Under the former Code, prior notification to the Minister of Finance was required for issues of securities in the domestic market, whenever they were denominated in a foreign currency or issued by entities not resident in Portugal. The Ministry of Finance had the understanding that prior notification was also necessary for issues by non-residents of securities denominated in Portuguese currency, even if offered outside Portugal, because they considered the domestic market to be the Escudo market. This prior notification requirement has now been lifted.

OTC transactions

Over-the-counter transactions of securities admitted to the stock exchange can now be carried out, subject to mere communication to the stock exchange and to the payment of official fees to the CMVM. Under the former Code, those transactions were allowed only in very limited circumstances.

The payment to the CMVM of official fees for OTC transactions has been a long-debated issue. Currently, the fees are a percentage of the price of the transaction or of the quotation of the securities in the stock exchange and securities in general are subject thereto. The new Code has brought the improvement of excluding non-listed securities from the payment of the fees. The method of calculation and amount of the fees is subject to future regulation by the Minister of Finance. Thus, it remains to be seen if the basis for calculation will continue to be the value of the transaction.

If so, the debate over the conformity of those fees with European law and the Portuguese Constitution will continue. The fees have the legal nature of a tax, even though they are called by law "official fees" implying that they are a remuneration of a service provided by a public entity. However, one can hardly see what sort of service the CMVM is providing in an OTC transaction. The new Code attempts to justify the application of the fee by referring that it serves as remuneration for the supervision of the CMVM in respect of the transacted securities. Even if this is considered an acceptable justification for the fee, it can hardly serve as grounds for the calculation of the fee on the basis of the value of the transaction. The European Court of Justice has ruled against such charges, which bear no relation to the service provided, but vary according to factors extraneous to the service.

Securities lending

The new Code regulates securities lending operations in the following cases:

  • As a stock exchange operation. The Code requires the lender to have prior ownership title over the securities, delivery of the securities to the borrower to take place within the time limit for settlement in the spot market, and the securities to be returned to the lender through the stock exchange.

  • As an OTC transaction managed, cleared and settled through the stock exchange. This type of securities lending is subject to future regulation to be enacted by the CMVM. Similar transactions can currently be carried out through the Oporto Derivatives Exchange.

  • As an operation carried out by a financial intermediary at its own risk. This type of securities lending is also subject to future regulation by the CMVM. Currently, broker dealers may enter into securities lending transactions subject to very strict legal requirements, making such transactions quite rare.

  • OTC lending without stock exchange intervention is not precluded by the new Code provided in the case of listed securities the CMVM are notified and official fees are paid. Such transactions would take the form of a loan agreement, as regulated in Portuguese general commercial law. Under this regime, ownership title is transferred to the borrower upon delivery of the assets.


    Until recently, the securitization of receivables was not regulated by Portuguese law, making many securitization operations unviable. The main problems resulted from general legal requirements on the assignment of receivables and of their collateral, from the lack of adequate legal vehicle, and from the circumstance that certain assignments could be challenged in case of insolvency of the assignor.

    A new law published on November 5 1999 (Decree Law 453/99) has regulated the securitization of receivables, solving some of the existing problems related with these operations, but imposing restrictions notably on the type of entities that may assign credits for securitization (banks and other financial institutions, as well as corporations subject to audit for the latest three years) and on the vehicles that can be used.

    The only vehicles that can be used for the securitization of receivables are Securitization Funds and Securitization Companies. Securitization Funds are subject to authorization and supervision by the CMVM and their management entity is a financial institution supervised by the Central Bank. Securitization Companies are commercial companies dedicated solely to the securitization of receivables and are financed through the issuance of bonds. In some circumstances, the new law waives requirements imposed by general law on the issuance of bonds, such as equity ratios, but requires previous registration of the issuance with the CMVM.

    Contact Details:

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