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Securities investment fundsF Castelo Branco, P Rebelo de Sousa & Associados, Lisbon

Decree Law 323/99, of August 13 (DL 323/99), was published to amend the legal regime applicable to securities investment funds (the SIFs), as implemented by Decree Law 276/94, of November 2.

The SIFs are defined as patrimónios autónomos (autonomous blocks of assets) which belong jointly to various individuals or entities (unit holders), which are not in any event responsible for the liabilities of the SIFs or of the SIF's management company.

The activity of SIFs has developed considerably in Europe over the last few years, and the purpose of DL 323/99 is to create conditions allowing SIFs to preserve and increase their dynamism, innovation and competitiveness at an international level.

DL 323/99 aims to reduce the SIFs' supervision costs by establishing, for example, that the only costs are those involved with: (i) the purchase and sale of securities; and (ii) the management of the SIF and remuneration of the services provided by the SIFs' companies and the depository.

Additionally, the managing capacity of an SIF's management company is restricted, as it is forbidden to execute (on account of the funds), certain transactions with:

  • shareholders holding more than 10% of voting rights of the SIF's management company;
  • members of the corporate bodies of the SIF's management company;
  • employees of the SIF's management company;
  • the depository bank; and
  • other funds managed by the same management company, as such transactions may cause conflicts of interest. (For these purposes, DL 323/99 states that a SIF's management company managing more than one SIF must treat each SIF as a client, and avoid any conflict of interest, or, if not possible, the conflict must be resolved under equity and non-discrimination principles (Article 8, paragraph 2).)

The main purpose of DL 323/99 is to make the legal regime for SIFs more flexible, by establishing basic principles and rules, and leaving its implementation to the Comissão do Mercado de Valores Mobiliários (CMVM) (Stock Markets Commission). The aim is to allow a permanent updating of the legal regime for the SIFs, depending on the market conditions. For example, it is the CMVM that defines, by way of regulation:

  • the conditions for creating different categories of SIFs (Article 4, paragraph 5);
  • the conditions for the an SIF's management company to request the provision of services from a third party (Article 6, paragraph 3);
  • the techniques and instruments for the management of a SIF's portfolio, including risks cover (Article 24, paragraph 1);
  • the criteria for evaluating an SIF's portfolio (Article 30, paragraph 2); and
  • the content of the simplified prospectus (Article 33, paragraph 3).

Notwithstanding the aim of achieving greater flexibility, there was, however, an attempt to reinforce the protection of investors as regards information. DL 323/99 requires an SIF's management company to prepare and update a complete prospectus, to be provided to any interested investor, as well as a simplified prospectus with a summary of the essential information on the SIF, allowing the investor to take a decision in his/her best interests. Both the full, and the simplified prospectus must be published in the Boletim de Cotações da Bolsa de Valores de Lisboa (the Lisbon Stock Exchange Bulletin). The SIF's management company must also publish monthly in the bulletin a description of the investments carried out by each SIF, its global net value and the number of units of an SIF placed in the market.

Additionally, the SIF's management company must inform the unit holders (individually and directly) of any substantial alteration to the SIF's management regulation (eg an increase in commissions or a material alteration of investment policy), allowing the unit holders to review their own investment policy (Article 18, paragraph 5).

In addition, DL 323/99 aims to provide better monitoring of the activities of the SIF with surveillance by a chartered accountant, which must, for example, inform the CMVM as soon as possible of any facts which constitute a serious breach of the law, and which may lead the accountant to refuse the certification of accounts, or to effect a qualified or reserved certification of accounts.

Finally, as regards liquidation of an SIF, DL 323/99 states that upon the occurrence of a breach of law or breach SIF management regulations, if the interests of the unit holders or the interests of the market so justify, the CMVM may require the compulsory liquidation of the SIF (Article 25-A).

William Smithson and Alexandra Maia Loureiro

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