COMISSÃO DO MERCADO DE VALORES MOBILIÁRIOS … · COMISSÃO DO MERCADO DE VALORES MOBILIÁRIOS 2011 ANNUAL REPORT ON THE CMVM’s ACTIVITY AND THE SECURITIES MARKETS . Relatório

COMISSÃO DO MERCADO DE VALORES MOBILIÁRIOS

2011 ANNUAL REPORT ON THE CMVM’s ACTIVITY

AND THE SECURITIES MARKETS

Relatório Anual 2011 sobre a Atividade da CMVM e sobre os Mercados de Valores Mobiliários

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CMVM

LIST OF ACRONYMS ECB - European Central Bank.

BdP - Bank of Portugal.

BRIC - Brazil, Russia, India and China.

CAPE - Cyclically-Adjusted Price Earnings.

CBPP - Covered Bond Purchase Programme.

CCC - Co-ordination Committee on Clearing.

CCP - Central counterparties.

CDS - Credit Default Swaps.

EC - European Commission.

CEMA - Committee on Economic and Market Analysis.

ESRB - European Systemic Risk Board .

CESR - Committee of European Securities Regulators.

CFD - Contracts for Difference.

CIF - Committee of Financial Innovation.

CMVM - Portuguese Securities Market Commission.

CNEF - National Committee for Financial Stability.

CNSA - National Council for Audit Supervision.

CNSF - National Council of Financial Supervisors.

CódVM - Securities Code.

CVM - Securities Depository.

MiFID - Markets in Financial Instruments Directive.

EAIG - European Audit Inspection Group.

EBA - European Banking Authority.

EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization.

EECS - European Enforcers Coordination Sessions

EFAMA - European Fund and Asset Management Association.

EFRAG - European Financial Reporting Advisory Group.

EGAOB - European Group of Auditors ' Oversight Bodies.

EIOPA - European Insurance and Occupational Pensions Authority.

EMIR - European Market Infrastructure Regulation.

EPS - Earnings Per Share.

ESRB - European Systemic Risk Board.

ERSE - Energy Services Regulatory Authority.

ESMA - European Securities and Markets Authority.

ETF - Exchange Traded Fund.

ETN - Exchange Traded Note.

ETV - Exchange Traded Vehicle.

U.S. - United States of America.

FASB - Financial Accounting Standards Board.

FCR - Venture Capital Funds.

EFSF - European Financial Stability Facility.

FEI - Special Investment Funds.

FEII - Special Real Estate Investment Funds.

FESE - Federation of European Securities Exchanges.

FII – Real Estate Investment Funds.

FINOVA - Support Fund for Financing Innovation.


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IMF - International Monetary Fund.

FSB - Financial Stability Board.

FTC - Credit Securitisation Funds.

FUNGEPI - Real Estate Management Funds.

HHI - Herfindahl - Hirschman Index.

IAS - International Accounting Standards.

IASB - International Accounting Standards Board.

ICI - Investment Company Institute.

ICR - Investors in Venture Capital.

IFRIC - IFRS Interpretations Committee.

IFRS - International Financial Reporting Standards.

IGCP - Institute of Public Credit Management.

INE - National Statistics Institute .

IOSCO - International Organization of Securities Commissions.

IRC - Collective Income Tax.

IRS - Income Tax.

LTCM - Long Term Capital Management.

LTRO - Long Term Refinancing Operations.

MEDIP - Special Market for Public Debt.

MIBEL - Iberian Electricity Market.

MSCI - Morgan Stanley Capital International.

ME MSCI - MSCI Emerging Markets.

OECD - Organization for Economic Cooperation and Development.

CIU - Collective Investment Undertakings.

UCITS - Undertakings for Collective Investment in Transferable Securities.

OMIP - Iberian Energy Market Operator (Portuguese pole).

OPA – Take-over Bid.

IPO - Initial Public Offering.

OROC - Order of Chartered Accountants.

OT - Treasury Bonds.

OTC - Over- the- Counter.

PBR - Price -to -Book Ratio.

PER - Price Earnings Ratio.

GDP - Gross Domestic Product.

PFC - Complex Financial Products .

SME - Small and Medium -Size Companies.

NSRF - National Strategic Reference Framework.

RGICSF - Legal Framework of Credit Institutions and Financial Companies.

SAFPRI - Support System Financing Risk and Innovation.

SCR - Corporate Venture Capital .

SCRR - Standing Committee on Risk and Research.

ESA95 - European System of Accounts 95.

ESFS - European System of Financial Supervisors.

SGFII - Management Companies of Real Estate Investment Funds.

SGFIM - Management Companies Mutual Funds.

SGPS - Management Companies Investments.

IBS - Investors Compensation Scheme.

Sivam - Integrated Surveillance of Market Abuse.


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SNC - Accounting Standards System.

SNM - Multilateral Trading Facilities.

SGFTC - Securitisation Fund Management Companies.

IRR - Internal Rate of Return.

TR - Trade Repositories.

TREM - Report Transaction Exchange Mechanism.

UCITS - Undertakings for Collective Investment in Transferable Securities.

EU - European Union.

EU - Economic and Monetary Union

VaR - Value-at -Risk.

NAV - Net Asset Value of the Funds.

WEO - World Economic Outlook


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Index

LIST OF TABLES .......................................................................................................................... 7 LIST OF CHARTS ......................................................................................................................... 9

LIST OF TEXTBOXES ................................................................................................................ 11 1. SECURITIES MARKETS IN 2011 .......................................................................................... 14 1.1. INTERNATIONAL SHARE AND BOND MARKETS..................................................... 14

1.1.1. International Financial Markets ................................................................................. 14 Chart 19 – Trend in the Number of Traded Contracts .................................................................. 51 1.3. INVESTMENT FUNDS ........................................................................................................ 61 2. THE PORTUGUESE SECURITIES MARKET ....................................................................... 74

2.1.1 Profitability and attractiveness of the Securities Market ........................................... 85 2.2 OVERALL TREND IN THE SECURITIES MARKET AS A SOURCE OF

FINANCING ....................................................................................................................... 93 2.2.1 Domestic Market ........................................................................................................ 93 2.2.2 Comparison between the National Market and Other European Markets ............... 103

2.3 SECURITIES ISSUANCE ................................................................................................ 108 2.3.1 Shares ....................................................................................................................... 108

2.3.2 Bonds........................................................................................................................ 109 2.3.3 Complex Financial Products .................................................................................... 113

2.4 SECONDARY MARKET ................................................................................................. 120 2.4.1 Spot Market .............................................................................................................. 120

2.4.2 Spot Market .............................................................................................................. 128 2.4.3 Centralised Securities System .................................................................................. 132 2.4.4 Public Offers ............................................................................................................ 132

2.4.5 Loss of Public Company Status ............................................................................... 138 2.5 FINANCIAL INTERMEDIATION .................................................................................. 138

2.5.1 Reception of Order on behalf of Third-Parties ........................................................ 138 2.5.2 Execution of Orders on behalf of Third Parties ....................................................... 148

2.5.4 Day-Trading ............................................................................................................. 152

2.5.5 Registration and Deposit of Financial Instruments on behalf of Third Parties ........ 154

2.6 ASSET MANAGEMENT ................................................................................................. 154 2.6.1 Individual Portfolio Management on behalf of Third Parties .................................. 154 2.6.2 Undertakings for Collective Investment in Transferable Securities and Special

Investment Funds ..................................................................................................... 157 2.6.3 Holdings in Foreign Collective Investment Schemes Marketed in Portugal ........... 159

2.6.4 Real Estate Investment Funds .................................................................................. 160 2.7 SECURITISATION FUNDS ............................................................................................ 164 2.8 VENTURE CAPITAL ....................................................................................................... 165 3. SUPERVISION AND REGULATION .................................................................................. 169 3.1. INTEGRITY, RELIABILITY AND PROTECTION OF THE SECURITIES MARKET 169

3.1.1 Supervision of the Markets, Management Entities of the Markets and Settlement

and Clearing Systems ............................................................................................... 169

3.1.1.1 Supervision of Trading Structures ...................................................................... 169


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CMVM

3.1.1.2 Supervision of Trading........................................................................................ 170

3.1.2 Supervision of Financial Intermediation .................................................................. 172 3.1.3 Supervision of Asset Management........................................................................... 180 3.1.4 Supervision of External Auditors ............................................................................. 184 3.1.5 Corporate Governance ............................................................................................. 185 3.1.6.2 Submission of Financial Reports ........................................................................ 188

3.1.6.3 Qualifying Holdings ............................................................................................ 190 3.1.6.4 Rebuttable Presumption ...................................................................................... 191 3.1.7 Registration and Authorisation ................................................................................ 191 3.1.7.1 Financial Intermediation ..................................................................................... 191

3.1.7.2 Asset Management .............................................................................................. 193 3.1.7.3 Real Estate Appraisers ........................................................................................ 197 3.1.7.4 External Auditors ................................................................................................ 197 3.1.8 Litigation .................................................................................................................. 199

3.1.9 Investigation and Market Crimes ............................................................................. 203 3.2. PROTECTION OF INVESTORS AS SAVERS AND CONSUMERS OF FINANCIAL

SERVICES ........................................................................................................................ 208

3.2.1 Complaints and Mediation ....................................................................................... 208 3.2.2 Information ............................................................................................................... 212 3.2.3 Information Disclosure System ................................................................................ 214

3.2.4 Supervision of Advertising and Marketing of Products in Banking and Insurance

Sectors ...................................................................................................................... 215

3.2.5 Financial Literacy ..................................................................................................... 219 3.3. COMPETITIVE AND DYNAMIC PORTUGUESE FINANCIAL MARKET ............... 220

3.3.1 Completed Law Reform and Key Implications ....................................................... 220 3.3.2 Consultation Papers .................................................................................................. 229

3.3.3 National Coordination for Supervising and Promoting Financial Stability ............. 230 3.4. INTERNATIONAL ACTIVITY ....................................................................................... 232 3.4.1. NYSE Euronext College of Regulators ............................................................................. 232 3.4.2 LCH.Clearnet ..................................................................................................................... 233

3.4.3 MIBEL ............................................................................................................................... 234 3.4.4 Credit Rating Agencies ...................................................................................................... 235 3.4.5 Participation in International Organisations ...................................................................... 236 3.4.5.1 European Systemic Risk Board ................................................................................ 236

3.4.5.2 IOSCO ...................................................................................................................... 238 3.4.5.3 ESMA ....................................................................................................................... 240 3.4.6 Other International Cooperation ........................................................................................ 245

3.5 FUTURE DEVELOPMENTS ........................................................................................... 246 ANNEXES .................................................................................................................................. 249


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LIST OF TABLES

Table 1 – MSCI International Share Indices ........................................................................................... 14 Table 2 – Market Capitalisation of European Share Markets ................................................................. 42 Table 3 – Public Offers for Sale and Initial Public Offers ...................................................................... 44 Table 4 – Trading Volume of Futures and Options Contracts per Region ............................................. 52

Table 5 – Number of Futures and Options Traded Contracts ................................................................. 57 Table 6 – Trading Volume of the Main Futures and Options Contracts per Type of Underlying Asset 59

Table 7 – Ranking of the Ten Key Derivatives Exchanges .................................................................... 60 Table 8 – Trading Volume of Futures and Options on the NYSE Euronext .......................................... 61 Table 9 – Assets under Management for Harmonised and Non-Harmonised CIUs in Europe .............. 62 Table 10 – Assets under Management of Harmonised CIUs in Europe ................................................. 65 Table 11 – Assets under Management of Non-Harmonised CIUs in Europe ......................................... 67

Table 12 – Net Subscription for Harmonised Collective Investment Undertakings per Fund Type in

2011 ................................................................................................................................................. 69

Table 13 – Comparative Weighting of Assets under Management by UCITS ....................................... 73 Table 14 - Average Bid-Ask Spread of Securities Listed on PSI20 ....................................................... 76

Table 15 – Yeild and Risk of Different Types of Financial Instruments ................................................ 85 Table 16 – Share Capital Yield, Dividend Distribution and Retention .................................................. 87 Table 17 – Dividend Distribution as a Percentage of Own capital of the Previous End-Year ............... 88

Table 18 - Variation of Assets per Financial Instrument Type (Total of Economy and Individual) ...... 89

Table 19 - Comparative Weighting of the Securities Market apropos Term Deposits and Savings

Certificates ...................................................................................................................................... 91 Table 20 – Liabilities Variation per Financial Instrument (Total Economy and Non-Financial

Companies) ..................................................................................................................................... 94 Table 21 - Investment Financing Source per Staff Ranking ................................................................... 96

Table 22 - Factors Limiting Investment in 2011 ..................................................................................... 96 Table 23 – Financing Structure of Asset Variation of Listed Companies .............................................. 99 Table 24 – Weighted Trend in Market Capitalisation ........................................................................... 100

Table 25 – Treasury Bonds ................................................................................................................... 112 Table 26 – Maturities and Weighted Rates of Treasury Bonds ............................................................ 113

Table 27 – Complex Financial Products Issued in 2011 ....................................................................... 114 Table 28 – Complex Financial Products Issued with or without Capital and remuneration Guarantee

....................................................................................................................................................... 115 Table 29 – Market Share per Issuer and Supplier of Complex Financial Products .............................. 119 Table 30 – Market Capitalisation .......................................................................................................... 121 Table 31 – Securities Trading in Secondary Markets ........................................................................... 122 Table 32 – Trading Volume of Euronext Lisbon .................................................................................. 123

Table 33 – Liquidity Benchmarks Trend in Shares Listed on Euronext Lisbon ................................... 124 Table 34 - Turnover per Market Sector ................................................................................................ 125 Table 35 – Trading on Futures Contracts.............................................................................................. 128 Table 36 – Takeover Bids ..................................................................................................................... 133 Table 37 – Public Offers for Sale.......................................................................................................... 136

Table 38 – Approval of Publicity Campaigns ....................................................................................... 137 Table 39 - Reception of Orders per Security ........................................................................................ 138

Table 40 – Volume of Orders Received per Derivative ........................................................................ 140 Table 41 – Volume of Orders Received on Behalf of Third Parties and Per Type of Investor ............ 142


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CMVM

Table 42 - Spot Market Trading per Type of Security .......................................................................... 149

Table 43 – Orders Executed per Derivative .......................................................................................... 149 Table 44 - Trading per Type of Market ................................................................................................ 150 Table 45 - Trading for Own Account per Security ............................................................................... 151 Table 46 - Trading for Own Account per Derivative ............................................................................ 152 Table 47 - Aggregate Data on Day-Trading ......................................................................................... 153

Table 48 - Day-Trading Distribution per Channel and Type of Investor ............................................. 153 Table 49 - Type of Security per Holder ................................................................................................ 154 Table 50 - Amount under Management per Type of Entity .................................................................. 155 Table 51 - Amount under Management per Type of Security .............................................................. 156

Table 52 - Investment per Country ....................................................................................................... 157 Table 53 - Aggregate Benchmarks of Foreign UCITS ......................................................................... 160 Table 54 – Portfolio Structure of Real Estate Investment Funds .......................................................... 161 Table 55 - Portfolio Structure of Securitisation Funds ......................................................................... 165

Table 56 – Venture Capital Companies Investment Portfolio .............................................................. 166 Table 57 – Venture Capital Funds Investment Portfolio ...................................................................... 167 Table 58 – Investment Stages of VCF & VCC ..................................................................................... 168

Table 59 - Auditors Reports concerning Securities and Real Estate Investment Funds ....................... 176 Table 60 – Winding up of Investment Funds per Reason ..................................................................... 181 Table 61 - Half-Yearly Information to be published ............................................................................ 190

Table 62 – Offers for Distribution of Closed-End Investment Funds................................................... 195 Table 63 – Securitisation Registration .................................................................................................. 196

Table 64 – Issuance of Securitised Bonds ............................................................................................ 196 Table 65 – Registration of Real Estate Appraisers ............................................................................... 197

Table 66 – Registration of External Auditors ....................................................................................... 198 Table 67 – Registration of Transactions ............................................................................................... 199

Table 68 – Administrative Infraction Proceedings ............................................................................... 200 Table 69 – Cases on Transactions Analyses and Investigation Completed in 2011 ............................. 204 Table 70 – Complaints and Infractions Instituted ................................................................................. 205 Table 71 – Complaints filed per Entity ................................................................................... 208

Table 72 – Total Complaints brought against Financial Intermediaries ............................................... 208 Table 73 - Resolution of Complaints against Financial Intermediaries Concluded in 2011 per Type . 209 Table 74 - Complaints Concluded in 2011 per Type of Financial Instrument ..................................... 211 Table 75 – Number of Announcements per Issuer via the CMVM Website ........................................ 214

Table 76 - Analysis of Advertising Campaigns of Products in Banking and Insurance Sectors

(including Complex Financial Products) ...................................................................................... 216


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LIST OF CHARTS

Chart 1 – Gross Domestic Product (GDP) .............................................. Error! Bookmark not defined. Chart 2 – Euro Exchange Rate Trend (End-Year) .................................. Error! Bookmark not defined. Chart 3 – Historic Volatility of the Morgan Stanley Capital International Indices in 2011 ........... Error!

Bookmark not defined. Chart 4 - Trend of the Implied Volatility of Share Indices (30-day) in 2011 ........Error! Bookmark not

defined. Chart 5 – Trend in the Implied Volatility VSTOXX Index Before (Left) and After (Right) the Financial

Crisis ............................................................................................... Error! Bookmark not defined. Chart 6 – Trend in the CDS Spread on 5-year European Public in USD Error! Bookmark not defined. Chart 7 – Correlation Coefficients of the Sovereign CDS Spread Variations apropos the Relevant Main

Primary Component and the iTraxx Europe Senior Financials Variation (2009-2011) ........ Error!

Bookmark not defined. Chart 8 – Correlation Coefficients of the Sovereign CDS Spread Variations apropos the Relevant Main

Primary Component (Left) and the iTraxx Europe Senior Financials Variation (Right) – 1-year

Moving Average ............................................................................. Error! Bookmark not defined. Chart 9 – Correlation between Price Difference Sovereign CDS, the Main Primary Component and the

iTraxx Europe Senior Financials Variation (Portugal and Germany) ...........Error! Bookmark not

defined. Chart 10 - Correlation between the CDS Spread Difference and the 5-year Treasury Bond Yield

Difference ........................................................................................ Error! Bookmark not defined. Chart 11 – Trend in the CDS Base and Loan Spreads ............................ Error! Bookmark not defined.

Chart 12 – Trend in the MSCI Europe and iTraxx Sovx Western Europe Indexes (left) and the

Correlation among the Relevant Differences (right)....................... Error! Bookmark not defined.

Chart 13 - PER in the Major World Indices (End of Period Values) ...... Error! Bookmark not defined. Chart 14 - PER of PSI 20 Companies (10-year Average versus

2011)………………………………..Error! Bookmark not defined.27

Chart 15 – EPS in Major World Indices ................................................. Error! Bookmark not defined. Chart 16 - Dividend Yield in Key World Indices (End of Period Values) ............Error! Bookmark not

defined. Chart 17 – Trend of Short-Term Interest Rate (3-Month) ...................... Error! Bookmark not defined.

Chart 18 - Internal Yield Rate of the 10-Year Public Debt Bond Index . Error! Bookmark not defined. Chart 19 – Annual Variation of Share Indices of European Securities Markets ...Error! Bookmark not

defined. Chart 20 - Share Trading Volume in the EU Securities Markets (Market Share) .Error! Bookmark not

defined. Chart 21 – PER of European Indexes ..................................................... Error! Bookmark not defined. Chart 22 – Trend in the European Index PBR ....................................... Error! Bookmark not defined. Chart 23 – Bond Trading Volume on EU Stock Exchanges (Market Share) ........Error! Bookmark not

defined. Chart 24 - Interest Rate Structure (Yield Curve) of Public Debt Securities in the Eurozone (10-Year)

......................................................................................................... Error! Bookmark not defined. Chart 25 – Trend in the Number of Traded Contracts ............................ Error! Bookmark not defined.

Chart 26 – Net Balance of UCITS and Special Investment Funds in Portugal (2011)……………… 52


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Chart 27 – Net Investment Balance of Investment per Type of Fund (2011) ........Error! Bookmark not

defined. Chart 28 – Number of Participants in Investment Funds in Portugal ..... Error! Bookmark not defined. Chart 29 - PSI20 Trend in 2011 ............................................................. Error! Bookmark not defined. Chart 30 – Trend in the Value, Volatility and Transactions of the PSI20 .............Error! Bookmark not

defined. Chart 31 – Trend of the PSI-20 Transaction Costs and the Value of the Main Primary Component

(Standardised Values) ..................................................................... Error! Bookmark not defined. Chart 32 – Average Correlation Coefficient and Annual Average Volatility of the PSI20 Index . Error!

Bookmark not defined. Chart 33 – Value-at-Risk of 10-day PSI20 – Historical Simulation Method ........Error! Bookmark not

defined. Chart 34 – Annual Difference of the PSI20 Company Pricing ............... Error! Bookmark not defined. Chart 35 – PSI20 Company PER (Average of Last 10 years apropos 2011).........Error! Bookmark not

defined. Chart 36 - PER MM5 (left) and Adjusted PER (right) of PSI20 securities (non-financial) ........... Error!

Bookmark not defined. Chart 37 - PER MM5 (left) and Adjusted PER (right) of PSI20 securities (financial) Error! Bookmark

not defined. Chart 38 - PBR PSI20 Companies .......................................................... Error! Bookmark not defined.

Chart 39 - Remuneração Acumulada de Diversas Aplicações Financeiras ...........Error! Bookmark not

defined. Chart 40 – Trend of the Weighting of Different Financial Instruments in the Total Amount of Financial

Assets held by the Total of Economu and by Individuals............... Error! Bookmark not defined.

Chart 41 – Trend in the Net Subscription of UCITS versus Term Bank Deposits and Savings

Certificates ...................................................................................... Error! Bookmark not defined.

Chart 42 - Investment Funding in Portugal ............................................. Error! Bookmark not defined. Chart 43 – Remuneration per Capital Factor in the Non-Financial Sector in Portugal Error! Bookmark

not defined. Chart 44 – Bank Loans (Other Monetary Financial Institutions) to Non-Financial Companies .... Error!

Bookmark not defined. Chart 45 – Short-term Debt and EBITDA Debt Ratios of Non-Financial Companies Error! Bookmark

not defined. Chart 46 – Ratio between Interest Paid and the Total Value of Loaning by Non-Financial Companies

......................................................................................................... Error! Bookmark not defined. Chart 47 - Ratio Trend between the Cash on Hand and the Book Value of Company Assets ....... Error!

Bookmark not defined. Chart 48 – Book Debt to Market Equity Ratio ....................................... Error! Bookmark not defined. Chart 49 – Book Debt to Book Equity Ratio .......................................... Error! Bookmark not defined. Chart 50 – Annual Trend of Interest Coverage (Non-Financial Companies) ........Error! Bookmark not

defined. Chart 51 - Value Trend of Share Issuance .............................................. Error! Bookmark not defined.

Chart 52 - Value Trend of Bond Issuance ............................................... Error! Bookmark not defined. Chart 53 - Bond Issuance per Type ......................................................... Error! Bookmark not defined. Chart 54 - Weighted Average Rate of 1st Coupon and 6-Month Euribor .............Error! Bookmark not

defined. Chart 55 – Monthly Trend of Trading Volume on Secondary Markets .. Error! Bookmark not defined. Chart 56 - Monthly Trading Volume Trend on the MEDIP ................... Error! Bookmark not defined.


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CMVM

Chart 57 – Monthly Trading Volume Trend on the PEX ....................... Error! Bookmark not defined.

Chart 58 – Trading Trend in the MIBEL Futures Market....................... Error! Bookmark not defined. Chart 59 – Trading Trends in Several Futures Markets .......................... Error! Bookmark not defined.

Chart 60 – PTEL and SPEL Trend (€/MWh) ......................................... Error! Bookmark not defined. Chart 61 – Types of Investment Recommendations ............................... Error! Bookmark not defined. Chart 62 – Supervision of Financial Information – Number of Adopted Actions .Error! Bookmark not

defined. Chart 63 - Financial Statement Analysis – Number of Issuers ............... Error! Bookmark not defined. Chart 64 – Auditors Opinion ................................................................... Error! Bookmark not defined. Chart 65 - Requests for Information to the CMVM and the appropriate Access Means Used ...... Error!

Bookmark not defined. Chart 66 – Consultation Papers ............................................................... Error! Bookmark not defined.

LIST OF TEXTBOXES

TEXTBOX 1 – ADJUSTED PER USING THE STATE-SPACE MODEL 30 TEXTBOX 2 – TRADING OF SHARES IN THE EURONEXT REGULATED MARKET 143 TEXTBOX 3 – OPEN-END REAL ESTATE INVESTMENT FUNDS 162

TEXTBOX 4 – ON-SITE SUPERVISION AT THE PREMISES OF THE SUPERVISED ENTITIES

173

TEXTBOX 5 – MODELS FOR RISK SUPERVISION 179 TEXTBOX 6 – STREAMLINING PROCEDURES FOR REGISTRATION AT THE CMVM 192

TEXTBOX 7 – COURT DECISIONS IN 2011: ADMINISTRATIVE INFRACTIONS 200 TEXTBOX 8 – COURT JUDGEMENTS IN 2011: CRIMES OF INSIDER TRADING AND

MARKET ABUSE 206 TEXTBOX 9 – INVESTOR PROTECTION IN COMPLEX FINANCIAL PRODUCTS 217 TEXTBOX 10 – EUROPEAN REGULATION OF THE OTC DERIVATIVES MARKET 223

TEXTBOX 11 – TRANSPOSITION OF UCITS IV DIRECTIVE 227 TEXTBOX 12 – EUROPEAN SYSTEMIC RISK BOARD 236 TEXTBOX 13 – IOSCO RESTRUCTURING 238


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LIST OF ANNEXED TABLES

Annexed Table 1 – Details of the Analysed Auditors Reports per Type of Financial Intermediary .... 269 Annexed Table 2 – Distribution per Type of Financial Intermediary on the Opinion Issued by Auditors

in the Report Certifying the Safekeeping of Clients Assets .......................................................... 269 Annexed Table 3 – The Distribution of Auditors that Issued Report Certifying the Safekeeping of

Clients Assets ................................................................................................................................ 269 Annexed Table 4 – Issuers Required to Provide Annual Information .................................................. 270 Annexed Table 5 – Entities providing Quarterly & Half-Yearly Financial Statements ....................... 270

Annexed Table 6 – Share Issuance per Public Company per Type of Share ........................................ 270 Annexed Table 7 – Share Issuance per Public Company and per Type of Offer ................................. 271 Annexed Table 8 – Primary Bond Market, per Type of Offer .............................................................. 272 Annexed Table 9 – Share Indices ......................................................................................................... 272 Annexed Table 10 – Share Sector Indices ............................................................................................ 273 Annexed Table 11 – Trading Volume on Euronext Lisbon per Type of Security ................................ 274

Annexed Table 12 – Distribution per Sector of Trading and Market Capitalisation of Shares ............ 275

Annexed Table 13 – Trading Volume on European Union Stock Exchanges (Shares) ....................... 276


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Annexed Table 14 – Trading Volume on European Union Stock Exchanges (Bonds) ........................ 277

Annexed Table 15 – Securities Admitted to Trading on Euronext Lisbon ........................................... 278 Annexed Table 16 - Securities De-Listed from Euronext Lisbon ....................................................... 278 Annexed Table 17 - Securities Suspended from Trading ..................................................................... 279 Annexed Table 18 - Trading in Futures Contracts ................................................................................ 281 Annexed Table 19 - Securities Deposited with the Central Securities Depository ............................. 282

Annexed Table 20 - Settlement via the Central Securities Depository ................................................ 283 Annexed Table 21 - Futures Trading on OMIP - Futures Contracts .................................................. 284 Annexed Table 22 - Volume of Orders Received per Reception Channel ......................................... 284 Annexed Table 23 - Order Turnover on the Spot Market on behalf of Third Parties, per Asset Type

....................................................................................................................................................... 285 Annexed Table 24 - Online Brokerage Turnover ............................................................................... 285 Annexed Table 25 - Share Trading Turnover ..................................................................................... 286 Annexed Table 26 - Futures Trading – Market Share .......................................................................... 286

Annexed Table 27 - Day-Trading Weight on Euronext Lisbon ............................................................ 287 Annexed Table 28 - Custodians of Securities ....................................................................................... 288 Annexed Table 29 - Value of UCITS and SIF Assets Managed per Management Entity .................... 289

Annexed Table 30 – UCITS and SIF: Weighting per Type of Asset in the Respective Capitalisation of

Euronext Lisbon ............................................................................................................................ 289 Annexed Table 31 – Products in the Banking and Insurance Sector .................................................... 290

Annexed Table 32 – Marketing of Foreign UCITS in Portugal ........................................................... 290 Annexed Table 33 - Value of Foreign UCITS per Entity in Portugal .................................................. 290

Annexed Table 34 - Value of Assets Managed per Real Estate Investment Fund Management Entity

....................................................................................................................................................... 291

Annexed Table 35 – Aggregate Benchmarks of Securitisation Funds ................................................. 292 Annexed Table 36 – Management Entities of Venture Capital Funds and Venture Capital Companies

....................................................................................................................................................... 293 Annexed Table 37 – Value Managed per Management Entity of Venture Capital Funds and Venture

Capital Companies ........................................................................................................................ 294 Annexed Table 38 – Investment by Venture Capital Companies per Economic Activity Classification

....................................................................................................................................................... 295 Annexed Table 39 – Investment by Venture Capital Funds per Economic Activity Classification ..... 295 Annexed Table 40 – Financial Intermediaries Registered with the CMVM ........................................ 296 Annexed Table 41 – Active Portfolio Management Companies Acting on Behalf of Third Parties .... 296

Annexed Table 42 – Financial Intermediation Activities registered at the CMVM ............................. 298 Annexed Table 43 – Administrative Procedures for Investment Funds in 2011 .................................. 299 Annexed Table 44 – On-Line Reception of Orders .............................................................................. 299

Annexed Table 45 – On-Line Marketing of Investment Funds ............................................................ 300 Annexed Table 46 – Investment Recommendations per Financial Intermediary ................................. 300 Annexed Table 47 – Five Major Issuers Subject to Investment Recommendations ............................ 302 Annexed Table 48 – Number of Communications carried out via the CMVM Website per Issuer – 20

Largest ........................................................................................................................................... 302

Annexed Table 49 – Number of Communications carried out via the CMVM Website per Investment

Fund Management Company – 20 Largest ................................................................................. 303 Annexed Table 50 – Consultation Papers ............................................................................................. 304 Annexed Table 51 – Summary of Major Issues covered in Complaint Proceedings ........................ 304


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1. SECURITIES MARKETS IN 2011

1.1. INTERNATIONAL SHARE AND BOND MARKETS

1.1.1. International Financial Markets

Contrariwise to 2010, the world share index, Morgan Stanley Capital International (MSCI) closed

with a negative variation. The 4.7% depreciation apropos the closing value of 2010 was essentially

due on the loss witnessed during the first half of the year (-4.2%) since in the second half, the drop was

less (-0.5%). The first half-year losses were due on the depreciation of the Pacific and Far East

regional indexes registering -11.0% and -30.8%, respectively. Less marked were the North American

(-3.4%) and the European (-1.7%) indexes. The depreciation of the second half-year resulted mainly

in the steep drop in Europe (-9.6%), since in the Pacific region, the loss was a mere -3.0% and the

other regional indexes witnessed a positive development.

Table 1 – MSCI International Share Indices

(Percentage Variation Index)

The Eurozone index was the one to display a steeper downturn in 2011 (-6.9%), albeit the Pacific and

Far East indexes also experienced negative variations.


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CMVM

In a long-term perspective, the evolution of the MSCI benchmarks show that apart from North

America, the international markets have further strayed from the levels prior to the financial crisis

following the Lehman Brothers downfall. The North American index is the closest to the pre-crisis

values, since for each invested Euro at end 2007 investors had managed 86 Euro cents in the last four

years. The Eurozone index is the farthest from cutting back on losses since for each invested Euro at

end 2007 investors managed only 59 cents at end 2011.

Given the Euro depreciation apropos the North-American dollar in 2011, the variation of the indexes in

dollars is more negative than that of those in Euro (in Table 1). If one uses the dollar as the calculus,

the Eurozone index devalues by 20.1% (in place of 17.6% showed by the index based on Euro prices).

The world index decreased 7.6% instead of the 4.7%.

The development of the financial markets is allied to the 2011 world economic slow-down which was

witnessed regionally in Europe, Unites States of America (USA) the main emerging countries of BRIC

(Brazil, Russia, India and China) and in Japan. The GDP growth slowed down in all the regions albeit

with a positive growth overall (only Japan’s slowdown expressed a negative GDP growth). The

emerging and developing countries registered a lower slowdown than Europe and the USA. The

overall EU economies registered an increase in the GDP except for Greece, Portugal and Slovenia.

Chart 1 – GDP Growth

Source: Eurostat, IMF, INE

Note: *Estimate; p-provisional

- 8.0%

- 6.0%

- 4.0%

- 2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2007 2008 2009 2010 2011 2012* Portugal Eurozone EU - 27 USA Japan Emerging and Developing Global


16

CMVM

The sovereign debt crisis in certain countries of the Eurozone caused monetary concern. Said is one of

the factors explaining the devaluation of the Euro apropos the main international currencies. The

selling pressure that increased in 2011 for public debt instruments in some Eurozone countries is

somewhat explained by the risk perception as regards public finance sustainability and the

macroeconomic reasons of said countries.

Said pressure was felt during critical times particularly in May when international political debates

took place concerning the Second International Financial Plan for Greece by the EU and the IMF, the

Financial Plan for Portugal and due to the instability registered in the Italian and Spanish debt markets

during the months of July and August.

Chart 2 – Euro Exchange Rate Trend (End-Year)

(Index 100 = 2008)

Source: Bloomberg

The end-year price of EUR/USD was 1.296, 3.0% less than in the corresponding time period in 2010.

This end-year price was the lowest since 2006. The Swiss Franc strengthened strongly in comparison

to the main foreign currencies including the Euro. This was due to the strong demand of said currency

amidst instability in the European and North-American markets. The Swiss Central Bank had to

actually take additional measures beginning September in order to restrain its currency appreciation so

as to avoid the negative consequences on the Swiss economy. The average daily value of the

EUR/CHF was 1.2329 in 2011 compared to a 1.381 value of the previous year.

As regards the volatility registered in the financial markets, the historic volatility of Europe and the

Eurozone in particular, registered higher figures than the rest of the other geographic areas, except for

60

70

80

90

100

110

120

130

140

2005 2006 2007 2008 2009 2010 2011

EUR/GBP EUR/USD EUR/CHF EUR/JPY


17

CMVM

March which was surpassed by the Pacific region and the Far East. These two regions registered

exceptionally high volatility values during March due to the upheaval caused the earthquake and the

tsunami in Tohoky, Japan. The chart of historic volatility (30 days), this tail event is seen as a peak

while in the 60-day volatility chart, the effect extends through to May.

The volatility peak in the North-American index is reasoned by the political crisis witnessed during

July which is linked to the political negotiation of the nation’s debt limit and consequently in the

decline in credit rating of USA public debt. In the beginning of August, for the first time ever, one of

the key rating agencies classified the USA below triple-A rating as regards public debt. Also in

August, due to market turbulence and aimed at decreasing financial companies’ price volatility, several

European countries banned any type of short selling.

In all, the average volatility (30-day monthly volatility value at end-period) in 2011 was higher than

during the previous year with an increase of 3.0 pp. on the North American index and 4.3. pp. in the

European index. The highest volatility intensified in the Euro zone during 2011.

Chart 3 –Historic Volatility of the Morgan Stanley Capital International Indices in 2011

Source: Bloomberg

Note: No data available for the MSCI Pacific on the 60-day volatility- Index excluded

0%

10%

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40%

50%

60%

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

30-day Volatility

World Index North America

Europe Euro-Zone

Pacific BRIC


18

CMVM

The 30-day volatility at end period (month)1 that reached the highest levels in September, October and

November crossed the 50% barrier in the Euro area due to the imminent noncompliance by Greece.

Due to the pressure of a macroeconomic setting and an unfavourable public finance situation, the rapid

yield increase in Spanish and Italian public debt markets that began in July/August, also contributed

towards the volatility increase. During these three months, the volatility spread was patent in the Euro

and World zones which denoted that the problems linked to the state debt crisis were far from being

resolved. Similarly to the previous year, 2011 was market by an overall atmosphere of uncertainty as

to world economic perspectives with fears of a double-dip, i.e. of a new economic recession soon after

an economic recovery stage.

The volatility's behaviour in the European EuroStoxx50 and S&P500 Indexes displayed in the

following chart shows the relation between the implied volatility (recorded in the month at hand) and

the historical volatility (recorded in the following month).

Chart 4 - Trend of the Implied Volatility versus Historic Volatility of Eurostoxx50 and S&P500

(30-day) in 2011

Source: Bloomberg and CMVM data.

1 The values shown in the Chart refer to the daily implied volatility on the last day of each month of the year, determined by the standard

deviation pattern of the underlying index variation against daily index variations during the 30 preceding days. The 60-day volatility is

calculated in the same way except for daily variation. Thus, the data does not correspond to the monthly average volatility


19

CMVM

Eurostoxx50 implied volatility2 was higher than the historical volatility (real) during nine months (end-

month value), except for July, August and October. Thus, during these months, the market turbulence

linked to the devaluation of the Italian and Spanish state debt was not anticipated by the market since

the implied volatility in the options traded on Eurostoxx50 did not include a volatility level as high as

what really occurred. As to the S&P500, a similar pattern occurred – a higher implied volatility than

the customary historical volatility albeit exception to this did occur at a different time. Said moment

was unsurprisingly the month of August due to the decrease in the USA risk rating down to triple A

and also following the previously mentioned USA debt-ceiling crisis.

Chart 5 - Trend in the Implied Volatility VSTOXX Index Before (Left) and After (Right) the Financial Crisis

Source: STOXX.COM

2 Data refers to the daily implied volatility at the last day of the month via the standard deviation of the variation pattern. The 60-day

volatility is calculated in the same way except for daily variation. Thus, the data does not correspond to the underlying index apropos the

daily variation of the index during the last 30 days.


20

CMVM

The VSTOXX volatility indexes allow for conclusion as to investor expectation. Prior to the subprime

crisis, the volatility period was consistent with a higher level of uncertainty for longer timeframes.

The occurrence of the financial crisis and the sovereign debt crisis in Europe were linked to a change

in the volatility structure. Thus, at the time of the Lehman Brothers bankruptcy and the Greek, Irish

and Portuguese requests for assistance, the shorter volatility timeframes (one month) were far higher

than the longer timeframes (one to two years) which show a higher level of short-term uncertainty than

at medium term. During the second half of 2011, a similar occurrence took place which was due on

the decrease in investor exposure to Italian and Spanish debt since fears of a possible default by

Greece were present, the drop in the public debt market liquidity and further yet to the sovereign

public debt issuance with shorter maturities (reflecting greater difficulties for financing at the time and

brought on additional difficulties for the rollover of said financing). Albeit reaching levels as high as

those witnessed during the period after the Lehman Brothers’ bankruptcy, the perceived volatility level

by investors also increased drastically during the second half of 2011. Said situation reversed at the

beginning of 2012 indicating a certain degree of foreseeable market composure – a prediction that

obviously requires validation.

Notwithstanding the volatility in the North-American and European markets, the USA and German

public debt witnessed a peak demand with the yields3 of these securities registering historic lows. The

same occurred with the public debt of Switzerland and Australia with historic low securities. Said

was due on the fact that these securities were perceived by investors as a safe haven asset during a

period of relatively high economic uncertainty as 2011 was as a whole. Said made investors, from a

certain point of view, more risk-wary and thereby opting for fixed-return assets albeit lower in

comparative terms.

The volatility increase in the Euro area also reflects an increase in sovereign risk, since the countries

with economic and financial support (Greece and Ireland) extended to include Portugal too. Overall,

the worse than expected behaviour of public finance of a set of EU member states and the United

Kingdom together with the economic growth slowdown of some of these countries underwrote the

increase in European public debt risk. Said risk contributed prominently towards market risk due to

spreading between the debt and share markets.

3 Yield - the income return rate of a bond (implied income return rate)


21

CMVM

As with the previous year, in 2011 the CDS market showed yet again abnormal patterns apropos prior

to the financial crisis. Between 2010 and 2011, all countries registered steep increases in the credit

default swap (CDS) spreads, particularly Italy and France, registering increases on 264.7 and 121.3

base points, respectively. The Portuguese CDS five-year US dollar spreads increased 593.1 base

points – the highest variation of the analysed countries4.

Chart 6 – Trend in the CDS Spread on 5-year European Public in USD

Source: Bloomberg; CMVM Data.

There is a strong link between the CDS spread variation of public debt of several countries. During

the period of early 2009 to end 2011, the first main component of the CDS spread variation for the

countries analysed explained 67.5% of the total variation which shows high links between several

countries, i.e. a high risk non-compliance association for several countries.

On the other hand, there also seems to be a strong correlation between the iTraxx Europe Senior

Financials index variation (global index that shows the non-compliance risk by European financial

sector companies) and the sovereign CDS spread variation which clearly reflects the sovereign risk

impact that it has in the financial sector.

4 The chart scales are different due to the CDS price magnitude of the set of two countries (albeit not entirely visible, the CDS prices of

the countries in Southern Europe are higher than those countries in the right side of the chart)

0

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01-01-2009 01-01-2010 01-01-2011

Spain Greece Italy

Portugal Ireland

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01-01-2009 01-01-2010 01-01-2011

Austria Belgium Germany


22

CMVM

One is thus able to conclude that the sovereign risk of several Euro countries show the same

behavioural tendency (the correlation of the CDS spread variation with the relevant first main

component is similar in several countries). This may suggest that systemic risk due to non-compliance

by states in this economic area may affect the remainder of the countries.

Chart 7 – Correlation Coefficients of the Sovereign CDS Spread Variations apropos the Relevant Main Primary

Component and the iTraxx Europe Senior Financials Variation (2009-2011)

Source: Bloomberg; Cálculos CMVM.

Note: Greece is not included since as from mid September 2011, CDS have not been traded.

However, the evolution of said correlations was dissimilar among countries (see Chart below). The

correlation for Greece, Ireland and Portugal are lower and have also dropped particularly during the

second half of the year due to the international economic and financial assistance programmes.5

Contrariwise, France witnessed an increase in the correlation as from the second quarter which then

intensified during the summer period.

5 In Greece’s case, the data ended 16 September 2011 since as from said date, CDS Greek Debt CDS were no longer traded.

0

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1st Main Component iTraxx Financials


23

CMVM

Chart 8 – Correlation Coefficients of the Sovereign CDS Spread Variations apropos the Relevant Main Primary

Component (Left) and the iTraxx Europe Senior Financials Variation (Right) – 1-year Moving Average

Source: Bloomberg; CMVM data.

Nota: Correlations calculated by daily moving averages for one year.

The evolution of non-compliance risk in the financial sector exemplifies the contagious effect of the

sovereign debt crisis. In early 2010, the correlation between the sovereign CDS price variation and the

iTraxx Europe Senior Financials index was minimum in all the cases and increased gradually

particularly during the second quarter after the request for assistance by Greece. In 2011 after the

summer period, said correlation increased again in all the countries due to the high turbulence in the

Spanish and Italian markets. In both cases, the contribution given by the Greek and Portuguese

international requests for assistance, are clearly evident.

Said spreadable effect actually extended to the major countries in the Euro zone such as Germany.

The German public debt kept relatively immune at the time of the international requests for assistance

but said was not witnessed in the financial sector.

0,45

0,55

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0,95

29

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Germany Spain France Greece

Ireland Italy Portugal

0,2

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29-01-2010 29-01-2011 29-01-2012

Germany Spain France

Greece Ireland Italy

Portugal


24

CMVM

Chart 9 - Correlation between Price Difference Sovereign CDS, the Main Primary Component and the iTraxx

Europe Senior Financials Variation (Portugal and Germany)


Note: Correlations calculated by daily moving averages for one year.

As regards the correlation among the CDS spreads and the 5-year Treasury bond yields, some worthy

changes also took place. Until end 2009, said correlation (among the different series, since the original

series are variable) was low and even negative in some cases. During the last quarter of 2009, the first

signs of worry were evident in the financial markets due to the Greek situation and a dramatic increase

occurred in the correlation between the two series for Greece as well as for Portugal, Spain and Italy.

A different situation occurred in France and Germany. Germany showed a drop in the series

(differentiated) correlation for CDS spreads and 5-year Treasury bond yields. The risk spreads of

German debt did not increase as much as the Euro countries. Simultaneously a drop in risk-free

interest rates occurred in the Euro area due to the ECB’s intervention which justifies the negative

correlation among the two series. France’s correlation between the two series followed close to

Germany until the last quarter of the year when the situation back-tracked following the drop rating

outlook for France which came to be in early 2012 when it lost its triple A rating.

0,2

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Germany (CDS vs 1st Factor)Portugal (CDS vs 1st Factor)Germany (CDS vs iTraxx Fin. [Sub])Portugal (CDS vs iTraxx Fin. [Sub])


25

CMVM

Chart 10 – Correlation between the CDS Price and the 5-Year Treasury Bond Yield Variations

Source: Bloomberg and CMVM data

Note: Correlation using daily moving averages for a year

The ‘base’ reflects the difference between the CDS contract sprices and the bond credit spread. In

theory, if markets are efficient and default-risk free, transaction costs and liquidity asymmetries

between the two markets, the base value will be close to zero since the CDS prices and the credit

spreads show a credit risk price of the reference entity. With the exception of Greece and Portugal, the

CDS sovereign contract base kept positive during the last four years, varying from zero to two

percentage points which show that the default risk of CDS prices, their liquidity and transactions costs

contribute to the fact that CDS prices are a tad higher than treasury bond credit spreads.

-1

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Belgium France Germany Greece

Italy Portugal Spain


26

CMVM

Chart 11 – Trend in CDS Base and Credit Spreads


In Portugal’s case, the base showed negative value as from the second quarter of 2011which coincided

with the implementation of the EU and IMF financial and economic assistance programme. During

the last quarter of 2011, the base was -3 percentage points when the remainder of the countries showed

values betwenn 0.8 and 1.9 percentage points. Said is due of the significant drop in liquidity of the

special public debt market (MEDIP) and to the increase of the relevant costs during a period wherein

the CDS market was growing more important. As to Greece, the CDS contract base registered its

lowest value in the first quarter of 2011 (negative and lower than one percentage point) and increased

considerably during the year when a possible restricting of sovereign debt in this country was under

discussion.

Several measures were taken internationally in order to solve the Euro debt crisis. These included

additional financial support for Greece and financial assistance programme for Portugal by the EU and

the IMF, financial stability tools and measures related to the economic governance of the European

Union.

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rce

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France

Germany

Greece

Italy

Portugal

Spain


27

CMVM

Additional measures included ECB action aimed at stabilising public debt markets in certain Member-

States and increasing the liquidity of the financial system. Financial institutions in the Euro zone were

faced with difficulties in obtaining liquidity and concurrently with adopting rules for improving

solvency via increasing own capital. The complex relation between financial problems in certain

European economies and the frailty of the banking systems (confirmed by numerous support assistance

programmes for States) explain the set of adopted measures.

Besides the effect from the non-compliance risk of the financial sector and considering the share

market at this time, the sovereign debt crisis did have a certain degree of impact on the price at which

the shares were traded overall of European listed companies. Since January 2009 one has witnessed a

back-track trend in the MSCI Europe and iTraxx Sovx Western Europe indices. These two indices

demonstrate a -0.688 correlation for the timeframe as from the beginning of 2009 and the end of 2011.

The profitability correlation of the two indices changed significantly from the first to the second half of

2011. Said period reached the highest value of the last three years which indicated a higher link

between the shares and sovereign debt markets during a period of high uncertainty in Europe.

Chart 12 – Trend in the MSCI Europe and iTraxx Sovx Western Europe (left) and Correlation between the

Relevant Variations (right)


0

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2011

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28

CMVM

As to the weighted prices practiced in the shares market, the PER of the main world indices (S&P500,

FTSE100, MSCI ME and Nikkei225) maintained the descent trend witnessed during the previous year.

Between the last day of 2010 and that of 2011, the PER of the FTSE100 and the Nikkei225 dropped

27% and 20%, respectively. The PER drop was not the evident in the USA and in the emerging

markets.

The steepest negative variations of the PER were seen in the third quarter and were mostly due to the

drop in share prices of the relevant indices (negative variations over two number, between 11% and

14%) since the results (per share) of the companies during the third quarter showed a certain degree of

stability (variations between -4% and 3%).

Chart 13 - PER in the Major World Indices (End of Period Values)

The trend observed during the entire year shows a decrease in the deadline that is required for

recovering investment in the analysed indices’ shares which improves investment outlook in the those

share markets. Despite the world and European economy slowdown in 2011, companies registered

positive results which contributed towards the PER decrease.

Chart 14 illustrated the average 2011 PER trend apropos the average PER for the last decade. The

indices’ annual PER are lower than the relevant historic average. In other words, in relative terms and

in comparison to previous years, the values of this class of assets are lower than during the last 10

years.

Source : Bloomberg

0

5

10

15

20

25

30

35

2009 2010 Mar-11 Jun-11 Sept-11 Dec-11

PER

S&P 500 NASDAQ FTSE 100 NIKKEI 225 MSCI ME


29

CMVM

Chart 14 – Average 2011 PER versus the average PER during the last 10 Years (End-period Values)

Source: Bloomberg (CMVM data)

The high difference in the values of the average PER for 2011 (23) and the last ten years (52)

registered on Nasdaq is greatly due to the events of the beginning of the millennium at the time of the

corporate technology crisis.6 The distance between the recent PER and the average PER of the last

years narrowed in 2011 since the effect that the crisis had on the first years of the decade (in 2001,

2002 and the major part of 2003 and the EPS, were negative) fades and this decreases the historic

average PER value. Similarly to Nasdaq, Nikkei225 also registered a rather high difference between

the year PER (18) and the historical PER (63), albeit for difference reasons. In said case, the PER

value in 2011 for the Japanese market suggests that after several years of ongoing depreciation of

market prices and economy inertia that limited corporate profit (in some cases with notorious results in

the high 10-year historical PER value), the value for said benchmark returned to a certain degree or

normalcy.

6 PER ratio is the ratio of the share price and the results thereof, when the results are negative and the ratio is not calculated. Therefore,

the PER was not calculated for NASDAQ in 2001, 2002 and part of 2003. The same occurred for Nikkei during part of 2009 and 2010.

0%

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Last 10 years (a) Average 2011 (b) (b)/(a)


30

CMVM

TEXTBOX 1 – ADJUSTED PER USING THE STATE-SPACE MODEL

The price-earnings ratio adjusted to the (PER*) cycle, known in financial literature as Cyclically

Adjusted Price-Earnings (CAPE), is obtained by dividing the stock price of a particular company and

the earnings per share adjusted to the economic cycle, namely:

where is the price of each share at the time of t and of the adjusted results. One of the methods

proposed in the literature, and probably the best known for making results adjustment is calculating

moving averages for each year of the results of the previous ten years.7 This method, although simple

and practical, does have certain drawbacks.

Above all, it is hard to picture that for the calculation of adjusted results of the current period, results

attained ten years ago have the same importance as the immediately preceding year. What one aims to

obtain by adjusting the results adjustment to the economic cycle is to isolate certain information from

the series of results in order to remove short-term variability and obtains a series with a trend that is

less volatile, evener and more consistent with the principles of the results.

An alternative to moving averages is the use an unobservable components model (also called state-

space model) for the breakdown of the results into two components: tendency (or long-term

outcomes/balance), and cycle (representing the excess apropos the equilibrium value, related to

cyclical developments). According to the traditional trend-cycle decomposition state-space model8, the

results (logarithm) at t may be broken down to reflect a long-term trend (adjusted earnings)

and a component that reflects a short-term trend (or cyclical) :-

7 Introduced by Campbell, J. Y. e Shiller, R. J. (1988), Stock Prices, Earnings, and Expected Dividends, The Journal of Finance, Vol. 43

(3), pp. 661-676. 8 Refer to Watson, M. W. (1986), Univariate detrending methods with stochastic trends, Journal of Monetary Economics, Vol. 18 (1),

pp. 49-75; Clark, P. K. (1987), The Cyclical Component of U.S. Economic Activity, Vol. 102 (4), pp. 797-814; Campbell, J. Y., e

Mankiw, N. G. (1987), Permanent and transitory components in macroeconomic fluctuations, American Economic Review, Vol. 77 (2),

pp. 111-117; Montagné, F. (2007), Are Stockmarkets overvalued?, Trésor Economics nº 22; e Basistha, A e Kurov, A. (2010), Estimating

earnings trend using unobserved components framework, Economics Letters, Vol. 107 (1), pp. 55-57.


31

CMVM

Since e are unobservable, it is necessary to specify a law of motion that describes its behavior.

It is assumed that the results adjusted at t depend on the results adjusted at t-1 as well as its growth

rate:

where represents the growth rate of the adjusted earnings.

Similarly, it is assumed that the growth rate follows a random path, as so:

where is a residue which is seen as normally distributed with 0 average and a .

It is assumed also that the short-term component (cyclic) of the results follows a first-order

autoregressive stationery process and follows a first order stationary:

where is a residue which is seen as normally distributed with 0 average and a .

If , then is the percentage deviation of the results compared to its trend.

The model may be redefined by the following state-space format:

Measurement Equation: [ ] [

]

Transition Equation: [

] [

] [

] [

]

Distribution of Innovations: (

) ([ ] [

])


32

CMVM

The parameters estimate {

} is performed by Maximum Likelihood, resorting to the Kalman

Filter for forecasting the unobservable components [ ] , as well as the construction of the

likelihood function (via decomposition of the forecast error) for maximization.9

The model was applied to PSI 20 earnings and to certain world share indices (DAX, CAC40, IBEX 35,

FTSE 100 and S & P500). For the purpose of greater forecasting efficiency the maximum possible

historic series were used despite the fact that resulting in inconsistencies in the beginning dates of the

data series.

The estimate was performed with monthly data (end of month) for each of the indices and the results

are shown in the chart that follows. It also shows the results of using five-year moving averages10 for

comparison purposes.

The results indicate that the adjusted PER via the moving average shows a higher variability than the

adjusted PER via the state-space model. In order to test whether the largest amplitude of the results

(former case) is due to the use of only five years on the moving average calculation, the adjusted PER

of each index was recalculated using a moving average of the last ten years. The unreported results

show a reduction in the variability and amplitude of the PER and there is a better comparison with the

adjusted PER by using the state-space model. Albeit, there is a significant drop in the number of

adjusted PER observations for the PSI20, DAX and CAC40 since it was necessary to use additional

observations for calculating the ten-year moving average.

9 See Hamilton, J. (1994), Time Series Analysis, Princeton University Press for a thorough description of the Kalman filter. In the

estimation of the model the parameter was calibrated so as to ensure an appropriate adjustment level of the earnings series. The

adjusted earnings series that was used is obtained by the used corresponds to the adjusted results obtained by the Kalman smoother

recursions i.e. all the information in the sample was used. 10

Five-year moving averages are used instead of 10.year as is common procedure due to the minute size of certain historic time series.


33

CMVM

Adjusted PER via the Moving Average and the State-Space Model

Overall, based on the two methods, the PER’s evolution based is consistent. Note the significant

correction of the valuation of the equity markets over the years of 2007 and 2008, following the

financial crisis. The year 2009 was characterized by a reversal of the downward trend, with the

exception of the FTSE100 PER adjusted via the model state space. The sovereign debt crisis in Europe

started in 2010 and worsened during the year resulting in a new, albeit less intense, drop in the

adjusted PER, with the PER dropping below its historical average that showed some market

underrating. In the case of the Portuguese market, the correction was more pronounced since the

adjusted PER of PSI 20 showed in 2006 and 2007, the highest among the analysed markets, something

did not occur by end 2011.

Except for the emerging markets index, the earnings per share (EPS) increased during the year. The

FTSE100 registered the highest growth apropos the share gains (28.4%) followed by S&P500 and

NASDAQ (circa 10% each). The EPS of the Japanese market gained a mere 2.4% which may be

explained by the specific circumstance surrounding the earthquake that hit the country causing huge

economic damage. Only the MSCI Emerging Markets (MSCI EM) registered a negative variation (-

2.7%) in the EPS.

Within a context of economic growth like the one experienced in the main emerging countries in 2011

(namely the BRIC that registered growths of 2.9% (Brazil), 4.1.% (Russia), 7.4% (India) and 9.2%


34

CMVM

(China) 11, one would expect growth in the corporate results of these countries and consequently a

positive variation in the EPS value. Such was not the case though – a possible explanation would be

that of an increase in the corporate capital base instead of debt usage which led to the reduction of

gains per share.

Chart 15 – EPS in the Main World Indices (Index 100=2009)

The other price benchmark for shares is the dividend yield derived from the ratio between the dividend

and share price. Said benchmark may increase due to the augment of the dividends or via the drop in

prices. In 2011, the dividend yields increased overall due mainly to the price variation in the indexes

between end 2010 and end 2011 which was null (S&P500) or negative (MSCI ME, -20,4%,

Nikkei225, -17,3%, FTSE100, -5,6%, e Nasdaq, -1,8%). The FTSE100 showed the highed dividend

yield and finished the year with 4% - an additional pp. apropos 2010.

11

IMF - World Economic Outlook (WEO) database, January 2012.

-300

-200

-100

0

100

200

300

400

500

2009 2010 mar-11 jun-11 set-11 dez-11

EP

S

S&P 500 NASDAQ FTSE 100

NIKKEI 225 MIB 30 DAX 40

CAC 40 IBEX 35 PSI 20


35

CMVM

Chart 16 - Dividend Yield in the Main World Indices (Values at the End Period)

The debt market is an alternative path for company financing. The interest rates in interbanking

markets limit the remuneration rates of the instruments issued by companies that finance themselves in

the debt market. The short-term interest rates (three months) had different types of growths during the

year, albeit demonstrating lower levels at the end of the year. In the regions shown on the chart that

follows, Switzerland had a lower rate at the end of 2011 which is certainly due on the monetary policy

adopted by the Central Bank of Switzerland which inclined to position 3-month LIBOR at an interval

between 0% and 0.25%.

Source : Bloomberg.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2009 2010 Mar-11 Jun-11 Sept-11 Dec-11

Div

iden

d Y

ield

S&P500 NASDAQ FTSE100 NIKKEI225 MSCI ME


36

CMVM

Chart 17– Trend of Short-Term Interest Rates (3-month)

Source Bloomberg.

Note: End of Period Values. LIBOR Rates as per the British Bankers Association.

The internal yield rate of public debt in major developed economies recorded decreases compared to

the previous year’s figures. The U.S. and UK were the countries whose rates of return of public debt

declined most (decrease of 1.42 percentage points each), followed by Germany (decrease of 1.13

percentage points). The resource investment in debt advanced countries worked alternatively perceived

as safer in an environment of relatively high volatility in international equity markets and the debt

markets of some countries in the Euro zone hit by budgetary and financial crises more acute. The

demand for German government bonds was so high that the internal rate of return (IYR) of shorter-

term debt, three and six months, came to losses in December.

0%

1%

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6%

7%

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3

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t-1

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-11

Euro USD GBP JPY CHF


37

CMVM

Chart 18 – Internal Yield Rate of the 10-Year Public Debt Bond Index

Source: Bloomberg.

The Euro-zone monetary policy underwent to distinct stages during the year. During the first half

(roughly) emphasis was given to the combat against inflationary pressures that were felt in several

European countries, which led to two increases in fixed interest rate for the main refinancing

operations12

by the ECB - began the year at 1% and ended the first-half at 1.5%. During the second

stage as from mid-July, due to symptoms of slowdown in the economic activity in Europe, the ECB’s

intervention was directed at increasing liquidity and held two drops in the mentioned primary rate,

ending the year at 1%. The rate of return on deposits began and ended the year at 0.25%, after reaching

a peak of 0.75% in mid-July, at which time it gave the inflection of the monetary policy stance. The

marginal lending rate reflected the described policies, ending the year at 1.75%.

Besides the usual liquidity management operations, the ECB used special measures for monetary

policy, called non-standard measures, which to date had not been taken, namely: i) the granting of

loans without limit allocation of funds and for a period of three years (before the deadline was one

year) to financial institutions of the Economic and Monetary Union (EMU) - Long-Term Refinancing

Operations (LTRO) for three years, beginning in December - which aimed to allow access funds by

institutions, aiming in particular at those faced with liquidity problems and financing in general, ii)

under the policy of collateral accepted by the ECB as collateral in Eurosystem credit operations, the

range was extended to include assets accepted as collateral to include credit portfolios of clients (and

mortgage companies) by fulfilling requirements that ensure a preset standard quality that might be

12

Main Refinancing Operations (MRO)

0%

1%

2%

3%

4%

5%

mar-10 jun-10 set-10 dez-10 mar-11 jun-11 set-11 dez-11

Euro-zone USA United Kingdom Japan


38

CMVM

"reduced" directly in refinancing operations13

, iii) a new stage of the program of purchases of covered

bonds was launched in November (including bonds), the Covered Bond Purchase Programme (CBPP)

2 with a limit of 40 million Euros, to run in the primary or secondary market, until October 2012, to

facilitate the conditions of access to finance for financial institutions and businesses, iv) the program to

purchase securities in the secondary market was maintained (Securities Market Programme) which

allowed the purchase by the ECB's of government debt instruments of countries that were subject to

strong selling pressure, with the aim of containing the disparities between sovereign CDS and yields

within the Euro area, promoting financial stability. In late 2011, the Eurosystem had acquired bonds

under the program with a total amount paid of circa 211 400 million.

1.1.2. Share and Bond Markets in the European Union

Share Markets

Apart from Iceland and Ireland that registered slightly positive variations in the indices, none of the

other major European market indices was considered in 2011. The most significant losses were

registered in Cyprus and Greece with -72% and -60%, respectively. Said were followed by the most

penalised markets with respect to price drops as with the Austrian market (-35%) and those countries

that were most affected by the sovereign debt crisis, like Portugal and Italy. The market indices of

Lithuania, Luxembourg, Finland and the Czech Republic registered price variations similar to the

Portuguese and Italian indices. Even those markets whose economies had a positive performance in

2011 both in terms of product growth and in the efforts to consolidate public finance, witnessed slight

depreciation in the relevant indices.

The price decrease in the share markets was largely due to the turbulence of the sovereign debt crisis in

several Euro countries. The effects therefrom spread not only to European markets but to international

markets too. The market depreciation was mainly motivated by the price drop in the financial and

construction and materials sector companies.

13 The credits must have an acceptable credit rating to investment level high (but not necessarily the highest rating), cannot be entered in

default, cannot result from transactions structuring and syndication of loans and credits cannot be leveraged.


39

CMVM

Investors increased their risk wariness as to share public debt markets in countries with lower credit

quality standing and opted to invest in treasury bills of issuers of certain economies considered as ‘safe

havens’ (Germany, United Kingdom, Switzerland, Australia and the EUA despite its high government

deficit and debt), as well as in assets that were less linked to the share markets.

Chart 19 – Annual Variation of Share Indices of European Securities Markets

(2009 a 2011)

Source Bloomberg.

A decrease in liquidity was also in tune with falling prices. The value of shares traded on the main

markets of 27 countries of the European Union fell 3.1% apropos the previous year. Collectively, the

Group LSE (London Stock Exchange and Borsa Italiana) continued to be the platform with the largest

value traded in all 27 EU equity markets (share 30.6%). However, this value was 3.0% less than in

2010.

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-60

-40

-20

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Ger

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Au

stria

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Cyp

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an

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Ita

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Leto

nia

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an

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bou

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a

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Pola

nd

Portu

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l

Un

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Rom

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Sw

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d

Per

cen

tage

2009 2010 2011


40

CMVM

The NYSE Euronext, the second largest group of European trading platform markets, showed 24.9%

of the value traded in equities and displayed a smaller decrease in liquidity (-0.1%). The Nasdaq OMX,

formed by six stock markets in the Nordic region of Europe14

, is the third largest group of European

equity markets and was responsible for 9.7% of the value traded in 2011 (+1.0% during the previous

year).

The CEESEG15

, another group comprised of several European trading platforms, recorded only 0.9%

of the traded value and a reduction of liquidity of 18.2% during 2010. Together, these four groups

totalled a market share of almost two-thirds of the value of shares traded in the 27 EU Member States.

Individually, the top five European markets - UK, Germany, France, Spain and Italy - totaled 79.9% of

the value traded in shares in 2011, a percentage that has remained unchanged apropos 2010. On

Euronext Lisbon, the value traded in shares declined 29.1% and represented only 0.4% of total traded

volume in 2011 in the share markets in the 27 countries of the EU (0.6% in 2010). As with previous

years, the trading conducted outside the central order book (OTC) on PSI 20 index companies was

quite significant in 2011. According to Thomson Reuters, the value of the shares traded on PSI 20

shares on Euronext Lisbon, accounted for only 47.1% (33.600 billion Euro) of the total traded amount

on these shares in 2011 (71.4 billion euros). On the Markit BOAT, OTC platform for transaction

reporting that allows MTFs and investment companies to fulfill transparency rules imposed by

Markets in Financial Instruments Directive (MiFID), 38.1% (27.2 billion euro) was registered of the

total shares traded on the PSI 20 in 2011.

14The NASDAQ OMX is formed by a set of seven different stock markets, Helsinki (Finland), Copenhagen (Denmark), Stockholm

(Sweden), Iceland (Iceland), Tallinn (Estonia), Riga (Latvia) and Vilnius (Lithuania). However, Iceland is integrated in the 27-European

markets, and therefore is not considered in the analysis. 15 The CEE Stock Exchange Group is formed by a set of exchanges from four EU countries: Austria, Slovenia, Hungary and the Czech

Republic.


41

CMVM

Chart 20 - Share Trading Volume in the EU Securities Markets (Market Share)

Sources: FESE, NYSE Euronext, NASDAQ OMX and Borsa Italiana.

Note: "Others" includes the amount transacted in the 11 principal exchanges in the EU (Ireland, Romenia, Slovenia, Cyprus, Bulgaria,

Estonia, Lithuania, Luxembourg, Slovakia, Latvia and Malta).

The market value of the companies admitted to trading (market capitalisation) in the exchanges of the

27 member states fell 8.0%. However, in five of these markets there was an increase in market

capitalisation in part as a result of the listing of new companies as a result of the privatisations (via

IPOs).

-50,0

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-30,0

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E (

UK

)

DB

& B

S (

Ger

man

y)

NY

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(F

rance

)

BM

E (

Spai

n)

Bors

a It

alia

na

(Ita

ly)

NY

X A

mst

erdam

(H

oll

and)

NA

SD

AQ

OM

X -

Sto

ckho

lm…

NA

SD

AQ

OM

X -

Hel

sink

i…

NA

SD

AQ

OM

X -

Co

pen

hag

en…

NY

X B

rux

elas

(B

elg

ium

)

WS

E (

Po

land

)

CE

ES

EG

- V

ienn

a (A

ust

ria)

NY

X L

isb

oa

(Po

rtug

al)

AE

(G

reec

e)

CE

ES

EG

- P

rag

ue

(Cze

ch R

ep.)

CE

ES

EG

- B

udap

est

(Hu

ngar

y)

Oth

er

Va

ria

tio

n o

f th

e A

nn

ua

l T

urn

ov

er

Ma

rket

Sh

are

2010 Share 2011 Share

% %


42

CMVM

Amid those countries whose exchanges have a higher shareholder capitalisation - UK, Germany,

France and Spain - only the London Stock Exchange registered a positive growth apropos the previous

year, contributed by the fact that there were public offerings of companies (new and others already

admitted to the market) in the amount of 14.1 billion Euro. The French and German market places, the

second and third largest, respectively, in Europe in terms of shareholder capitalisation, registered a

decline for this benchmark in the double-digit rate (-16.1% and

-14.4%, respectively).

In 2011, market capitalisation was more pronounced in the Greek equity market. Despite the fact that

there were public offerings of companies admitted to the market (worth 3.3 billion euros), the

shareholder capitalisation of the Greek market place dropped 48.4% (-35.8% in 2010), due to the steep

decline in share prices (the most representative market index depreciated 60% in 2011).

Table 2 – Market Capitalisation of European Share Markets

Unit: 10^6 Euro

Exchange (Country) Amount on 31-12-

2010

Amount on 31-12-

2011

Athens Exchange (Greece) 50.378,9 26.019,9 -48,4%

BME - Spanish Exchanges (Spain) 873.329,3 794.169,7 -9,1%

Borsa Italiana (Italy) 425.098,9 331.762,7 -22,0%

Bratislava Stock Exchange (Slovakia) 3.379,5 4.183,4 23,8%

Bucharest Stock Exchange (Romania) 9.776,3 10.817,7 10,7%

Bulgarian Stock Exchange (Bulgaria) 5.498,5 6.358,4 15,6%

CEESEG - Budapest (Hungary) 20.624,4 14.630,3 -29,1%

CEESEG - Ljubljana (Slovenia) 6.994,4 4.872,8 -30,3%

CEESEG - Praue (Czech Rep.) 31.922,2 29.203,2 -8,5%

CEESEG - Vienna (Austria) 93.944,2 65.683,1 -30,1%

Cyprus Stock Exchange (Cyprus) 5.094,3 2.197,9 -56,9%

Deutsche Börse & Boerse Stuttgart (Germany) 1.065.712,6 912.420,5 -14,4%

Irish Stock Exchange (Ireland) 44.998,5 83.495,3 85,6%

London Stock Exchange (UK) 2.268.022,1 2.527.936,6 11,5%

Luxembourg Stock Exchange (Luxembourg) 75.381,2 52.093,4 -30,9%

Malta Stock Exchange (Malta) 3.125,9 2.641,3 -15,5%

NASDAQ OMX - Copenhagen (Denmark) 177.574,0 142.277,5 -19,9%

NASDAQ OMX - Stockholm (Sweden) 471.764,6 392.320,0 -16,8%

NASDAQ OMX - Helsinki (Finland) 166.954,2 117.140,6 -29,8%

NASDAQ OMX - Riga (Latvia) 941,6 825,5 -12,3%

NASDAQ OMX - Tallin (Estonia) 1.684,7 1.241,2 -26,3%

NASDAQ OMX - Vilnius (Lithuania) 4.219,8 3.139,3 -25,6%

NYX Amsterdam (Holland) 356.982,7 302.781,9 -15,2%

NYX Brussels (Belgium) 201.740,6 177.162,4 -12,2%

NYX Lisbon (Portugal) 65.744,0 51.123,7 -22,2%

NYX Paris (France) 1.396.985,0 1.171.680,4 -16,1%

Warsaw Stock Exchange (Poland) 141.918,4 107.483,0 -24,3%

TOTAL 7.969.790,7 7.335.661,5 -8,0% Source FESE, EURONEXT, NASDAQ OMXn and Borsa Italiana.


43

CMVM

The total value of public share offerings (public sale offerings - OPV - and Initial Public Offerings -

IPOs) admitted to trading on the markets of 27 EU countries, increased by 25.5% in 2011 (a total of 86

600 million Euros). The initial public offerings (new companies to be admitted to the market), were

only carried out in ten markets and amounted to 25.4 billion Euros (+7.9% than in 2010). The Spanish,

Italian, Irish and UK markets, were the main contributors to the admission of new issues of shares

already admitted to trading companies (OPV), with a total of 61,194,100,000 euros (+34.6% than in

the previous year).

The Spanish market was the most dynamic in both public offerings. The total amount involved in these

deals was circa 37.7 billion euros (equally divided between OPV and OPI) and represented 43.6% of

the total public offerings in 2011 admitted to trading on EU markets. During a year when the European

banking was heavily penalised on the exchanges due to fears surrounding the sovereign debt crisis,

Madrid's main market was the subject of an important set of new admissions, examples of which are

banks Bankia and Banca Civica, as well as IAG (airline which resulted from the merger of Iberia and

British Airways, and was also listed in London).

In aggregate terms, NYSE Euronext recorded a significant reduction of the offers listed for trading, as

only on Euronext Paris held an initial public offering with a value of 56.5 million Euros. There were

no IPO or IPS in the other three European trading platforms of this group.


44

CMVM

Table 3 – Public Offers for Sale and Initial Public Offers

Unit: 10^6

Euro

Exchange (Country) 2010 2011 %

OPV OPI Total OPV OPI Total (2010-11)

Athens Exchange (Greece) 3.880,0 1,0 3.881,0 3.316,0 0,0 3.316,0 -14,6

BME - Spanish Exchanges (Spain) 14.164,0 13.780,0 27.944,0 18.901,0 18.838,0 37.739,0 35,1

Borsa Italiana (Italy) 6.809,5 2.328,3 9.137,8 12.544,2 588,9 13.133,1 43,7

Bratislava Stock Exchange (Slovakia) 26,0 7,0 33,0 17,0 0,0 17,0 -48,5

Bucharest Stock Exchange (Romania) 113,0 0,0 113,0 642,0 0,0 642,0 468,1

Bulgarian Stock Exchange (Bulgaria) 90,0 0,0 90,0 101,0 0,0 101,0 12,2

CEESEG - Budapeste (Hungary) 36,0 245,0 281,0 59,0 29,0 88,0 -68,7

CEESEG - Ljubljana (Slovenia) 1,0 0,0 1,0 138,0 10,0 148,0 14.700,0

CEESEG - Prague (Czech Rep.) 0,0 0,0 0,0 0,0 0,0 0,0 -

CEESEG - Vienna (Austria) 754,0 19,0 773,0 894,0 366,0 1.260,0 63,0

Cyprus Stock Exchange (Cyprus) 346,0 0,0 346,0 488,0 0,0 488,0 41,0

Deutsche Börse (Germany) 0,0 636,0 636,0 888,0 1.482,0 2.370,0 272,6

Euronext Amsterdam (Holland) 0,0 0,0 0,0 0,0 0,0 0,0 -

Euronext Brussels (Brussels) 0,0 0,0 0,0 0,0 0,0 0,0 -

Euronext Lisbon (Portugal) 250,0 0,0 250,0 0,0 0,0 0,0 -100,0

Euronext Paris (France) 0,0 515,7 515,7 0,0 56,5 56,5 -89,0

Irish Stock Exchange (Ireland) 5.326,0 0,0 5.326,0 10.124,0 5,0 10.129,0 90,2

London Stock Exchange (UK) 7.990,6 2.204,4 10.194,9 12.213,9 1.878,9 14.092,8 38,2

Luxembourg Stock Exchange

(Luxemourg) 0,0 0,0 0,0 0,0 0,0 0,0 -

Malta Stock Exchange (Malta) 1,0 30,0 31,0 4,0 0,0 4,0 -87,1

NASDAQ OMX - Copenhagen

(Denmark) n.a. n.a. - n.a. n.a. - -

NASDAQ OMX - Stockholm (Sweden) n.a. n.a. - n.a. n.a. - -

NASDAQ OMX - Helsinki (Finland) n.a. n.a. - n.a. n.a. - -

NASDAQ OMX - Riga (Latvia) n.a. n.a. - n.a. n.a. - -

NASDAQ OMX - Tallin (Estonia) n.a. n.a. - n.a. n.a. - -

NASDAQ OMX - Vilnius (Lithuania) n.a. n.a. - n.a. n.a. - -

Warsaw Stock Exchange (Poland) 5.682,0 3.784,0 9.466,0 864,0 2.168,0 3.032,0 -68,0

Source: FESE, EURONEXT, Borsa Italiana and

London Stock Exchange.

Notes: OPV - Public Offer for Sale; OPI - Initial Public Offer.


45

CMVM

Concerning the price earnings ratio, the average PER of the main European indices16 showed a general

trend of decline, with some exceptions (Belgium, Luxembourg and the Czech Republic). The largest

falls in the average annual PER were registered in Romania (72%), Greece (54%), Denmark (41%),

Poland (35%), Finland (35%) and Germany (33%). The general decline of PER in Europe is explained,

in most cases, by the combined effect of negative changes in stock prices and increases - more than

two digits17 – of company results (including Germany, Austria, France, Spain, the Netherlands, Poland,

Romania, the United Kingdom and the Nordic countries except for Iceland). In Portugal, the PER daily

average increased from 12.5 in 2010 to 11.4 in 2011, with the drop due mainly to the fall in the

average price of the shares of the PSI 20 (higher than the decrease in EPS of companies).

Chart 21 – PER of European Indices

Source: Bloomberg (CMVM data)

Note: The PER for the Irish market has not been determined as of September 2009 fsince results were negative.

16 This section does not include cycle-adjusted PER values since the times series data is of a reduced size. 17 Under Chart 21’s analysis, ‘results’ refer to the daily average value of the EPS registered during each year and calculated by

Bloomberg as the moving average of the EPS during the latest 12 months.

0

10

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Ger

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Yearly Average Values

2009 2010 2011

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…C

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Rep

ub

licR

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ania

Quarter Average Values

mar-11 jun-11 set-11 dez-11


46

CMVM

The Price-to-Book Ratio (PBR) is a measure of the relationship between the market value of a listed

company and its net asset in accounting terms. A greater PBR indicates that the market assigns the

company a valuation higher than that which arises from accounting of own equity. However, a value

far removed from the PBR unit may reflect macroeconomic and specific market conditions that are

reflected in the valuation of securities listed on the market, but cannot find a direct or immediate

reason in the companies reasoning.

Chart 14 – Trend in the European Index PBR

Source: Bloomberg (CMVM data).

0,00

0,50

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giu

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Quarter Average Values

mar-11 jun-11 set-11 dez-11

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UK

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ch R

ep.

Rom

ania

Sw

eden

Yearly Average Values

2009 2010 2011


47

CMVM

In 2011, with the exception of Greece, Italy, Luxembourg and Romania, the indices of other European

markets had a higher PBR. Nearly all markets decreased their annual PBR (except Denmark and

Ireland). However, the PBR decreased progressively throughout the year for all indices, so that the

higher annual average values for Denmark and Ireland are due to the better performance of share

prices during the first half-year. In the second half of the year, the confirmation of uncertainty levels

and a more marked slowdown in European economies, combined with greater risk aversion by

investors, contributed to the gradual decline of the PBR in the equity share of most countries.

Bond Markets

Similarly to the shares market, the value traded in the bond markets (public and private debt) of the

major regulated markets of 27 EU countries decreased (-34.7%) in 201118

. The concentration in market

trading remained similar to previous years, with the Italian market place representing 57.3% of the

amount transacted in debt. Moreover, the value traded in the Italian, German and Spanish market

places (94.1%) reveals that debt trading on regulated markets is somewhat scattered.

However, the increase in market share that occurred in the Italian market place was not associated with

an increased volume of transactions but only to a lower decrease in the drop of the total number of

debt transactions.

On the regulated markets of Germany, Bulgaria, Cyprus, Slovakia, Hungary and Luxembourg, the

transacted amount in debt securities increased in 2011. Albeit irrelevant to European share, the value

of debt securities traded on the Luxembourg Stock Exchange increased by 162.5% (+89.4 million

euros). Note, however, that the trading of debt securities is traditionally performed in specialised

platforms, at times without the qualification of regulated markets, and increasingly on OTC.

In the case of the Portuguese market, the value of traded debt securities fell significantly on Euronext

Lisbon (see chart below) and the main domestic bond market (MEDIP a regulated market wherein

solely debt is traded) recorded historic lows in trading (see section 2.4.1.2.2).

18

Wholesale market transactions on MEDIP in Portugal have not been taken into account.


48

CMVM

In addition, traded debt (public and private) and other related instruments (e.g. CDS) stepped up as

regards over-the-counter market.

Chart 23 – Bond Trading Volume on EU Stock Exchanges (Market Share)

Source: FESE, EURONEXT, NASDAQ OMX and Borsa Italiana

Note: For the other 20 trading venues (Other) we used information from the FESE, EURONEXT, NASDAQ OMX and the Irish Stock Exchange. The data for the LSE was not available.

Note: MEDIP and wholesale markets are not included.

The public debt market recorded a high turbulence given the pressure placed on countries with weaker

public finances and envisaged as having greater credit risk. Alongside the prevalence of investors for

safer securities, such as German government debt, this situation led to a greater dispersion of yields of

the major public debt indices of Euro countries.

0,11 0,08

0,0

10,0

20,0

30,0

40,0

50,0

60,0

2010 2011

%


49

CMVM

At end 2011, Greece (35%), Portugal (14%) and Italy (7%) recorded historic the 10-year public debt

indices since the creation of the EMU, and the debt spreads of these countries as regards German debt

(the benchmark) increased considerably.

In the shorter maturities, namely two and five years, return rates recorded during the year were higher,

particularly in respect to the Greek and Portuguese debt with residual maturity of two years, exceeded

90% and 20%, respectively (in the first case, as a clear reflection of the agreed restructuring for Greek

debt).

Chart 24 - Interest Rate Structure (Yield Curve) of Public Debt Bond Indices

in the Eurozone (10-Year)

Fonte: Bloomberg.

60

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

Portugal Spain Germany France Italy Greece Ireland

%


50

CMVM

Since the risk premium required by investors in public debt of countries that are economically and

financially weaker continued to increase significantly (with the exception of Ireland that managed to

reverse its public debt yield rates as from the second half of the year), the implicit financing costs in

the bond market prices of these countries increased significantly, in some cases resorting to markets

became unsustainable and consequently, leading to the need for international financial aid for

Portugal, as had happened with Greece and Ireland in 2010.

Unlike the German market, the debt markets of the economies of southern Europe (Portugal, Greece,

Spain and Italy) and credit default swaps (CDS) was generally unfavourable, since public and private

debt spreads apropos German reference rates increased. In terms of liquidity, as with 2010, the

markets for some of these countries performed poorly, forcing local banks to resort to financing

transactions with the ECB, under the special measures for financial stabilisation of the euro area that

have been implemented during the year.

1.2. THE DERIVATIVES MARKETS

The number of traded futures and options contracts increased by 11.4% in 2011. According to the

Futures Industry Association, the circa 25 billion contracts traded around the world (a new historical

maximum) does not result from the sudden rise of the emerging derivatives markets or from a new

wave of interest in the commodity market, but rather the result the trend consolidation that had already

been observed in previous years, fueled by the gradual recovery of market liquidity of fixed income

(after significant turmoil and illiquidity recorded in 2008 and 2009).

The increasing importance of Asian Latin America markets accompanied the increase in the number of

contracts traded in the major regulated markets worldwide, as well as the structural change in 2010,

wherein the number of futures contracts currently outweighs the number of options contracts.

Overall, and from a longer term analysis perspective, the number of traded derivative contracts

increased significantly compared to 2002 (+301.7%) and 2007 (+64.4%). Most part of this rise was

caused by increased trading in the emerging derivatives markets (especially in BRIC).


51

CMVM

In these markets, the number of contracts traded has been increasing since 2002, and trading was

hardly affected by the crisis in 2008 and 2009. The total number of contracts traded in futures and

options in the U.S. markets increased by 33.3% over the past five years.

Chart 25 – Trend in the Number of Traded Contracts

The gradual increase in the number in the Asia-Pacific number of derivatives contracts traded

worldwide, largely upholding the contract Kospi 200 Options traded on the Korean market and the

dynamics of futures contracts having the U.S. dollar / Indian rupee admitted for trading in the Indian

market as the underlying cause, suffered a slight decrease in 2011. This was due to a significant

reduction in the number of contracts on agricultural commodities and precious metals verified in three

trading platforms in China. However, the share of this continental block remains the largest world

market for derivatives.


52

CMVM

The Latin-American derivatives markets also saw its amount decrease slightly due to gain in the

derivatives markets in North America and Europe. The BM & FBovespa - main trading venue in that

region - grew by 6.1% in the total number of contracts traded in 2011, remaining in sixth place in the

ranking of the main structures of derivatives trading worldwide. The BM & FBovespa was also the

main trading venue in the segment of stock options (single stock).

Table 4 – Trading Volume of Futures and Options Contracts per Region

Unit: No. of

Contracts

Região 2010 Market

Share 2011

Market

Share

2011/2010

Asia-Pacific 8.990.583.917 40,1 9.815.764.742 39,3 9,2

North America 7.169.695.107 32,0 8.185.544.285 32,8 14,2

Europe 4.422.009.307 19,7 5.017.124.930 20,1 13,5

Latin America 1.518.883.227 6,8 1.603.203.726 6,4 5,6

Other* 323.517.719 1,4 350.764.885 1,4 8,4

Total 22.424.689.277 100,0 24.972.402.568 100,0 11,4

Source Futures Industry Association.

* Consist of Exchanges from Sourth Africa, Turkey, Israel and Dubai.

Note: Location of the Exchange is determined by the country of registration.

An analysis focusing on the underlying assets of these contracts reveals that the number of derivatives

traded increased for most underlying assets, except for contracts on agricultural commodities and

precious metals. In both cases, this was due to the significant reduction in the number of contracts

traded in three Chinese markets.

The number of futures contracts traded on the white sugar (the second most traded commodity in the

segment in 2011), traded on the Zhengzhou Commodity Exchange (ZCE) was lower by 58% than

during the previous year. Alsom the third most traded contract on goods and rubber futures traded on

the Shanghai Futures Exchange (SHFE), decreased 37.7%. Futures contracts traded on soybean oil in

the Dalian Commodity Exchange (DCE), that had been the third most traded contract in this segment

in the previous year, recorded yet a drop in 2011 (-36.5%).


53

CMVM

In three other contracts among the twenty most traded agricultural commodities, the number of traded

contracts also declined significantly. This is the case of futures contracts on soybean meal (-60.0%) on

corn (-25.4%) and on palm oil (-45.9%), all admitted to trading on the DCE. However, the steepest

drop in the number of contracts in this segment occurred in rice futures, traded on ZCE, whereof the

number of contracts fell by 77.9% (26.85 million to 5.93 million). Instead, futures trading and

commodity options on the Chicago Board of Trade (CBOT) - particularly on corn and soybeans –

registered a slight increase in the number of traded contracts.

Regarding metal derivatives, the contracts whose underlying non-precious metals (industrial) - zinc,

copper, steel - continued to be among the most traded in 2011, although the major segment of this

contract, the futures contract on "shaped steel" (rebar), traded less 63.7%. Also, the number of futures

contracts on zinc, the second most traded in the previous year, was reduced significantly.

Globally, the number of contracts traded in this segment of the non-precious metals industry declined

32.4% in 2011. Said is obviously explained by the slowdown in the global economic activity, which

led to a decrease in production and demand in construction, automotive and other heavy industries.

In contrast to the decline in trading commodity derivatives and non-precious metals industry, the

number of derivative contracts whose underlying precious metals are particularly gold and silver - rose

by about 95.1%. This situation reflects the standing of investors due to the sovereign debt crisis and

rising credit risk in many countries, with the diffusion effect to the equity and derivatives markets. In

2011, the gold price (spot) value reached 33.8% (September), ending the year with an 11.0% gain. The

silver price (spot) also experienced a significant adjustment in the first months of 2011; reaching

56.6% value (in April) but, unlike gold, ended the year with a decline of about 9.1%. Albeit, gold and

silver were regarded by investors as a haven assets, compared to investment alternatives in the

financial share and bond markets.

The segment of derivatives on interest rates - the second most important behind the derivatives on

shares and share indices - kept the pace of recovery that had begun last year after significant reductions

witnessed in 2008 and 2009 (-14.4% and - 23.0%, respectively). Yet, the total number of contracts

traded in 2011 remained below the figures registered in 2007.


54

CMVM

Energy derivative Contracts grew by 12.6%, which is slightly above the average (+11.5%) recorded in

the previous three years. The two main contracts in this segment, Light Sweet Crude Oil Futures and

Brent Crude Oil Futures, traded on the New York Mercantile Exchange (NYMEX) and the

Intercontinental Exchange (ICE), respectively and represented collectively, 37.7% of the total number

of energy contracts traded worldwide in 2011. The speculative price of the main product of the sector –

oil - was caused by the increase in consumption of so-called emerging economies in late 2010 and was

driven by political instability, the risk of armed conflict and speculation surrounding the possible

blockage in production and transportation of oil, resulting from political turmoil in several Middle

Eastern countries.

TEXTBOX 2 – EVOLUTION OF THE PRICE OF RAW MATERIALS, FOOD ITEMS

AND ENERGY

The prices of goods traded onderivative exchanges rely on international economic and global

aggregate demand. There are several underlying assets of these contracts, but in general special

importance is given to contracts on metals, agriculatural commodities, industry metals, agricultural

raw materials for industry and energy, largely due to the impact that these goods have on household

consumption and costs of production enterprises.

The evolution of some global commodity indices (S&P World Commodity Energy Index TR, S&P

World Commodity Metals Index TR, S&P World Commodity Agricultural Raw Materials Index TR,

S&P World Commodity Industrial Metals Index TR and S&P World Commodity Agriculture Index

TR) in the last five years show that, after the sharp fall in prices witnessed during the second half of

2008, showed a further decline in the price of energy goods, metals, industrial metals and agricultural

goods during 2011 (-11.1% , -16.9%, -26.3% and -37.2%, respectively), but did not go along with the

price of the goods in the agricultural sector for the industry (17.8% recovery).


55

CMVM

Commodity Price Trend


Although, in the last year, indices have had a different evolution, 2008 shows that the co-movement of

the five analysed series is more pronounced. Prior to the sub-prime crisis, the variance explained by

the first main component was 45%, which increased to about 65% in the second half of 2011,

reflecting a strong increase in the correlation of the price of these goods.

The financing of commodity markets provided greater interconnection between these and other

markets, with the consequent possibility that unexpected shocks in equity markets might have an

impact and be transmitted to commodity markets, which was consolidated in the increase of the

correlation between share prices and commodity prices.


56

CMVM

In relation to currency derivatives, the number of contracts whose underlying asset is exchange rates

increased 24.6% in 2011, a growth that was supported in trading futures contracts on the exchange rate

between the U.S. dollar and Indian rupee.


57

CMVM

These contracts were mostly traded in three different Indian platforms - Multi Commodity Exchange

of India (MCX), National Stock Exchange of India (NSE India) and United Stock Exchange of India

(USE) - and represented as a whole about 58.7% of the total number of contracts traded on currencies.

The fourth largest contract traded in 2011 in this segment was the U.S. Dollar / Indian Rupee Options,

traded on NSE India, which raises the concentration of the number of contracts, traded on this currency

pair, to 66.7%.

Table 5 – Number of Futures and Options Traded Contracts

The following table shows the total number of contracts traded and the relevant change apropos the

previous year for the five more active19

futures and options contracts in 2011, grouped by different

categories of underlying assets.

The Kospi 200 (Options) was again the most active derivative contract traded around the world, with

an increase of 4.1% in the number of contracts traded in 2011 (+20.7% in 2010). This contract

represented 43.4% of the number of contracts traded in the derivatives segment on share indices and

14.7% of the total number of derivative contracts.

19 Futures contracts and options presented in the table were taken from a universe of 20 major contracts by type of underlying asset.


58

CMVM

In the segment of interest rates, the Eurodollar Futures (CME) remained the most traded contract, with

about 564.1 million traded contracts (+10.4% compared to 2010). With CBOT, the number of futures

contracts on 10-year U.S. Treasury bonds increased by 8.1%. If we consider all maturities of U.S.

Treasury bonds that are derived from underlying assets, this increase was even higher (14.4%).

At Eurex, the futures contract on German debt, Euro-Bund Futures, Euro-Schatz Futures and Euro-

Bobl Futures, respectively - used as a reference for sovereign debt in the euro zone - remained among

the ten most traded, totaling 544.3 million contracts (which represents an increase of 7.5% over the

year). Once again, after the significant increase in the number of contracts traded during the previous

year (+92.9%), the One Day Inter-Bank Deposit Future traded on the BM & FBovespa, increased 9.5%

in 2011, to a total of 320,8 million contracts, the second most traded derivative in this segment.

This general increase in trading derivatives on interest rates cannot be dissociated from the significant

volatility and instability in sovereign debt markets, so investors have used this segment as a tool for

hedging or arbitrage prices formed in the relevant spot market.


59

CMVM

Table 6 – Trading Volume of the Main Futures and Options Contracts per Type of Underlying Asset

The level of trading venues registered yet again the prevalence of the Korea Exchange, with an

increase of 4.8% in the minimum number of traded contracts. The top ten trading structures

represented 83.7% of the total number of traded contracts in the derivatives market in 2011, which

indicates a high degree of concentration.

Unitde: Nº de contratos

2011/2010 Volume negociado 2011/2010

Ações e Índices de ações Kospi 200 (Options) KRX 3.525.898.562 3.671.662.258 4,1 RTS Index Futures (RTS,6ª) S&P CNX Nifty Index Options NSE 528.831.609 868.684.582 64,3 377.845.640 68,2 SPDR S&P 500 ETF Options * 456.863.881 729.478.419 59,7 E-Mini S&P 500 Index Futures CME 555.328.670 620.368.790 11,7 Dax Options (Eurex,20ª) Euro Stoxx 50 Futures Eurex 372.229.766 408.860.002 9,8 67.616.997 -10,0 Taxas de Juro Eurodollar Futures CME 510.955.113 564.086.746 10,4 5 Year Treasury Note Futures (CBOT,6ª) One Day Inter-Bank Deposit Futures BM&F 293.065.417 320.821.062 9,5 170.563.052 29,1 10 Year Treasury Note Futures CBOT 293.718.907 317.402.598 8,1 3 Month Euribor Futures Liffe 248.504.960 241.950.875 -2,6 3 Month Euribor Futures (Liffe, 4ª) Euro-Bund Futures Eurex 231.484.529 236.188.831 2,0 241.950.875 -2,6 Câmbio U.S. Dollar/India Rupee Futures MCX-SX 821.254.927 807.559.846 -1,7 U.S.Dollar/India Rupee Optionss (NSE, 4ª) U.S.Dollar/India Rupee Futures NSE 699.042.420 697.825.411 -0,2 252.807.126 3.927,4 U.S.Dollar/India Rupee Futures USE 1 124.766.134 340.576.642 173,0 U.S.Dollar/India Rupee Options NSE 2 6.277.165 252.807.126 3.927,4 Euro/Indian Rupee Futures (MCX-SX,14ª) U.S. Dollar / Russian Ruble Futures RTS 81.122.195 206.820.695 154,9 29.403.759 -36,6 Produtos Agricolas Cotton No.1 Futures ZCE 86.955.310 139.044.152 59,9 Cotton No.1 Futures (ZCE,1ª) White Sugar Futures ZCE 305.303.131 128.193.356 -58,0 139.044.152 59,9 Rubber Futures SHFE 167.414.912 104.286.399 -37,7 Corn Futures CBOT 69.841.420 79.004.801 13,1 Soy Meal Futures (DCE,6ª) Soy Oil Futures DCE 91.406.238 58.012.550 -36,5 50.170.334 -60,0 Energia Light Sweet Crude Oil Futures Nymex 168.652.141 175.036.216 3,8 U.S. Oil Fund ETF Options (*, 10ª) Brent Crude Oil Futures ICE 100.022.169 132.045.563 32,0 28.881.647 90,1 Natural Gas Options Nymex 64.323.068 76.864.334 19,5 Gasoil Futures ICE 52.296.582 65.774.151 25,8 U.S. Natural Gas Fund ETF Options (*, 14ª) Crude Oil Futures MCX 41.537.053 54.753.722 31,8 12.818.730 -33,2 Metais Steel Rebar Futures SHFE 225.612.417 81.884.789 -63,7 iShares Silver Trust ETF Options (*,2ª) iShares Silver Trust ETF Options * 21.187.121 79.433.438 274,9 79.433.438 274,9 SPDR Gold Shares ETF Options * 54.737.222 74.967.191 37,0 High Grade Primary Aluminium Futures LME 46.537.180 59.558.330 28,0 Steel Rebar Futures (SHFE, 1ª) Zinc Futures SHFE 146.589.373 53.663.483 -63,4 81.884.789 -63,7 Fonte : Futures Industry Association. Notas: * Transacionado em várias bolsas nos E.U.A. ; 1 -Início de negociação Setembro de 2010; 2 - Início de negociação, Outubro 2010.

Contratos c/ maior e menor variação Contracto Bolsa 2011 2010


60

CMVM

The hierarchy of derivatives markets changed slightly in 2011, with Nasdaq OMX swapping positions

with the CBOE Group. The other structures listed in the table below maintain their rank. Albeit worthy

of note is the growing importance of Indian trading platforms - National Stock Exchange of India and

Multi Commodity Exchange of India - which saw the total number of traded contracts increase,

respectively, to 36.2% (+24.6 % in 2010) and 10.6% (+ 180.7% in 2010) 20. Although not represented

in the following table, the United Stock Exchange of India traded about 225.4 million contracts

(+181.0%) which gave it the thirteenth ranking position in the main structures of derivatives trading

worldwide21.

Table 7 – Ranking of the Ten Key Derivatives Exchanges

As regards the different derivatives markets and trading platforms of the NYSE Euronext group, the

total number of traded contracts also increased (6.0%), although less than in global terms (11.4%).

NYSE Liffe Lisbon lists futures contracts on the share index (PSI 20) and on a set of shares of the

leading national companies.

20 In 2009, the number of derivatives contracts traded on these trading platforms increased 52.7% and 273.3%, respectively. When

analyzing the performance of these platforms during the period 2008-2011, it appears that the number of traded contracts increased

265.8% (NSE) and 1,060.9% (MCX-SX), respectively. 21 The United Stock Exchange of India (USE) commenced its activity in 2010.


61

CMVM

This segment recorded a significant reduction (-53.9%) in the number of traded contracts, mainly due

to the decrease of traded contracts in share futures. NYSE Liffe U.S. and NYSE Liffe Amex were the

group members with the highest growth rates, largely due to futures on fixed income.

Table 8 – Trading Volume of Futures and Options on the NYSE Euronext

1.3. INVESTMENT FUNDS

European investment funds (harmonised and non-harmonised – broadly speaking, alternative and real

estate funds) registered a drop in the amount under management by 2.8%. The drop in the managed

amount by end 2011 occurred two years following the sector’s annual growth rates by circa 15%

(subsequent to the significant decrease in the amounts managed throughout 2008, particularly after the

Lehman Brothers’ collapse. As a result, between end 2007 and 2011, the global values under

management remained practically unaffected.

The analysis of the managed amount shows specific behavioural differences as regards the sectors for

each country and are worthy of emphasis. A number of countries including that were subject to

external economic assistance programmes, Greece and Portugal for example, or those countries that

due to the gradual climb in the sovereign debt yields, suffered a significant waning of state funding

(Italy, Spain and even France) saw a decrease in the assets under management that was much higher

than the European average (in the two-digit order). The Greek, Italian, Spanish and Portuguese

investment funds (excluding Bulgaria and Slovenia), saw an increase in the loss of the amount

managed between 2007 and 2011 (-72%, -46%, -44% and -37%, respectively).


62

CMVM

This is not unrelated to a reallocation of savings in investment funds applied to other investment that

provided more attractive return rates or even in reducing the level of financial liabilities. Said is due to

the growth of private bank deposits as a result of the redirection of credit institution offer given their

liquidity needs and balance sheet deleverage. Conversely, investment funds in other countries showed

major resilience to the economic and financial turmoil that settled in the markets during the last four

years. Ireland, Germany, UK and Luxembourg held the largest market share in Europe as regards

investment funds.

These four countries held almost two-thirds of the European market share by the end-year and the

managed amount increased between 2007 and 2011 and was particularly salient in Ireland with 31%,

which mitigated the overall decrease in the amount managed by the European investment funds.

Table 9 – Assets under Management for Harmonised and Non-Harmonised CIUs in Europe

Unit: Euro 10^6

Countries End-period Values % Number of Funds

31-12-07 31-12-08 31-12-09 31-12-10 31-12-11 2008/07 2009/08 2010/09 2011/10 2011

Austria 165.584 127.729 138.603 147.245 137.487 -22,9 8,5 6,2 -6,6 2.167

Belgium 126.536 103.633 96.950 97.229 85.043 -18,1 -6,4 0,3 -12,5 1.898

Bulgaria 436 164 179 229 228 -62,4 9,1 28,1 -0,6 94

Czech Republic 6.471 4.495 4.426 4.883 4.198 -30,5 -1,5 10,3 -14,0 116

Slovakia 3.969 3.278 3.418 3.763 3.201 -17,4 4,3 10,1 -14,9 81

Slovenia 4.148 1.872 2.239 2.272 1.790 -54,9 19,6 1,5 -21,2 140

Denmark 131.424 97.788 109.612 135.442 139.007 -25,6 12,1 23,6 2,6 849

Finland 66.000 41.338 54.251 61.506 55.387 -37,4 31,2 13,4 -9,9 497

France 1.508.300 1.293.265 1.421.395 1.502.680 1.380.953 -14,3 9,9 5,7 -8,1 11.830

Germany 1.041.869 911.330 1.019.672 1.125.277 1.133.874 -12,5 11,9 10,4 0,8 5.877

Greece 22.912 10.324 10.279 9.128 6.304 -54,9 -0,4 -11,2 -30,9 231

Hungary 12.590 9.473 11.071 13.002 9.037 -24,8 16,9 17,4 -30,5 352

Ireland 805.989 647.054 748.629 962.503 1.055.268 -19,7 15,7 28,6 9,6 5.069

Italy 357.947 246.981 257.804 239.210 193.296 -31,0 4,4 -7,2 -19,2 1.006

Liechtenstein 20.399 19.292 24.592 29.478 29.979 -5,4 27,5 19,9 1,7 728

Luxembourg 2.059.395 1.559.653 1.840.993 2.198.988 2.096.512 -24,3 18,0 19,4 -4,7 13.294

Netherlands 90.951 71.689 79.020 78.066 64.515 -21,2 10,2 -1,2 -17,4 627

Norway 50.599 29.573 49.925 63.847 61.828 -41,6 68,8 27,9 -3,2 507

Poland 37.558 17.446 22.592 28.414 25.325 -53,5 29,5 25,8 -10,9 576

Portugal 36.213 25.040 29.087 26.456 22.830 -30,9 16,2 -9,0 -13,7 563

Romania 3.517 1.701 2.587 2.961 3.382 -51,6 52,1 14,5 14,2 131

Spain 278.796 203.498 194.520 170.624 156.412 -27,0 -4,4 -12,3 -8,3 2.536

Sweden 139.380 86.624 126.402 166.089 150.434 -37,9 45,9 31,4 -9,4 576

Switzerland 168.895 157.040 158.450 260.979 272.451 -7,0 0,9 64,7 4,4 864

Turkey 18.108 13.294 16.281 18.750 19.068 -26,6 22,5 15,2 1,7 395

United Kingdom 751.346 458.116 638.312 793.957 805.110 -39,0 39,3 24,4 1,4 2.861

TOTAL 7.909.332 6.141.690 7.061.289 8.142.978 7.912.919 -22,3 15,0 15,3 -2,8 53.865

Source: EFAMA and CMVM


63

CMVM

The disaggregated values managed by harmonized and non-harmonized investment funds harmonized

does however reveal that the behavior of these two sub-sectors have been quite different. The

following table shows the amount managed by harmonized investment funds (complies with UCITS

EC Directive No. EC/85/611) and may be freely marketed in the European Union via the ‘European

Passport’ mechanism. Said registered a more relevant drop in 2011 than for overall investment funds.

These conclusions are reinforced when one only takes into consideration values managed by

harmonized funds, particularly in countries that have been the target of external intervention and / or in

exacerbating the sovereign debt crisis, which added to the negative impact on the behavior of the

relevant capital markets (particularly the countries of southern Europe). Except for investment funds

domiciled in Ireland, Romania and Switzerland22, the remainder experienced a decrease in the value

managed over the previous year and only a percentage of less than two digits in ten cases. Four

countries (Greece, Hungary, Portugal and Turkey) experienced a decrease in assets under management

exceeding 30%, with Hungary, whose sector harmonized investment funds in 2007 not reaching half

the value of the Greek and Portuguese fund market, holding in the two most recent years, a market

share higher than those two countries (in 2011, Portugal and Greece registered the lowest European

market share of the current millennium). Italy also saw a significant decline in the market value of

harmonized funds, ranking only ninth in terms of market share in Europe (in 2007 it was the fifth

largest country with assets under management). The harmonized European fund market has a high and

steadily increasing degree of concentration, since the five countries (Luxembourg23, France, Ireland,

the UK and Germany) with higher values under management, held a combined market share of 80.3%

by the end of 2011 (up by 0.6 p.p. and 1.3 p.p. compared to 2010 and 2009, respectively).

The reduction in assets under management, together with the relative stability of the number of active

funds (less than 344 at end 2010 apropos 37 at end 2007), generates negative externalities for the

competitiveness of European investment funds and in particular for fringe countries.

22 In this country, despite it being a jurisdiction that is not part of the European Union, there are funds that follow the rules of the UCITS

Directive and as such, are eligible for recognition in their marketing within the EU. 23 Despite the relevance of this country’s market (and Ireland’s) is largely due to the specifics of the tax environment, with the relevant

funds being subsequently marketed in other EU countries by using passport 'granted' by the UCITS Directive.


64

CMVM

The smaller the size of the fund, the lower the gains from scale and scope economies, making

operating costs of fund management heavier as regards fees charged by management companies

(forcing the latter to increase their fees or, alternatively, the liquidation or merger of funds). The

average size of European investment funds was 156.0 million Euros at end 2011 (164.2 and 170.8

million Euros, at the end of 2010 and 2007, respectively). This value is mainly due to the fact that circa

half of the active European funds were incepted in France and Luxembourg.

This means that in these two jurisdictions that have the largest share of the European market in terms

of values under management, there are a large number of funds, which means that they have a reduced

average size. In European Union area, only UK (with a global portfolio mainly composed of shares),

Ireland, Sweden and Italy funds show an average size that is substantially higher than the European

average. Note that in late 2011, North-American investment funds had an average size of 1.1761

billion euros (1,167.1 and 1.1058 billion Euros in late 2010 and 2007, respectively). It is concluded

that U.S. funds have a mid-cap that is about eight times that of their peers in Europe, and between late

2007 and 2011, despite the turmoil that has affected markets, the average size of U.S. funds increased

by about 7%24.

In the case of Portuguese harmonized investment funds, the average size was about a fifth of the EU

average, or about 31.7 million euros, at the end of 2011 - the lowest since this savings segment started

its activity in our market25. In the particular case of funds specialized in national share investment, the

average size (about 12 million) was further diminished during the same period, which means that,

assuming that the annual global average cost of such funds amounted to about 1.5%, a management

company could only allocate 180,000 Euros each year to cover management costs and other associated

costs of a Portuguese shares fund.

24 This was due to both the decrease in the number of funds, as well as to the increase in the amount under management, but the relative

decrease in the number of funds was lower than the percentage increase of the amount under management. 25 The highest value (124.8 million Euros) was registered on 31 December 2005.


65

CMVM

Table 10 – Assets under Management of Harmonised CIUs in Europe

With regard to non-harmonized investment funds (roughly comprising special or alternative

investment funds - that is, funds whose investment policy is more flexible as to the type of assets that

can integrate portfolios, to the diversification asset rules and the liquidity of the held instruments26 -

and real estate funds) the trend over the last four years is different from that observed for harmonized

funds. The amount managed by non-harmonized funds increased in 2011, and the total amount under

management corresponded to approximately 40% of harmonised funds (28% in late 2007).

The increase in the amount under management in Europe was mainly driven by the positive

development of the Irish, British, French, German and Luxembourgish non-harmonised funds (these

26 Contrary to harmonized funds, these funds are not required to hold 90% of the portfolio invested in liquid assets, namely those

admitted to trading on a regulated market


66

CMVM

five countries held in late 2011 a market share of around 86%, higher than the percentage who held the

segment harmonized funds). In other countries, particularly those in which the market share in this

segment assumes some relevance, there were increases tenuous values managed or even a decrease of

the values given by this type of funds.

Despite the evolution of heterogeneous values have been managed in 2011, can still be concluded that

in recent years, during which the capital markets have been subject to significant price declines and

abnormally high levels of volatility, seems to have been consolidate replacement investment

harmonized funds by savings in non-harmonized funds (between 2007 and 2011 values managed by

non-harmonized funds increased 30%, while the harmonized funds witnessed a decline of about 9%).

This finding may also explain the nature of the assets comprising the portfolios of non-harmonized

funds. In addition, it will have witnessed a reorientation of supply for products that have a higher level

of commissioning and are often a form of indirect financing of credit institutions that dominate

management companies of investment funds.27

In the case of Portugal, the market share of this segment (0.7%) is much higher than on harmonized

funds (0.1%), which are due to the existence of real estate investment funds with a Europe-wide high

dimension and the continued creation and marketing of special funds as an alternative investment

funds face harmonized securities.

27 Since often these funds acquire, bonds issued by credit institutions with which the management company has a group relationship or is

affiliated.


67

CMVM

Table 11 – Assets under Management of Non-Harmonised CIUs in Europe

In 2011 European harmonised investment funds was the subject of divestment of circa 89 billion Euros

(in contrast to a net investment of 94 billion Euros in 2010). Non-harmonised funds attracted a net

investment of approximately 100 billion Euros (whereof 90 billion euros came from German,

Luxembourgish and Irish funds) 28

.

28 Data is not shown by country; since only some jurisdictions report this information to EFAMA (thus the overall value for the European

market may be under or overestimated).


68

CMVM

In the segment of harmonized funds, countries that experienced a greater net disinvestment were

France, Italy and Luxembourg. In the case of France and Italy, the divestment assumed a higher

relative weighting in funds that invest in debt and this related with the growing distrust of investors

about credit quality of the sovereign debt of these countries (which incorporates portfolio many funds

and treasury bonds) and caused the depreciation of these assets during 2011 and the connected exit of

these segments of harmonised funds. Contrariwise, Ireland and the United Kingdom were among nine

European countries that have experienced a positive net investment in harmonised funds in 2011. In

both cases there was a strong growth in savings mobilization in all fund categories, but particularly in

products with more emphasis on investment in debt (especially in Ireland). Opposing reasons cited for

the French and Italian fund cases, given the positive trend of consolidation of public finances and the

recovery of the Irish economy, may justify this development. If Irish and British funds were not

considered in the analysis, the net disinvestment in harmonised funds in other European markets would

amount to 163,500 million Euros.

Comparatively speaking, divestment was particularly salient in Portugal, Slovakia, Greece and Italy,

wherein negative net subscriptions amounted at the end year, to over 20% of the managed amount.

Portugal’s divestment is linked to financial sector’s configuration. In truth, the weighting of

independent managing entities (those that are not held by banking groups) is extremely low and during

the year, net investment increased (circa 27 million euro). Divestment in harmonized funds was strong

in those managing companies held by banking groups – redemptions outweighed subscriptions in circa

2.649 million euro – representing almost 18.8% of the value under management by the end of 2010).

Said may be seen as an additional commercial effort to entice savings by means of banking deposits

with the purpose of increasing liquidity and financing of the banking activity.

The type of fund with the highest net divestment was share funds and represented two thirds of the

divestment in harmonized funds. Said was in essence due to negative net subscriptions in

Luxemburgish and French funds which accounted for over 95% of European divestment.

The North-American and Japanese funds, contrariwise to the European markets, allured net

investments that amounted to circa 80 billion euro.


69

CMVM

Table 12 – Net Subscription for Harmonised Collective Investment

Undertakings per Fund Type in 2011

Unit: Euro 10^6

Countries

Share

Funds

Bond

Funds

Mixed

Funds

Treasury

Bonds

Other

Funds Total

Austria -864 -3.296 -272 -271 -1.126 -5.829

Belgium n/a n/a n/a n/a n/a 0

Bulgaria 0 -5 -4 13 2 6

Czech Republic 33 -42 -41 -337 83 -304

Slovakia -19 -97 -30 -571 -110 -827

Slovenia -40 18 -65 13 -3 -77

Denmark -502 858 1.449 -1 -84 1.720

Finland -1.862 -841 298 1.147 11 -1.247

France -27.200 -9.400 -5.800 -50.000 1.500 -90.900

Germany 2.619 -2.958 -1.172 -217 -1.980 -3.708

Greece -104 -315 -82 -482 -230 -1.213

Hungary -372 -197 -23 -324 -89 -1.005

Ireland 3.756 19.095 4.545 17.655 16.599 61.650

Italy -1.948 -13.585 -6.430 -8.522 0 -30.485

Liechtenstein 76 313 171 -105 113 568

Luxembourg -28.393 -11.831 21.690 6.561 -11.741 -23.714

The Netherlands -1.104 527 949 0 -7.440 -7.068

Norway -306 2.489 202 888 101 3.374

Poland -686 342 -572 317 -600 -1.199

Portugal -268 -115 -1 -1.004 -1.370 -2.758

Romania 8 104 -9 80 65 248

Spain -3.917 -1.842 -2.034 -674 -110 -8.577

Sweden -2.859 931 2.531 3.867 -289 4.181

Switzerland 4.144 957 1.041 198 0 6.340

Turkey 55 -509 -388 -1.921 1.708 -1.055

UK 1.009 2.665 3.619 519 5.251 13.063

Total 1 -58.744 -16.734 19.572 -33.171 261 -88.816

Total 2 (excluding UK and Ireland) -63.509 -38.494 11.408 -51.345 -21.589 -163.529

USA n/a n/a n/a n/a n/a 56.485

Japan n/a n/a n/a n/a n/a 23.330

Source: EFAMA and ICI

As for Portugal, the net investment in harmonised funds registered negative results in 2011 and

represented 3.1% of the total amount of divestment in European investment funds whereas value of

managed assets managed a mere 0.1% of the European total. The largest net divestment in national

harmonised funds (apropos the importance of European managed assets) caused the Portuguese

investment funds sector to lag behind international levels. On the national front, the assets managed

by special investment funds were lower by only 200 million euros by end 2011 apropos harmonised

funds with amounts of the two types of funds quite similar to those of May 2012.


70

CMVM

Despite registering during the first three quarter of the year a net divestment of 307 million euros,

special investment funds registered a positive annual net investment due to investment during the last

quarter. Often, these funds consist of complex financial products and provide the investors with return

on invested capital and/or possibility of high return rates but then again, are vague as to variables that

determine the value of investment units and a higher moderate startup level.

Chart 26 – Net Balance of UCITS and Special Investment Funds in Portugal (2011)

Source: APFIPP

The net divestment in harmonised funds was particularly salient in the treasury bills and more

pronounced during the first two quarters of the year which tallies with what was previously mentioned

as to the investment changeover effect beteen funds and deposits. The ‘Other Funds’ category also

witnessed concentrated net divestment, particularly flexible funds (investment policy is discretionary

at any given time depending on the managers’ awareness apropos the price trend perspective of the

different financial instruments) and in pension savings funds. On average, the flexible funds have

shown negative perfomances.

-468

-913 -998

-246

-2.626

-401

-799 -867 -691

-2.758

-67 -115 -130

445

132

-3.000

-2.000

-1.000

0

1st Q 2nd Q 3rd Q 4th Q 2011

Euro

Mill

ion

UCITS+SIFs

UCITS

SIFs


71

CMVM

As to pension savings funds due to tax burden, redemptions (in the legal conditions or via early

redemption in order to consumer demand) have not been sufficiently compensated with the injection of

new capital (be it via investment inject by holder of said funds or via new investors).

Chart 15 – Net Balance of Investment per Type of Fund (2011)

Source: APFIPP

In keeping with the previously mentioned net divestment, the number of participants in investment

funds descresed signficantly (-250 thousand apropos end of 2010 and in almost all the retail investors,

meaning that one out of every four participants in 2010 left the sector). The decrease in the number of

participants was gradual during the year and covered all types of funds (including special investment

funds albeit the net investment increase) but was particularly marked in the treasury bills since half of

the investos (circa 100 thousand) left the sector between the end of 2010 and 2011 – less 55 thousand

for share funds and less 40 thousand for pension saving funds.

-600

-500

-400

-300

-200

-100

0

100

200

300

1st Q 2nd Q 3rd Q 4th Q

Euro

Mill

ion

Bonds Treasury Bills Domestic Shares

International Shares Flexible Funds Other Funds


72

CMVM

Chart 16 – Number of Participants in Investment Funds in Portugal

Source: APFIPP

The following table shows the comparative weighting of harmonised funds in the economies of

countries and as a savings instrument that investors use. One is able to see the weighting of

harmonized funds in the GDP as well as the value applied per capita (for the residing population as a

potential investor in funds) and conclude that during the last year, the value of funds in the GDP for all

European countries has decreased by 4.2 p.p.. If one excludes Luxembourg and Ireland, the drop is a

stands at a mere 1.4 p.p.. In Europea, the comparative weighting of funds in the GDP is still lower than

that of the USA (circa double of the European average which has been on-going for the last four

years). In Portugal’s case, said benchmarks registered a similar trend to that of Europea (excluding

Luxembourg and Ireland) with a drop of 1.5 p.p. during the last year which stresses the notion that the

investment fund sector in Portugal is gradually losing its standing as an alternative for attracting

savings.

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000D

ecem

ber

10

Mar

ch 1

1

Jun

e 1

1

Sep

tem

ber

11

Dec

emb

er 1

1

OTHER FUNDS

TREASURY ANDMONEY MARKETFUNDS

BOND FUNDS

SHARE FUNDS

FLEXIBLE FUNDS

SPECIAL FUNDS

RETIREMENT SAVINGSFUNDS


73

CMVM

Said situation is also conveyed by the descrease in investment per capita from circa 800 to 600 euro

which also occurred on average in Europe (whether one includes or excludes Luxembourg and

Ireland), albeit less strongly. In the USA, the amount of managed funds corresponds to circa 29 million

euro per citizen whilst in Europe, said value does not reach 6 thousand euro if one excludes

Luxembourg and Ireland and is close to 10 thousand euro if one does include the former coutnries.

Table 13 – Comparative Weighting of Assets under Management by UCITS

Countries

2010 2011

Assets UCITS/GDP (%)

UCITS Per

Capita (10^3

Euro)

Assets

(10^6 Euro) UCITS/GDP

(%) UCITS Per

capita (10^3

Euro)

(10^6 €) (10^3 €) (10^6 €) (10^3 €)

Austria 84.725 29,6% 10,1 74.329 24,7% 8,8

Belgium 91.086 25,7% 8,1 79.131 21,5% 7,2

Bulgaria 227 0,6% 0,0 226 0,6% 0,0

Czech Republic 4.806 3,2% 0,5 4.119 2,7% 0,4

Slovakia 3.542 5,4% 0,7 2.656 3,8% 0,5

Slovenia 2.050 5,8% 1,0 1.790 5,0% 0,9

Denmark 67.556 28,7% 12,2 65.856 27,5% 11,8

Finland 53.293 29,7% 10,0 48.066 25,1% 8,9

France 1.210.280 62,5% 18,7 1.068.141 53,5% 16,4

Germany 249.500 10,1% 3,1 226.456 8,8% 2,8

Greece 7.046 3,1% 0,6 4.417 2,1% 0,4

Hungary 9.327 9,6% 0,9 6.337 6,3% 0,6

Ireland 758.946 486,5% 169,8 820.041 524,2% 183,0

Italy 175.358 11,3% 2,9 139.697 8,8% 2,3

Liechtenstein 26.784 n.d. 746,2 25.467 n.d. 704,5

Luxembourg 1.880.612 4670,4% 3.745,7 1.760.155 4110,4% 3.438,9

The Netherlands 64.305 10,9% 3,9 53.448 8,9% 3,2

Norway 63.847 20,3% 13,0 61.828 17,7% 12,6

Poland 19.322 5,4% 0,5 14.414 3,9% 0,4

Portugal 8.760 5,1% 0,8 6.018 3,5% 0,6

Romania 1.280 1,0% 0,1 1.846 1,4% 0,1

Spain 164.500 15,6% 3,5 150.877 14,1% 3,3

Sweden 162.446 46,5% 17,4 147.042 38,0% 15,6

Switzerland 207.009 51,9% 25,2 211.037 46,0% 26,8

Turkey 15.900 2,9% 0,2 10.866 2,0% 0,1

United Kingdom 675.401 39,6% 10,9 648.406 37,3% 10,4

Total 1 6.007.907 44,7% 10,4 5.632.666 40,5% 9,7

Total 2 (excluding

Luxembourg and Ireland) 3.368.349 25,4% 5,9 3.052.470 24,0% 5,7

USA 8.846.468 80,7% 26,9 8.981.834 82,8% 28,8

Japan 587.864 14,2% 4,3 576.075 13,6% 4,5

Sources: EFAMA, ICI, Eurostat, US Census Bureau, World Bank and OCDE

Legend: UCITS - Undertakings for Collective Investment in Transferable Securities


74

CMVM

2. THE PORTUGUESE SECURITIES MARKET

2.1 GLOBAL TREND OF THE SECURITIES MARKET AS AN INVESTMENT

DESTINATION

2.1.1 Evolution of the Share Market

The financial instability scenario carried on during 2011, particularly in the European Union, which

reacted on the evolution of the equity markets.

Chart 29 – PSI20 Trend in 2011

Notes: 1) Speculation about possible default of Portuguese sovereign debt; 2) First syndicated issue of Portuguese government bonds since

February 2010, 3) Several rating agencies significantly cut the credit rating of the Portuguese Republic and seven domestic banks and foreign

aid requests Portugal; 4) Portugal signs memorandum of understanding with the EU, ECB and IMF on foreign assistance and is an approved aid package of 78 billion Euros; 5) Germany and France have expressed themselves politically conducive to private sector involvement in the

new aid package for Greece; 6) The yields of French and Italian sovereign debt reached record highs; 7) Prohibition, several European

countries (France, Italy, Belgium, Spain and Greece), the realization any operations on short-selling shares of financial companies; 8) The majority of domestic banks reporting a significant drop of the results for the first half of the year; 9) The Bank of Portugal publishes

information indicating that domestic banks reduced their reliance on funding relative to the ECB.

4.500

5.500

6.500

7.500

8.500

31

-12

-20

10

31

-01

-20

11

28

-02

-20

11

31

-03

-20

11

30

-04

-20

11

31

-05

-20

11

30

-06

-20

11

31

-07

-20

11

31

-08

-20

11

30

-09

-20

11

31

-10

-20

11

30

-11

-20

11

31

-12

-20

11

1

1

1

8

1 1

1

1

7

2

3

4

5

6

9


75

CMVM

Taking the variation of the PSI 20 index as a rough indicator of the profitability of Portuguese equity

market (since this index does not consider the effect of dividends paid), this was -27.6% in 2011, so

the last four years only in 2009 the equity market provided a positive return to investors.

Chart 30 – Trend in the Value, Volatility and Transactions of the PSI20

Source: Bloomberg, calculations CMVM.

Notes: The return of the PSI 20 and the value of transactions are expressed in terms of

annual variation. The value of volatility is annual. The volatility used here is the

annualized volatility - standard deviation of daily returns x √ 250. The value of

transactions results from the sum of the product of all the price of each share belonging to

the index and the number of shares transacted at the appropriate price. From the values

thus obtained are given the percentages of annual variation.

The value of stock transactions of the PSI 20 companies, the image of what happened in 2008 and

2009, again recorded a significant decrease (-30.9%), which was almost symmetrical increase in value

traded in 2010 (+31.2 %). The strong market volatility is often associated with reduced levels of

liquidity, although we cannot draw from this a relation of cause and effect. When the title of a liquid is

reduced, the probability of completing an investor (large) in a transaction acceptable period of time

without significantly reducing the price is low.

The bid-ask spread reflects the difference (percentage) between the prices associated with the best

offers for sale and purchase of a security and represents a transaction cost for the investor because if

this buy and sell a stock immediately at the best prices will lose an amount equal to the spread.

- 60%

- 50%

- 40%

- 30%

- 20%

- 10%

0%

10%

20%

30%

40%

2008 2009 2010 2011

Profitability Transactions Volatility


76

CMVM

The following table shows the evolution of the bid-ask spread (average) of the securities in the PSI 20

index, and allows to detect a substantial increase and widespread (though more pronounced than in

other companies) of the average value of this indicator in the second half 2011 (increase of 0.29

percentage points).

Table 14 - Average Bid-Ask Spread of Securities Listed on PSI20


In this context of higher transaction costs, it is important to ascertain the existence of a co-movement

of the bid-ask spreads of various securities, ie, if the transaction cost of each security is explained by

the performance of the intrinsic attractiveness of this security or by systemic factors related to the

situation of the Portuguese market itself. The percentage of the variance of the bid-ask spread

explained by the first component (which reflects the co-movement of transaction costs) was below

14% in the last three and a half years, which means that the evolution of bid-ask spreads of Portuguese

bonds was primarily explained by factors of an individual nature pertaining to the securities

themselves and not by factors inherent in the Portuguese market situation. This would be a conclusion

that can be drawn through the analysis of co-variance matrix of bid-ask spreads. In the second half of

2011 there was an increase in the importance of the first principal component, which coincided with a

significant increase in the average bid-ask spread. At the end of the year, the first principal component

recorded values near those shown when the bankruptcy of Lehman Brothers occurred.

Períod 2º Sem. 2008 1º Sem. 2009 2º Sem. 2009 1º Sem. 2010 2º Sem. 2010 1º Sem. 2011 2º Sem. 2011 Total

AvMédia 0.55% 0.42% 0.28% 0.30% 0.33% 0.31% 0.60% 0.40%

Máximo 1.25% 1.30% 0.91% 1.10% 1.17% 0.98% 1.42% 1.16%

Mínimo 0.22% 0.22% 0.11% 0.13% 0.12% 0.11% 0.20% 0.17%

Desv. Padrão 0.23% 0.23% 0.17% 0.20% 0.23% 0.18% 0.34% 0.21%


77

CMVM

Chart 31 - Trend of the PSI-20 Transaction Costs and the Value of the Main Primary Component

(Standardised Values)


Note: The analysis was conducted on a half-yearly basis and not jointly for the entire period.

Despite the more pronounced fall in prices over the previous year, market volatility of Portuguese

shareholder market (23.0%) remained at values almost identical to the previous year (23.3%).

However, in some periods the volatility reached particularly high values, between 1 July and 30

November.

Over the past five years the average correlation of the returns on securities that integrated the PSI 20

index evolved alongside the respective volatility. This means that the average correlation of the

securities in the PSI 20 index increased in periods of high market volatility. The correlation coefficient

of the returns on securities recorded the highest value in the first half of 2010 (0.56) and lower in the

first half of 2007 (0.19).

,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00

16,00

0,00%

0,10%

0,20%

0,30%

0,40%

0,50%

0,60%

0,70%

2º Sem.2008

1º Sem.2009

2º Sem.2009

1º Sem.2010

2º Sem.2010

1º Sem.2011

2º Sem.2011

(%)

Var

ian

ce e

xpla

ine

d b

y 1

st C

om

po

ne

nt

Ave

rage

Bid

-ask

sp

read

(%) Variance explained by 1st Component Average Bid-ask spread


78

CMVM

Chart 32 – Average Correlation Coefficient and Annual Average Volatility of the PSI20 Index

Source: Reuters Knowledge, CMVM data.

The securities of the financial sector is a special case among the majority of listed securities, as this

sector has been hardest hit by the negative economic environment that has persisted since the

beginning of the financial crisis. In the first half of 2007, the correlation coefficient of the profitability

of financial stocks was 0.18, a value slightly lower than those recorded for all titles of the principal

shareholder of the Portuguese market index. With the advent of the financial crisis in the U.S. has

intensified the co-movement of prices: since the second half of 2008 that the correlation of returns is

above 0.5 and higher than those recorded for the other titles in the PSI 20.

In late 2011, the correlation of the securities in the financial sector was 0.68 and volatility reached

61.5%, the highest value found in the analyzed time series. The volatility of these securities was higher

than that of most securities index. In either case, the results clearly illustrate that financial companies

have been hardest hit by the financial crisis and face important challenges, as exemplified by the

increase in bad debts, depreciation of assets and the risk of sovereign default.

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

0,0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

Vo

lati

lity

Co

rre

lati

on

Correlation [PSI-20]

Correlation [Financial Companies of PSI-20]

Annual Volatility [PSI-20]

Annual Volatility [Financial Companies of the PSI-20]


79

CMVM

The Value-at-Risk (VaR) and 99% confidence that the PSI 20 TR patents during the year saw an

increase in market risk. During the first half of the year the risk was relatively contained, but a

significant increase from the July / August which lasted until the end of the year by contagion from the

turmoil in European markets during the strong selling pressure seen in debt instruments Italian and

Spanish public.29

Chart 33 – Value-at-Risk of 10-day PSI20 – Historical Simulation Method

Sources: Bloomberg; CMVM calculations CMVM.

Note: Last observation on March 21, 2012

In historical terms we note that the period between late 2008 and September 2010 was one in which

the market risk, as measured by this indicator was higher in the series analyzed. Between late April

and early September 2010, when the Greek sovereign debt crisis and Irish peaked, VaR ten days of an

investment that replicate the PSI 20 TR reached the historical maximum of 15.7%.

During the period of the sub-prime crisis, VaR was also higher, rising from an average of 8.2% in June

2008, to stand always above 14% since mid-October 2008 (following the bankruptcy of Lehman

Brothers) until September 2010.

The risk of the market that has lived since 2008, and particularly in the second and third quarters of

2010, in which the VaR of the PSI 20 stood always above 14.8%, appears to be comparable only two

times since 1995. The first, between October 1998 and September 1999, in which the VaR to ten days

29 Although VaR is a positive value, the option is to present the VaR values preceded by a minus sign to provide a better graphical

visualization of the idea of the loss that value expresses. For a better understanding of the methodology of the study refer to CMVM

"Value-at-Risk: An Application to the Principal Equity Index Market Portuguese", available at,

http://www.cmvm.pt/CMVM/Estudos/Em% 20Arquivo/Documents/EstudoCMVM012011Final.pdf .

2011 1995-2011

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

%

99% 95%

-14

-12

-10

-8

-6

-4

-2

0

Jan

-11

Fev

-11

Mar-

11

Abr-

11

Mai-

11

Jun

-11

Jul-

11

Ago

-11

Set-

11

Out-

11

Nov

-11

Dez-

11

Jan

-12

Fev

-12

Mar-

12

%

VaR 10 D (95%) VaR 10 D (99%)


80

CMVM

of the PSI 20 TR stood at 13.8%, during the Russian financial crisis and the collapse of hedge fund

Long-Term Capital Management (LTCM) . The second, lived in 2000 at the outbreak of the bubble

technology companies, with VaR levels only slightly lower than the 13.8% mentioned. In short, in the

second half of the year the market risk increased shareholder Portuguese so important, and the titles of

the financial sector were penalized more than the generality of the securities constituting the PSI 20

index, due to the impact that the crisis has had on the industry and financial difficulties arising that

their companies faced.

Only three companies closed the year 2011 with the inverse variation of the PSI 20 (showing positive

returns). JMH was the company with the highest increase (12.2%), progress particularly significant

given that in 2010, an increase of 63.2%, had had the best performance of the Portuguese equity

market. EDP Renewables (9.0%) and Cimpor (4.9%) also experienced rising prices (and companies

that share with Jerónimo Martins a high degree of internationalization, but contrary to this, had

devalued 21.1% and 34 , 6% in 2010, respectively).

Chart 34 – Annual Difference of the PSI20 Company Pricing


Note also the general fall in prices of the four banks included in the PSI 20. Among the telcos, the

progress was distinguished with the Portugal Telecom and Zon exacerbating the fall in the price of the

previous year and with Sonaecom experiencing a price change less negative.

-100%

-60%

-20%

20%

60%

100%

AL

TR

I

BA

NIF

BC

P

BE

S

BP

I

BR

ISA

CIM

PO

R

ED

P

ED

P…

GA

LP

J. M

AR

TIN

S

MO

TA

EN

GIL

P.T

EL

EC

OM

PO

RT

UC

EL

RE

N

SE

MA

PA

SO

NA

E

SO

NA

E I

ND

SO

NA

EC

OM

ZO

N

2009 2010 2011

End-year Values


81

CMVM

The PER of the PSI 20 fell to 11.4 in 2011 (12.5 last year). If the PER is interpreted as a measure of

the recovery period of the investment, the decrease would signal that the recovery period of a

hypothetical investment in a representative basket of PSI 20 was shortened by about a year. However,

made the calculation of cost of capital implicit PSI 20 and Eurostoxx 50 based on the Gordon model, it

is concluded that the cost of capital is higher than the national rate in Eurostoxx50 (about double),

which means that investors demand a rate of return that reflects the greater perceived risk of the

economy and domestic enterprises face the major European companies.

Chart 35- PER of PSI 20 Companies (Average of Last 10 Years apropos 2011)

Source: Bloomberg, calculations CMVM.

Note: For the purposes of analysis the average PER of the 10 years were determined after eliminating the influence of extreme

observations recorded in Sonaecom (30/12/2005-29/6/2006 period), in determining the average PER of the last 10 years each

company were considered the available observations, which in most cases does not correspond to the complete time series of 10

years; When the EPS is negative, the PER is not calculated. The PER is calculated without purging the non-recurring income of

companies, such as the cases of the sale of the EN VIVO by Brisa and CCR in 2010.

Only two companies (and Banif Portugal Telecom) recorded an average annual PER above the average

of the last 10 years. Remember that in 2010 there were six companies where this indicator signaled

some potential overvaluation.30

30 It should be noted that for eight companies there is no 10-year information and thus the maximum extent of available data in the

calculation of historical PER was used. (annual averages)


82

CMVM

An alternative method for calculating the PER is obtained by dividing the current price of each asset in

the amount of income generated by these assets adjusted by a model unobservable components

("Adjusted PER", estimated by maximum likelihood using the Kalman filter) 31. Another possibility is

the use of moving average of the results generated by companies within the PSI 2032. It is useful,

however, to compare the PER thus obtained which results in an adjustment of the results of companies

in order to better differentiate structural behaviors of the term.

The results underlying the two methods suggest the existence of a significant and synchronized

correction PER of PSI 20 titles throughout 2008. In the moments prior to this patch there was some

overvaluation of shares given the higher value of the PER set against its historical average.

The year 2009 was characterized by a correction of opposite sign , as investors show are available to

increase the amount paid for each euro of profits generated by companies. Nevertheless, the recent

sovereign debt crisis was associated with a further decrease of the PER, whose outlines were not

homogeneous for all titles. The financial sector appears to have been generally more penalized. The

Jerónimo Martins remained above the historical average (unlike other non-financial securities), in line

with the positive trend in the price of its shares in the last two years.

Chart 36 - PER MM5 (left) and Adjusted PER (right) of PSI20 securities (non-financial)

Source: Bloomberg (CMVM data). Note : MM5 corresponds to PER calculated based on adjusted results through moving average of the previous five years , while the adjusted PER

corresponds to adjustment by model unobservable components . The value obtained for each company is divided by the respective historical

31 Refer to Textbox 1. 32 For estimation of the model unobservable components were considered monthly data of each of the titles. Additionally, for reasons of

applicability of this model (in particular the lack of sufficient observations and the existence of net losses during the relevant period

estimation) were not included in the analysis titles: Altri, Brisa, Galp, EDP Renewables, Sonae Indústria and Sonaecom. Given the

scarcity of data, a moving average of the past five years was used (MM5) instead of the previously used 10 years.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

SEM CPR PTI PTC EDP

EGL ZON JMT SON PSI20

0.00

0.50

1.00

1.50

2.00

2.50

3.00

SEM CPR PTI PTC EDP

EGL ZON JMT SON PSI20


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CMVM

average. The estimation period historical information includes the maximum available for each index, it is therefore not the same in all cases. The

longest series has 145 observations and 97 shorter. Last observation is included in December 2011.

Chart 37 - PER MM5 (left) and Adjusted PER (right) of PSI20 securities (financial)

Source: Bloomberg (CMVM data). Note: MM5 corresponds to PER calculated based on adjusted results through moving average of the previous five years, while the adjusted

PER corresponds to adjustment by model unobservable components. The value obtained for each company is divided by the respective

historical average. The estimation period includes the maximum historice available information for each index and is thus not the same in all cases. The longest series has 144 observations and 106 shorter ones. In the left pane, the last observation is included in November 2011. For

Banif the first observation corresponds to December 2007 and the last September 2011. In the right pane the last observation is included in November 2011 and for Banif September 2011.

Only three of the PSI 20 companies showed an increasing trend of PBR: BPI, Cimpor and EDP. At the

end of the year half of the PSI 20 companies were valued at their respective market shares below book

value of equity, two more than in the previous year end.

Historically only two companies registered a PBR above the respective average ten years: Jerónimo

Martins and GALP. However, the ten-year historical average in all cases exceeds the book value with

the exception of EDP Renewables (0.91), a company that should be remembered, is one that is listed

on the market for less than 10 years.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

BCP BES BPI BNF PSI20

0.00

0.50

1.00

1.50

2.00

2.50

3.00

BCP BES BPI BNF PSI20


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CMVM

Chart 38 - PBR PSI20 Companies

Source: Bloomberg.

Note: In determining the average PBR of the last 10 years of each company only observations available were

considered, which in most cases does not correspond to the complete time series of 10 years.

0%

50%

100%

150%

0

2

4

6

8

10

AL

TR

I

BA

NIF

BC

P

BE

S

BP

I

BR

ISA

CIM

PO

R

ED

P

ED

P…

EN

GIL

GA

LP

J. M

AR

TIN

S

P.T

EL

EC

OM

PO

RT

UC

EL

RE

N

SE

MA

PA

SO

NA

E

SO

NA

E I

ND

SO

NA

EC

OM

ZO

N

(a)/

(b)

PB

R

Average of the last 10 years apropos 2011

0

2

4

6

8

10

AL

TR

I

BA

NIF

BC

P

BE

S

BP

I

BR

ISA

CIM

PO

R

ED

P

ED

P…

GA

LP

J. M

AR

TIN

S

MO

TA

EN

GIL

P.T

EL

EC

OM

PO

RT

UC

EL

RE

N

SE

MA

PA

SO

NA

E

SO

NA

E I

ND

SO

NA

EC

OM

ZO

N

2009 2010

End-Year Final Values


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CMVM

2.1.1 Profitability and attractiveness of the Securities Market

In 2011 Portugal resorted, as stated above, to the external economic and financial assistance

programme. This programme led to the adoption of various austerity measures aimed at fiscal

consolidation that could not fail to have recessionary effects on the economy.

The performance of the domestic equity market, as measured by its most representative index (PSI 20),

was negative and reflected the difficulties experienced by businesses. Between the beginning of the

financial crisis in the summer of 2007 and the end of 2011, the fall of stock prices has meant that

investment in domestic equity market, in a historical perspective and 10 years, had become less

attractive relative to other investment alternatives. Only the PSI General (who is a total return index)

presented an average annual rate of return positive over the past 10 years. Still, this profitability not

only was not sufficient to compensate for the impairment in the period due to the general increase in

prices, but also not passed to other investment alternatives, perceived as being less risky, such as

certificates of savings (those with a yearly average rate of return to 10 years virtually identical to the

average inflation over the same period).

Among the financial instruments presented in the following table, Treasury bonds (with residual

maturity of 10 years) would have been revealed as the most rewarding investment for an investor who

had acquired such financial instrument in late 2001.

Table 15 – Yeild and Risk of Different Types of Financial Instruments

2011 Dez-2001-Dez-2011

Rentability Rentability Index

Index Annual Average Standard Deviation

PSI Geral -20.4% 0.4% 27.4%

PSI20 TR (total return) -24.1% -0.4% 28.3%

PSI20 -27.6% -3.8% 27.3%

Treasury Bills 6.7% 4.4% 0.9%

Savings Certificates 1.1% 2.2% 0.6%

Consumer Price Index 3.7% 2.3% 1.3%


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CMVM

Sources: Euronext Lisbon, IGCP, Banco de Portugal and INE (CMVM data).

For every euro invested in Treasury bonds in late 2001, an investor would have obtained a cumulative

return of 54 cents during the subsequent 10 years.33 Albeit, were the investment have been made in

shares of the domestic market, the profitability achieved in the same period, for PSI General and the

PSI 20 TR, respectively (indexes that include the effect of dividends) would be only 4 cents in the first

case and, for the second index, a value symmetrical, i.e, one euro invested in 2001 worth only 96 cents

in late 2011. In the same line of analysis, an investment in savings certificates would have provided a

return of 25 cents for each euro invested, while the purchasing power of one euro at the end of 2011

would be 74 cents considering the inflation rate of the past 10 years. Thus, the purchasing power of

one euro invested in late 2001 in savings certificates would be only 99 cents in late 2011. In short, not

considering the effects of taxation, in the last 10 years only investment in government bonds would

have provided a cumulative return higher than the impairment caused by the increase in the general

price level.

Chart 39 – Accumulated Remuneration from Financial Investment

Source: Euronext Lisbon, IGCP, INE and Banco de Portugal (CMVM data).

The number of companies that paid dividends for the year 2011 decreased by 41.4% compared to that

made for the year 2010, which is a reflection of the difficulties of Portuguese firms: some chose to

build up equity instead of distributing the results for shareholders, while others were negative and

33 Taxes and other fees are not included in this analysis.

0,4

0,6

0,8

1

1,2

1,4

1,6

1,8

2

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

Eu

ro

PSI Geral

PSI20 TR

PSI20

Treasury

Bills

Savings

Certificates

Consumer

Price Index


87

CMVM

therefore not carried out any dividend to stockholders. The amount of dividends fell; this reduction

was more evident among financial companies (which together had losses in 2011). The reduction in

dividends was also notorious among the companies that are not part of the benchmark index.

Corporate earnings also decreased. The decline was more pronounced among financial firms and

between smaller and liquidity. In the case of financial firms, is to emphasize the impact of the

sovereign debt crisis and the partial forgiveness of debt issued by the Greek state in their results, as

well as impairments resulting from increases in bad debts.

The payout ratio corresponds to the ratio between dividends paid and profits. Financial firms, in

particular those included in the PSI 20, suffered losses. By consolidating the results for the PSI 20

companies, the profits of non-financial companies are absorbed by the poor results of financial firms,

by the denominator (earnings) is reduced and the ratio inflated. This explains the divergence of results

for companies that integrate financial and non-PSI 20. For companies that are not members of the PSI

20, the fact that profits are globally negative explains that the payout ratio is negative.

Table 16 – Share Capital Yield, Dividend Distribution and Retention

2011 % 2010 % (%)

Number of Companies that Distributed Dividends 17 36.2% 29 61.7% -41.4%

Number of Companies that did not Distribute

Dividends 30 63.8% 18 38.3% 66.7%

Amount of Distributed Dividends

PSI20 Companies 1,371 98.7% 4,319 98.2% -68.3%

Non-PSI20 Companies 18 1.3% 81 1.8% -77.8%

Non-Financial Companies 1,389 100.0% 4,057 92.2% -65.8%

Financial Companies 0 0.0% 342 7.8% -100.0%

TOTAL 1,389 100.0% 4,400 100.0% -68.4%

Total Amount of Profit

PSI20 Companies 1,867 123.7% 10,390 98.2% -82.0%

Non-Financial Companies -358 -23.7% 195 1.8% n.a.

Empresas Não Financeiras 2,791 185.0% 9,328 88.1% -70.1%

Financial Companies -1,282 -85.0% 1,257 11.9% n.a.

TOTAL 1,509 100.0% 10,585 100.0% -85.7%

Payout Ratio

PSI20 Companies 73.44% 41.6%

Non-PSI20 Companies -5.0% 41.5%

Non-Financial Companies 49.8% 43.5%

Financial Companies 0.0% 27.2%


88

CMVM

TOTAL 92.1% 41.6%

Dividend Yield

PSI20 Companies 2.9%

7.2%

Non-PSI20 Companies 0.8%

2.1%

Non-Financial Companies 3.1%

7.4%

Financial Companies 0.0%

3.8%

TOTAL 2.8%

6.9%

Own Capital Return

PSI20 Companies 4.2%

26.1%

Non-PSI20 Companies -7.6%

4.4%

Non-Financial Companies 8.2%

32.7%

Financial Companies -8.4%

8.0%

TOTAL 3.1% 23.9%


Obs.: F. Ramada, Orey, the Grand Para, Reditus, Salvador Caetano Estoril-Sol were not included in the analysis for the benchmarks of the

total amount of profits, payout ratio, dividend yield and return on equity, since at the time of this report, the financial information/accounting

was not available.

Note: Note: The profits were not eliminated from the non-recurring income of companies as were the cases for the sale of Vivo by PT and

CCR by Brisa in 2010.

Table 17 – Dividend Distribution as a Percentage of Own capital of the Previous End-Year

2011 2010

Non-Financial 8.2% 10.5%

Financial 0.0% 0.9%

PSI20 6.2% 7.7%

Non-PSI20 0.5% 1.7%

All 5.7% 7.1%

2.1.3 Evolution of the Relative Importance of the Securities Market

Over time, depending on the development of characteristics such as profitability, risk, or liquidity of

different financial instruments, or in the light of their preferences, the economic instruments vary in

applying their savings. The following table, constructed based on the National Financial Accounts34

,

shows the variation of assets by type of financial instrument35

, for the total of the Portuguese economy

and for individuals.

34 Financial accounts form a coherent and structured representation of statistical information relating to financial transactions and assets

of the economy, being produced according to the principles contained in the ESA 95 methodology. 35 Changes in assets correspond to the net acquisition of financial assets is equal to the sum of transactions that affect the financial assets

held by institutional sectors in a given period, tracing flows (prices recorded at the time they are made) when economic value or rights


89

CMVM

Table 18 - Variation of Assets per Financial Instrument Type (Total of Economy and Individual)

Source: Banco de Portugal (National Financial Accounts), CMVM data.

In total, the economy recorded a net reduction of financial assets of 14.8 billion Euros in 2011. This

reduction was not homogeneous for all financial instruments, since the cash and deposits, loans and

other debts and credits increased. The securities other than shares (which are integrated bonds) were

one of the instruments that met the greatest reduction in the order of 19 billion Euros, with the shares

and other equity to have a reduction of around 4.6 billion Euros explained by the decrease in the values

invested in units in investment funds.

In the case of individuals, there were positive net purchases of approximately 1.5 billion Euros in

2011, there has been a substantial increase in cash and deposits as securities other than shares, and

fundamentally units in investment funds and savings products insurance area, experienced a substantial

reduction.

Regarding the evolution of the structure of the stock of financial assets36

to the total of the Portuguese

economy, there was a tendency to reduce the weight of shares and other equity (essentially units in

and obligations are created. The values shown correspond to the consolidated amounts, by eliminating transactions between entities

within the same institutional sector. 36 This analysis is performed based on the balance sheet, in which are recorded the values of the stock of assets and liabilities held by

each institutional sector at a given time. The variations in the values of stocks between two moments reflect beyond the financial

transactions that occur in this period the other changes in volume and gains or losses.


90

CMVM

investment funds), but also, in 2011 a substantial reduction in the weight of titles that do not share

(probably associated with significant reductions in emissions of Treasury bonds) and insurance

technical reserves. In the case of individuals, there has been a substantial increase in the weight of cash

and deposits, offset by reductions in the weight of stocks and other equity excluding investment funds

and units in investment funds and also with special degree in 2011, the insurance technical reserves.

Chart 40 – Trend of the Weighting of Different Financial Instruments in the Total Amount of Financial Assets held

by the Total Economy and Individually


The analysis of the figures shows, on one hand, that there was a tendency to reduction of financial

assets as a way to reduce passive and, on the other hand, an adjustment pattern of portfolios of

instrument output with higher risk and tendency to retreat into instruments such as deposits.

Consolidating the stock of financial assets in the economy with financial liabilities, it is concluded that

in 2011 the net position to the outside was negative at about 170 billion euros, i.e. an amount equal to

the national GDP.


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CMVM

The significant drop in share prices of the domestic market in the last four years, the pair continued

growth, as previously mentioned, the applications in bank deposits, especially from individuals,

originated the loss relative importance compared to the equity market deposits and certificates savings

and Treasury. At the end of the year the market capitalization weight of the main market of Euronext

Lisbon against a set of investments mentioned earlier was about a third than at the end of 2006.

The economic and financial crisis and the fall of most financial asset prices had a profound effect on

asset management. Except for the real estate segment, other activities included in the asset

management lost weight very significantly compared to the investments made in bank deposits,

certificates of indebtedness and Treasury. This was much more pronounced in investment funds

(domestic and foreign traded in Portugal), since in 2006 this segment accounted for 21 % of

investments in bank deposits, certificates of indebtedness and Treasury in late 2011 and its weight

girded up to 6 %. i.e., at the end of the year for every euro applied by households and non- financial

deposits and savings certificates and Treasury, investments in mutual funds were only six cents, the

lowest figure since at least 2003.

Table 19 - Comparative Weighting of the Securities Market apropos Term Deposits and Savings Certificates

However, it was not just falling financial asset prices which led to severe erosion of values managed

by asset management and, in particular, the investment funds. The decrease of the amount invested in


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CMVM

mutual funds, but also has the special investment funds, was also due to capital outflows (volume

effect, translated, in the case of both types of funds referred to above, for a net disinvestment of 5700

million and a reduction of 407 000 participants). Rather, in deposits, especially in the made by

individuals, there has been an influx of around 14 billion Euros in the two most recent years.

This is explained not only by the negative performance of many investment funds, which have caused

the reallocation of savings alternatives considered lower risk, but also the practice of policies on

deposits by credit institutions that were especially aggressive and had as objectives meet liquidity

needs of these entities and reduce the ratio of transformation of deposits into loans.

Chart 41 - Trend in the Net Subscription of UCITS versus Term Bank Deposits and Savings Certificates

Sources: CMVM, IGCP and Banco de Portugal, CMVM data.

Savings certificates, since they were changed, more harmful to investors, their rates of pay, have also

been the object of a strong disinvestment. In the two most recent years capital outflows were

approximately 5.5 billion Euros, but if the review period is extended until the end of 2007 the total

-3.009

73

-1.400

652

2.312

5.637

7.949

-2.758

132

-4.087

623

11.608

-3.088

8.520

-6.000

-4.000

-2.000

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

Eu

ro M

Illi

on

2010 2011


93

CMVM

amount divested amounted to nearly 7 billion Euros. This means that the amount invested in savings

certificates at the end of 2011 accounted for just over 70% of existing in late 2007.

Regarding treasury certificates, after the accession of investors after the release of this type of financial

instrument in July 2010, there was some contention on new subscriptions.

The deterioration of the macroeconomic framework, which introduced a perspective increased risk

investments in debt and the introduction, in 2011, the maximum compensation ceilings to provide for

treasury certificates have been the source of his more moderate growth. Indeed, while in the last

months of 2010 were raised 652 million Euros investment in treasury certificates; subscriptions

throughout the year 2011 were lower than that value.

2.2 OVERALL TREND IN THE SECURITIES MARKET AS A SOURCE OF FINANCING

2.2.1 Domestic Market

As with the evolution of the securities market as an investment destination, one is able to analyse the

source of the Portuguese economy financing based on the National Financial Accounts, which allow

for assessing which instruments exist with greater weight change in financial liabilities. The table

below shows the change in liabilities per type of financial instrument, in aggregate form, for the total

amount of the Portuguese economy and for non-financial companies.


94

CMVM

Table 20 – Liabilities Variation per Financial Instrument (Total Economy and Non-Financial Companies)


For the economy as a whole, it appears that in 2011, the financial liabilities were reduced by about 5.9

billion euro, and has witnessed a drop in monies and deposits, in securities other than shares and in

shares and other equity, registering an increase in loans associated with loans granted to the Portuguese

economy in the framework of the Economic and Financial Assistance Programme.

The decreases in monies and cash deposits, bonds, including shares and other equity are associated

with the output of non-resident investors in the domestic market. In the case of currency and deposits,

together with the previous asset variation, it appears that non-residents reduced, in net terms, currency

and deposits in Portugal around 25 billion Euro.

The variation of the liabilities of non-financial corporations experienced a rise of circa 9.4 billion euro,

with loans, according to the process of deleveraging and retrenchment of bank credit, dropped by more

than 3.1 billion Euros. Shares and other equity and non-share equity recorded significant increases,

signaling that companies have resorted to other financial instruments to offset the reduction in bank

credit.


95

CMVM

Analysing the structure of investment financing of Portuguese companies in more detail, based on

Qualitative Investment Survey, one can see that throughout the year, difficulties in of obtaining credit

from domestic companies within the banking system have increased. These difficulties have resulted in

a reduction in the relative weighting of bank credit as a means of financing business investment. In

2010, the weighting of bank loans in the total financing of Portuguese companies accounted for 28.6%,

which likens with the 25.7% apropos 2011. The decrease in the relative weighting of bank credit was

partially offset by an increase in EU Funds and the item 'Other'. On the other hand, financing for

shares and bonds was identical to the previous year (i.e., covering only 0.3% of the total funding of

Portuguese companies), so the capitals market remained a residual source for financing our companies.

Chart 42 – Investment Funding in Portugal

Source: Investment Survey (INE).

The Portuguese business, however, is very uneven. The largest companies (over 250 employees) have

a lower relying rate on the banking sector since same have greater financing capacity and access to the

capital market. According to the Survey of Investment for 2011, larger companies (over 500

employees) the weight of the cash flows is 63.1 %, while in companies with a number of workers

employed between 50 and 249 decreases to 46.5 %. Funding for stocks and bonds was 0.7 % among

larger firms and nonexistent in firms with fewer than 500 employees. It is thus confirmed that the

financing of small and medium enterprises through the capital market is very minute. Since the

0% 20% 40% 60% 80% 100%

2011

2010

2009

2008

2007

2006

2005

2004

SELF-FINANCING BANK LOANS

SHARES AND BONDS GOVERNMENT LOANS

EU FUNDS OTHER TYPES OF LOANS


96

CMVM

economic structure and Portuguese business consists mainly of small and medium-sized family-

oriented companies, it is thus increasingly relevant to have initiatives that promote the entry of these

companies to the capital market. Both the equity and the bonds markets may make a significant

contribution to meet the financing needs of domestic enterprises.

Table 21 - Investment Financing Source per Staff Ranking

NUMBER OF STAFF

FINANCING SOURCES (a)

SELF

FINANCING

BANK

LOANS

SHARES

AND BONDS

GOVERNMENT

LOANS

EU

FUNDING OTHER

1º (≤49) 59.6 31.0 0.0 0.7 3.0 5.7

2º (50-249)

46.5 27.1 0.0 0.6 8.7 17.0

3º (250-499)

70.7 16.4 0.0 0.7 6.1 6.2

4º (≥500) 63.1 25.7 0.7 0.2 2.8 7.6

TOTAL 59.1 25.7 0.3 0.4 4.9 9.6


The deteriorating corporate outlook according to the Survey of Investment, was the main curb to

investment. This is certainly associated with the macroeconomic environment that crosses the

Portuguese economy and the outlook is not very optimistic for next year. Said was followed by issues

such as such return on investment and the difficulty in obtaining bank loans. The capital market was

not identified as being a factor relevant to the limitation of investment in Portugal.

Table 22 - Factors Limiting Investment in 2011

TOTAL

INSUFFICIENT PRODUCTIVITY CAPACITY 8.6

DROP IN SALES 72.4

DIFFICULTY IN HIRING QUALIFIED PERSONNEL 2.9

LEVEL OF INTEREST RATES 23.8

INVESTMENT PROFITABILITY 42.6

SELF-FINANCING CAPABILITY 27.5

DIFFICULTY IN OBTAINING BANK LOANS 29.2

CAPITAL MARKET 1.5

OTHER 9.8



97

CMVM

Regarding the return on equity in Portugal, this showed a sharp drop in 2011 in the non-financial

sector companies. The clash between the months of December 2011 and 2010 indicates a reduction of

6.9 percentage points for this indicator.

The cost of debt capital exceeded the return on equity and therefore the profitability of invested

capital, which suggests a weak adequacy of the capital structure of Portuguese companies. Despite

repeated descents of the indexing interest rate in the Euro area, there was however an increase of 1.1

percentage points in the cost of debt, which suggests an increase in risk premiums on loans for the

non-financial sector.

Chart 43 - Remuneration per Capital Factor in the Non-Financial Sector in Portugal

Source: Banco de Portugal (Central Balance Sheet).

As for financing the Non-Financial Corporations (NFCs) , there was a reduction of 0.65 % of the stock

of bank credit to these entities between the months of December 2010 and 2011 . However, a more

detailed analysis also shows some heterogeneity associated with the maturities of the loans. Indeed,

this reduction was 9.81 % among loans with a maturity of between one and five years and 3.60 % for

loans exceeding five years, which reflects the efforts of companies to secure financing at longer

intervals in order to avoid difficulties in terms of roll-over debt in the coming years .

0,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00

01

-03

-20

06

01

-06

-20

06

01

-09

-20

06

01

-12

-20

06

01

-03

-20

07

01

-06

-20

07

01

-09

-20

07

01

-12

-20

07

01

-03

-20

08

01

-06

-20

08

01

-09

-20

08

01

-12

-20

08

01

-03

-20

09

01

-06

-20

09

01

-09

-20

09

01

-12

-20

09

01

-03

-20

10

01

-06

-20

10

01

-09

-20

10

01

-12

-20

10

01

-03

-20

11

01

-06

-20

11

01

-09

-20

11

01

-12

-20

11

Capital Invested Profitability Debt Cost Own Capital Profitability


98

CMVM

Chart 44 – Bank Loans (Other Monetary Financial Institutions) to Non-Financial Companies

Source: Banco de Portugal.

In the particular case of the larger companies that already have their shareholder capital open to public

investment and admitted to trading on the market, they have a higher propensity to resort to the

issuance of financial instruments as a way of financing. As discussed in Section 2.3, the amount of

shares issued in the Portuguese market in 2011 amounted to 2.1 billion euros, mainly for financial

companies. In the bond market, the amounts issued by public companies were lower than in the

previous year, which deserves special consideration due to the contraction of the supply of bank

financing, requiring a stronger role of alternative sources of funding.

The net investment of non-financial listed companies increased by 97 % compared to 2010 (see table

below). However, the amount reported is inflated by the investment made by Portugal Telecom in

Brazil, in particular the accounting treatment given to this investment. Excludes values of this

company, there is a reduction of 39 % of the variation in net assets of non-financial Portuguese

companies.

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

jul-

07

ou

t-0

7

jan

-08

abr-

08

jul-

08

ou

t-0

8

jan

-09

abr-

09

jul-

09

ou

t-0

9

jan

-10

abr-

10

jul-

10

ou

t-1

0

jan

-11

abr-

11

jul-

11

ou

t-1

1

Euro

Mill

ion

OIFM to SNF Loans - Up to 1 Year OIFM to SNF Loans - Ufrom 1 to 5 Years

OIFM to SNF Loans - Over 5 Years OIFM to SNF Loans


99

CMVM

About 61 % of the variation in net assets of non-financial corporations was due to financial funding (of

which 6 % variation relates to equity and 55 % to debt capital), it is concluded by the predominance of

foreign capital financing these companies in 2011, similar to what happened with the universe of

Portuguese companies. In 2010 funding for capital assumed greater importance that financing by debt

capital, so this situation seems a reversal of the funding strategy of companies, is not unrelated to the

significant drop in corporate earnings, limiting self-financing.

Table 23 – Financing Structure of Asset Variation of Listed Companies

2011 % 2010 % Var (%)

Non-Financial Companies

Net Asset Variation 10.962 100% 5.562 100% 97%

Financial Financing 5.468 50% 6.999 126% -22%

Own Capital Financing -1.362 -12% 5.609 101% n.a.

Financing via Financial Debt 6.829 62% 1.389 25% 392%

Other Type of Financing 5.495 50% -1.436 -26% n.a.

Financial Companies

Net Asset Variation -12.925 100% 6.899 100% n.a.

Financial Financing -10.254 79% -5.768 -84% n.a.

Own Capital Financing -3.229 25% -555 -8% n.a.

Financing via Financial Debt -7.025 54% -5.213 -76% n.a.

Other Type of Financing -2.671 21% 12.667 184% n.a.

Non-Financial Companies (excluding PT)

Net Asset Variation 3.188 100% 5.233 100% -39%

Financial Financing 1.957 61% 3.764 72% -48%

Own Capital Financing 203 6% 2.535 48% -92%

Financing via Financial Debt 1.755 55% 1.229 23% 43%

Other Type of Financing 1.231 39% 1.469 28% -16%

Source Reuters Knowledge.

In the financial sector there was a substantial reduction of the aggregate net assets. Firms in this sector

experienced a substantial depreciation of the value of its assets in 2011, resulting from impairments

related to partial forgiveness of sovereign debt to the Greek state and provisions associated with bad

loans. Funding for capital decreased as a result of losses recorded in the year and despite the capital


100

CMVM

increases that occurred in some cases. Funding for debt capital financial firms also decreased in 2011

due to higher difficulties in obtaining bank credit and the conversion of some debt into equity.

The ratio of market capitalization and total net assets decreased by 3.1 percentage points compared to

2010, when considered aggregates for companies listed on Euronext Lisbon. In absolute terms, this

reduction was more pronounced among the set of non-financial companies (-9.7 pp.) since they show a

higher values for that benchmark. A possible explanation lies in the sharp reduction in market

capitalization of Portuguese companies, the result of falling share prices, since, as mentioned, the net

assets of non-financial corporations increased .

Market capitalization as a percentage of equity exhibited similar behavior to the ratio between the

market capitalization and total net assets. The decline involved all clusters, without prejudice to be

most pronounced among the smaller and liquidity. The drop of of 23.9 percentage points also deserves

attention pertaining to this ratio between financial firms, with a price-to-book ratio aggregated by

34.7% in late 2011, with only one financial company having a price-to-book ratio greater than one.

This means that at the end of the year, the market price of the shares of the financial sector represented

on average only 34.7 % of their book value.

Table 24 – Weighted Trend in Market Capitalisation

2011 2010

Non-Financial Companies

Market Cap/Net Asset Total 31,4% 41,1%

Market Cap./Own Capital 138,0% 160,2%

Financial Companies



PSI20 Companies



Non-PSI20 Companies



TOTAL



Source: Reuters Knowledge.


101

CMVM

The following graph shows the ratios of short-term debt compared to total debt of non-financial

enterprises and total debt as a proportion of EBITDA37

. The majority of companies experienced a

reduction of this indicator of short-term liquidity in the last year, which was more pronounced in non-

financial firms smaller.

The second indicator reflects the company's ability to generate operating cash flows to pay your debt to

creditors. The companies comprising the PSI 20 have a ratio lower than the others, indicating a greater

ability to meet the obligations in the long term. The ability to meet these obligations to creditors

increased among companies not included in the benchmark Portuguese, despite the indicator stand at

levels much higher than those of larger companies and liquidity

Chart 45 - Short-Term Debt and EBITDA Debt Ratios of Non-Financial Companies

Short-Term Debt Ratio EBITDA and Debt Ratio


Note: F. Ramada, Ore, Grão-Pará, Reditus, Salvador Caetano and Estoril -Sol have not been included in the analysis since the

information on the date of this report was not available as to the required financial/accounting information.

37 The EBITDA corresponds to the results generated by the activity of a company before interest, tax depreciation and repayments.

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

PSI-20 Non PSI-20 Total

2009

2010

2011

-

5,00

10,00

15,00

20,00


2011

2010

2009


102

CMVM

The implicit interest rate in the credit facilities may be obtained from the ratio between the balances

and interest paid on borrowings and was 4.25% in 2011 for all non-financial companies listed on a

regulated market. The generality of these companies experienced a rise in interest rates associated with

the remuneration of debt capital, which was more pronounced among lower liquidity and size.

However, during the year saw the general decline in interbank interest rates that are benchmarks for

these loans (Euribor), so that increase was due largely to the significant increase in the risk premium

demanded by the financial sector and the majority of investors in this group of companies and also to

increase the relative indebtedness of medium and long term.

Chart 46 - Ratio between Interest Paid and the Total Value of Loaning

by Non-Financial Companiesl


Note: F. Ramada, Ore, Grão-Pará, Reditus, Salvador Caetano and Estoril -Sol have not been included in the analysis

since the information on the date of this report was not available as to the required financial/accounting information.

0,00%

1,00%

2,00%

3,00%

4,00%

5,00%

6,00%

7,00%

8,00%

9,00%


2009

2010

2011


103

CMVM

2.2.2 Comparison between the National Market and Other European Markets

The economic and financial crisis that occurred in the Eurozone had lopsided effects on business

performance and the relevant capital structures. Even before the beginning of financial crisis some

peculiarities of the companies in the Euro area were already present, which was particularly noticeable

in the capital structures and debt levels, particularly among southern Europe countries. Nominal

convergence of macroeconomic indicators such as interest rates and inflation rates was not

accompanied by a convergence in terms of other relevant benchmarks at the micro level, especially at

enterprise level.

During 2010 and 2011, implementation of budget adjustment plans took place in the public sectors of

some countries in the Eurozone, with retrenchment effects on demand for private agents.

Simultaneously, there was an effort to deleverage the private and public sectors in countries like

Portugal, Ireland, Greece and even Italy and Spain, which resulted from the shortage of bank loans and

a substantial increase in the required risk premiums.

The ratio38

between the cash and book value of assets of listed companies is an indicator of immediate

company liquidity. The values recorded for each country are influenced by situational factors such as

the economic crisis that most European countries are going through, but also by structural factors

related to the development of their financial systems and the type of relationships between companies

and the banking sector. This indicator experienced a substantial increase between 2009 and 2011 for

non-financial companies based in Portugal. On average, 10.3% of the assets of these companies were

invested in liquid assets such as bank deposits and cash on demand, the highest among the countries

under analysis.

38 The ratios presented in this section were obtained using the following mathematical expression:

∑

∑

, where

(

) is the value of variable 1 (2) for company k in country i in period t and is the value of the benchmark

analysed for country i at time t.


104

CMVM

A possible reason for this development is the increased difficulty of Portuguese companies in

obtaining short-term financing to meet cash requirements, which may have resulted in greater demand

for currency precaution. In contrast, the listed companies in Greece show the lowest value and are

certainly associated with the prolonged recession facing the country since 2009.

Chart 47 - Evolution of the Ratio between Cash and Book Value of Assets

Source: Reuters Knowledge, CMVM calculations.

With regard to listed financial companies, there is a significant increase of said benchmark for Ireland

and Spain in 2011 (1.9 pp. and 0.6 pp. respectively. Italy and Germany continue to show very low

values, while Spain, Greece and France recorded values greater than or equal to 4 %.

The ratios between the debt book value39

and own-capital market value and between the debt book

value and the own-capital book value allows for the analysis of corporate leveraging. Non-financial

companies based in Ireland show the lowest level of debt (which decreased 3.1 percentage points in

2011).

39

Excludes bank deposits as regards financial companies.


105

CMVM

In turn, Greece increased the debt book value as a percentage of own-capital market value by 68.9

percentage points, similar to the situation of Portuguese companies (an increase of 55.3 percentage

points).

Companies in these two countries have the highest levels of debt, a situation which has worsened in

the last year. At least in theory, companies have a greater preference for debt capital during periods

wherein they consider that the equity is undervalued and for equity when they understand that said is

overvalued.

Thus, the preference of Greek and Portuguese companies for investment financing and liquidity

requirements by using debt capital can be explained by this theory, in that because of the strong

devaluation of the market equity value to current prices cannot be seen as attractive for new issues.

However, in the current context, it is also important to consider that many companies may not be able

to place new share issues (even at low prices). With regard to financial companies, only Ireland (in

2011) witnessed a decrease of this benchmark. This situation results from the progressive reduction of

the debt of the banking sector due to the nationalization of several financial institutions and the slight

appreciation of the stock market value of bank equity. Financial companies headquartered in France

show a strong increase of this benchmark, however, is influenced by two heavily leveraged banks, with

a leading position in terms of assets.

Chart 48 - Book Debt to Market Equity Ratio



106

CMVM

The debt book value as a percentage of equity book value is not influenced by the volatility of the

equity markets. Portuguese non-financial companies show the highest leverage level (236.2 %), with

an increase of 53.1 percentage points between 2010 and 2011, Irish companies show the lowest.

Companies from Germany, France and Ireland have a lower debt book value than the equity book

value.

Chart 49 - Book Debt to Book Equity Ratio


Regarding the financial sector, the exponential growth of this benchmark of leverage between

companies based in Greece is worthy of note. This is certainly related to unmatched economic

reduction that the country is going through and the forecasts created as to the restructuring of Greek

sovereign debt throughout 2011, with the subsequent recognition of deficiency of bank balance sheets,

resulting in a greatly reduced aggregate value for equity greatly40

. In contrast, companies in the

financial sector based in Portugal experienced a drop in the debt book value as a percentage of equity

book value of 9 percentage points, and are among the countries where the financial sector is less

leveraged according to this benchmark.

40 Between 2010 and 2011, the equity book value of listed Greek banks dropped 97.3%.


107

CMVM

The interest coverage is a benchmark of the effort that companies make to pay the creditors. It is

measured by the ratio of earnings before interest and taxes and interest paid. In absolute terms,

companies based in France have higher values for this benchmark, followed by companies based in

Ireland and Germany. These results are in line with expectations, because French and Irish financial

companies have lower leverage levels than other companies. Moreover, the interest rates charged are

generally indexed to the Euribor reference rate and this was reduced substantially during 2011, which

certainly reflected on interest paid. It should also be noted that these three countries show a positive

trend in the benchmark over the last three years.

Chart 50 – Annual Trend of Interest Coverage (Non-Financial Companies)

Source: Reuters Knowledge and CMVM data.

Instead, companies based in Greece, Spain and Portugal show an increase in their effort to pay the debt

capital. Portugal is among the countries with the lowest values for this benchmark, which means that

domestic non-financial listed companies had to make an effort in 2011 to pay the higher debt capital.

Thus, for every six Euros of earnings before interest and taxes, circa one Euro was applied to the

payment of remuneration for the debt capital. This effort is associated with highly leveraged capital

structure of domestic companies and risk premium increase demanded by creditors when refinancing

debt.

0,0

2,0

4,0

6,0

8,0

10,0

12,0

Ger

man

y

Spai

n

Fran

ce

Gre

ece

Ire

lan

d

Ital

y

Po

rtu

gal

2009

2010

2011


108

CMVM

2.3 SECURITIES ISSUANCE

2.3.1 Shares

The amount issued in the primary shares market increased to 2,113,000 million Euros, which is largely

justified by the public exchange offers conducted by BCP and BES. Out of a total of 29 transactions,

18 were carried out for employees and three offers through incorporation of reserves. As for the other

eight offerings, three capital increase operations with ordinary share issuance were the greatest

contributors. Said pertained to BCP (990 million Euros) and to BES (530 million Euros), both via

exchange offers and BCP, via an issue reserved for shareholders (260 million Euros). An issuance of

preferred shares without voting rights was issued by the Inapa offer that was limited to the collected

subscriptions (54 million shares). The amount involved in the 18 offers made for employees in the

domestic market by resident and non-resident issuers amounted to only two million Euros.

Chart 51 – Value Trend of Share Issuance

Note: The value of issues is the subscription value. (amount issued times the subscription price) of the issues of capital increase completed via public

subscriptions for public companies as well as private offerings made by public companies and subsequently communicated to the CMVM by said entities.

0

500

1.000

1.500

2.000

2.500

2009 2010 2011

Eu

ro M

illi

on


109

CMVM

2.3.2 Bonds

2.3.2.1 Private Debt

Given the particularly difficult context of business financing with the intensification of the systemic

impact of the European sovereign debt crisis, there was a slight decrease in the overall amount of debt

in the domestic market (-4.7), which reached 43.7 billion Euros. The way private placements was

carried out increased in importance and accounted for 86 % of the amount placed (78 % in 2010).

Chart 52 – Value Trend of Bond Issuance

Source: CMVM and BdP.

Debt issuance was led by offerings of residing issuers. Issues made by non-residents lost relevance

apropos the previous year (public offerings decreased from 7% to 2%). The weighting of public

offerings via the European passport prospectus decreased (92 % in 2010 to 55 % in 2011) and

concurrently, the weighting of the offers via the prospectuses approved by the CMVM, increased.

The financial sector issuers accounted for almost 97% of the amount issued and the energy sector by

1.7%. The state was absent from this market, which must have been due to the adverse context of

Portuguese state funding and the implementation of the Economic and Financial Assistance to

Portugal Programme, agreed between the Government, the European Union, the European Central

Bank and the International Monetary Fund.

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

50.000

2009 2010 2011

Eu

ro M

illi

on


110

CMVM

The deb distribution issued per type of security showed a different behavior from that of the previous

year, given the exceptional circumstances for strengthening financial stability and providing liquidity

to the financial system. The increasing importance of the so-called classic bonds is largely explained

by the extraordinary use by some domestic financial institutions of debt issues with private guarantee

by the State under the Portuguese Law 60-A/2008 of 20 October 2008, and Ministerial Order No.

1219-A/2008 of 23 October 2008. These issues, amounting to 10.8 billion euros, represented circa

60% of total classic debt issued.

Chart 53 – Bond Issuance per Type

Source: CMVM and BdP.

Securitised bonds and mortgages once again played an important role in obtaining liquidity by some

domestic financial institutions, since they are usually used as collateral at the Eurosystem credit

operations system. As for the assets (loans) that underlie securitised bonds, loans for small and

medium-sized companies, consumer credit and mortgages, stand out and accounted for 67%, 19% and

14%, respectively of the total amount issued under the securitised form. The decrease in the

importance of structured debt, where often the coupon payment and/or reimbursement relies on the

behaviour of other financial assets, and may even be non-existent, shows increased aversion to risk

associated with the financial instability in the Eurozone .

The 6-month Euribor (average interest rates on interbank loans in Euros for 57 European banks for a

period of 6 months) maintained a slight upward trend in the first seven months of the year, a period

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011

Per

cen

tage

of

the

Tota

l A

mou

nt

Classic Cash Securitised Structured / Zero Coupon Mortgage Other (perpetual / exchangeable)


111

CMVM

that witnessed an increase of 56.5 basis points. As from July there was a slight downward trend in

Euribor, which amounted to 1.67 % in December.

The weighted average rate of Coupon 1 for debt issuance suffered the impact of the national sovereign

debt crisis which was more pronounced in July and December, when debt issues occurred in several

national financial institutions by resorting to the Portuguese State guarantee (4.95% spreads in July

and 1% in December as regards the specific case of these issues). The months wherein the smallest

spreads apropos the reference rate occurred with the highest issues of securitized bonds or mortgage,

especially in February. Coupon rates, whether securitized or mortgage bonds, are less related to the

risk of the relevant issuers than to the risk profile of the assets underlying said. These assets, including

portfolios of mortgages and loans to small and medium enterprises have registered much lower risk

levels than those that investors perceive in relation to the respective originators/assignors.

Chart 54 – Weighted Average Rate of 1st Coupon and 6-Month Euribor

Source: Reuters (CMVM data).

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

7,0%

8,0%

9,0%


Euribor 6 Meses 1st Coupon Average Rate


112

CMVM

2.3.2.2 Public Debt

Following the Economic and Financial Assistance Programme agreed during the 2nd Quarter of 2011,

the issuance of government bonds was discontinued, and the financing needs of the State fulfilled,

either by the use of the programme funds or by shorter maturity loans. The total value of Treasury

bonds issued reached its lowest in recent years, while during the previous year it managed a historical

high of 21.7 billion Euros.

Table 25 – Treasury Bonds

Unit: 10^6 Euro

Month

Value

2009 2010 2011

January 0 1.000 1.249

February 770 3.000 3.500

March 4.000 2.003 1.000

April 1.000 2.000 1.645

May 835 2.116 -

June 4.347 2.704 -

July 1.765 1.680 -

August 1.000 2.669 -

September - 2.075 -

October 811 0 -

November 1.067 2.467 -

December - - -

TOTAL 15.595 21.714 7.394

Source IGCP.

Given the fluctuations of the market for sovereign debt, a single long-term issue (10 years) and

reduced amount was held during the first months of the year. The remaining issues were distributed for

shorter periods of two, four and five years. As a result of the difficult conditions of access to credit by

the State, the weighted average allotment rate ranged between a minimum of 5.396% (issued in

January with a maturity of four years) and a maximum of 6.716% (also issued in January but with a

period of 10 years).

These rates reflect a significant increase in the cost of financing of the Portugal over the previous year.

As regards two and five-year maturities, the weighted average rates of placements increased by 340


113

CMVM

and 250 basis points, respectively. Albeit 10-year maturity, the increase of said rate stood at 170 basis

points. This is due to the deterioration of the economic and financial conditions of the country, which

led to a request for foreign aid, and increased the perception of risk by investors (now demanding a

higher risk premium on investment in domestic public debt).

Table 26 – Maturities and Weighted Rates of Treasury Bonds

2.3.3 Complex Financial Products

The marketing of complex financial products has intensified in the domestic market. The maximum

total amount of issues in the form of bonds or notes that occurred in 2011 exceeded six billion Euros -

an amount higher than that managed by harmonised investment funds at the end of the year.

Nevertheless, it is the maximum value of the offers and not necessarily the amount that was actually

placed (no data is available) and this market segment is of increasing relevance.

The main assets underlying these complex financial products41

were shares and shares indices. Indeed,

62.6 % and 65.7 % of the products issued regard the number and the maximum value, respectively of

the issuance of complex financial products with two underlying types. With respect to commodities,

although the number of products issued with this underlying type is less than 10% of the total amount

41 Throughout this section reference to complex financial products only includes of bonds and notes.


114

CMVM

and the maximum total value represented an eight part of the market. It is this fact that explains that

the maximum average value of issues is the highest for complex financial products that have

commodities as the underlying type.

Table 27 – Complex Financial Products Issued in 2011

Underlying Assets N.º

PFCs

Market

Share

Maximum Amount of the

Issue (10^6 €)

Market

Share

Average Value of the

Maximum of Issues (10^6

€)

Shares Indices 85 43,6% 3.234,8 53,0% 38,1

Shares 37 19,0% 775,4 12,7% 21,0

Commodities 17 8,7% 760,5 12,5% 44,7

Other 19 9,7% 611,9 10,0% 32,2

Funds 10 5,1% 267,0 4,4% 26,7

Exchange Rates 13 6,7% 232,4 3,8% 17,9

Bonds 14 7,2% 222,0 3,6% 15,9

TOTAL 195 100,0% 6.104,2 100,0% 31,3

Source: CMVM.

Products with guaranteed capital accounted for just over half (52.9 %) of the maximum amount of

emissions put the marketing in 2011 and more than two thirds of this amount is not provided investors

a guaranteed return. In this field, the financial products that have their underlying type as shares,

commodities, exchange rates and other indices (in this case, combinations of two or more underlying

assets) because there is a significant preponderance of products without warranty of profitability (in

the case of actions and the category ' other ' underlying assets were not issued products, with

guaranteed capital, provide a guaranteed return to investors) 42

.

42

The concepts of guaranteed remuneration and guaranteed return should not be confused. Thus, a product is guaranteed compensation

when there is payment of a periodic amount that is not conditioned on the occurrence of any event that may or may not be guaranteed

capital, so their profitability can be negative. A product has a guaranteed return when you have associated a remuneration right, at least

partly fixed, and where the capital is guaranteed.


115

CMVM

Table 28 – Complex Financial Products Issued with or without Capital and remuneration Guarantee

Unit: 10^6 €

Underlying Asset

Guaranteed Capital Market

Share

Market

Share Minimum Guaranteed

Remuneration

Unguaranteed

Remuneration

Shares Indices 621,0 750,9 1.371,9 42,5%

Shares 200,0 560,5 760,5 23,5%

Commodities 0,0 329,2 329,2 10,2%

Other 0,0 305,0 305,0 9,4%

Funds 221,0 30,0 251,0 7,8%

Exchange Rates 25,0 187,4 212,4 6,6%

Bonds 0,0 0,0 0,0 0,0%

Sub-Total 1.067,0 2.163,0 3.230,0 100,0%

Underlying Asset

Unguaranteed Capital

Total Market

Share Minimum Guaranteed

Remuneration

Unguaranteed

Remuneration

Shares Indices 16,0 1.847,0 1.863,0 64,8%

Shares 120,6 349,8 470,4 16,4%

Commodities 62,7 220,0 282,7 9,8%

Other 0,0 222,0 222,0 7,7%

Funds 0,0 20,0 20,0 0,7%

Exchange Rates 0,0 16,0 16,0 0,6%

Bonds 0,0 0,0 0,0 0,0%

Sub-Total 199,3 2.674,8 2.874,1 100,0%

Total 1.266,3 4.837,8 6.104,2

Source: CMVM.

Unsecured capital products represented 47.1 % of the maximum issues that were marketed 2011.

Nearly this entire amount issued (93 %) did not provide investors with a guaranteed return. The

combination of these two percentages shows that investors purchasing these products took a high level

of risk, which is particularly exacerbated by the fact that it appears that in general these products are

often issued at a price below its intrinsic value.


116

CMVM

TEXTBOX 3 – ASSESSMENT OF COMPLEX FINANCIAL PRODUCTS MARKETED IN

PORTUGAL

The CMVM assessed the value ex-ante, i.e. prior to its issuance (hereinafter 'value'), a set of PFC

whose underlying assets are shares, commodities, currencies and/or composite indexes for those assets.

The date of issue 108 PFC analyzed is between 22-09-2009 and 30-06-2011. Nineteen of these PFC

were issued in 2009, 57 in 2010 and the other in 2011. PFCs were issued by 14 financial institutions,

but marketed by just eight. In 88% of cases, the issuer belonging to the same group (or is included

within the same financial group) of the supplier. In all cases the issuer and the calculation agent were

the same and in 9.3% of cases the issuer has ownership rights to the underlying asset reference of PFC.

Regarding the characteristics of PFC, 35.2 % had an underlying asset, 6.5 % had two underlying and

58.3 % had three or more. On the other hand, 70.4 % of PFC afforded guarantee the capital invested.

The maximum average maturity of PFC was three years and only 10 % had a maturity up to two or less

than five years. As regards the nature of the underlying, 33.3 % had reference to a basket of shares,

12.0% of the cases were a basket of indices and in 11.1 % of cases was a structured index. Finally,

84.3 % of PFC analyzed had foreseen the possibility of admission to trading on the secondary market.

The estimated value of each PFC was determined based on three different methods. The first was

based on the Black and Scholes (1973) and Merton (1973), according to which, under the assumption

of risk neutral probability, the underlying asset follows a Geometric Brownian Motion. The ANOVA

model and the model of Gamma Heston were also used to assess the robustness of the results.

The results show that, on average, the value of PFC issued was less than the initial subscription price

and the implicit costs (hidden costs) amounted to 4.9% per year. Considering the credit risk of the

issuers of these products, the value obtained was on average 85.6 % of the issue price. But there is a

high variability in the values obtained in this exercise, and the minimum value equaled 53.8 % of the

issue price for a product with no guaranteed capital stock as underlying. Even when credit risk is

neglected, the respective figure was lower than the issue price in about 80 % of PFC analyzed.


117

CMVM

In addition, the econometric analysis carried out and presented in the following table, which shows the

value as a percentage of the issue price of the PFC is not positively influenced by conflicts of interest

between the issuer and the seller of the product. On the other hand, the PFC whose underlying stocks

and commodities, and PFCs with capital guarantee, have a higher value as a percentage of the issue

price. Rather, this value decreases with the number of underlying assets of PFC (which means that the

greater the complexity of the product, the lower its value), the credit risk of the issuer and the existence

of a secondary market for product.

Fair Value Fair Value Hidden Cost

Constante 0,9307 *** 0,9309 *** 0,0688 ***

Issuer/Comercializador 0,0379 * 0,0215 -0,0155 **

Guaranteed Capital 0,0709 *** 0,066 *** -0,0234 ***

Maturity -0,0029 -0,0093 -0,0131 ***

ln(No. of Underlying Assets)

-0,0338 *** -0,0227 ** 0,0089 *

CDS price -0,733 *** 0,1776 ** 0,2423 ***

Sec. Market -0,0374 ** -0,0176 0,0127

Early Redemption -0,0272 * -0,0244 * 0,0102 *

Shares 0,0708 *** 0,0556 *** -0,0204 ***

Currency 0,0499 ** 0,0449 ** -0,0155

Commodities 0,0953 *** 0,0943 *** -0,0293 ***

R 2 0,524 0,511 0,507

F Statistics 10,46 *** 9,93 *** 9,76 ***

No. obs. 106 106 106

***. Significant at 1% significance (2-tailed).

**. Significant at 5% significance (2-tailed).

*. Significant at 10% significance (2-tailed).

Note: Maturity: maximumduration possibel for investment in PFC; Price CDS: counterparty risk of the issuer, as measured by the probability of default implied by the price of the CDS on the date of issue; Market Sec: dummy variable that equals one if secondary market for PFC; early Redemption: equals one if there is a possibility kock-out with early repayment; Ln (number of underlying): logarithm of the number of underlying assets; - Issuer / retailer: conflicts of interest between the issuer and the supplier, 1 if the issuer is a separate entity from the supplier and 0 otherwise; Guaranteed Capital: dummy variable equal to 1 if the PFC is guaranteed capital, type of reference asset (1 - Stocks and Indexes; 2 - Goods; 3 - Currency).


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CMVM

The results suggest that the annual costs are higher implicit in products with lower maturity, but no

evidence was found that potential conflicts of interest between the issuer and the fact that the

benchmark have a proprietary nature (i.e., are set by the issuer) has effect in recovery or implied

annual costs of PFC.

Regarding the presence of an “issuer effect " in (over) appreciation or the annual costs implied by the

PFC, the results indicate that this effect is irrelevant, since some issuers’ implied costs tend to charge

higher even after the removal of the effect other explanatory variables.

In about 80 % of the maximum total amount of financial products issued and marketed in 2011 there

was no guarantee of compensation. Complex financial products whose underlying obligations

(roughly, credit link notes) stand out because they do not at all be guaranteed the investor capital

initially applied, or be no guarantee of earnings.

Were 24 issuers of complex financial products subject to marketing in 2011 in the domestic market

and 17 traders. The market share of the top five issuers reaches about 69 %, while Deutsche Bank43

holds about a third of the maximum total emissions. However, the HHI, with a value of 1147.5,

denoting that there is leakage at the issuer (usually a market is considered to be concentrated when the

HHI is greater than 1800). CR5 and HHI indices relating to marketing entities are 69% and 1564.3,

respectively.

Fair

Value

Fair Value

Hidden

Cost

without

counterpart

risk

H0: Impact of the Issuer in the

dependent variable is negligible

26,12

(**) 22,47 (**)

22,94

(**)

Wooldridge heteroskedasticity-robust LM statistic

***. Significant at 1% significance (2-tailed).

**. Significant at 5% significance (2-tailed).

*. Significant at 10% significance (2-tailed).

43 This entity has changed its form of legal representation in Portugal in 2011, by the various denominations presented in table vary

depending on the date of issue of PFC, but should be taken as referring to the same entity.


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CMVM

In about 80 % of the maximum total amount of financial products issued and marketed in 2011 there

was no guarantee of compensation. Complex financial products whose underlying obligations

(roughly, credit link notes) stand out because they do not at all be guaranteed the investor capital

initially applied, or be no guarantee of earnings.

Were 24 issuers of complex financial products subject to marketing in 2011 in the domestic market

and 17 traders. The market share of the top five issuers reaches about 69 %, while Deutsche Bank44

holds about a third of the maximum total emissions. However, the HHI, with a value of 1147.5,

denoting that there is leakage at the issuer (usually a market is considered to be concentrated when the

HHI is greater than 1800). CR5 and HHI indices relating to marketing entities are 69% and 1564.3,

respectively.

Table 29 – Market Share per Issuer and Supplier of Complex Financial Products

Issuer

Maximum

Issuance

Amount

(10^6 €)

Market

Share Marketing Entity

Maximum

Issuance

Amount

(10^6 €)

Market

Share

dbInvestor Solutions plc 1.284,32 21,0% Deutsche Bank Portugal, SA 1.480,02 24,2%

Banco Santander Totta, S.A. 875,00 14,3%

Barclays Bank PLC (Sucursal em

Portugal) 1.404,06 23,0%

Espírito Santo Investment p.l.c. 725,25 11,9% Banco Santander Totta, S.A. 875,00 14,3%

Deutsche Bank AG, London

branch 710,58 11,6% Banco BPI, S.A. 612,42 10,0%

Banco BPI, S.A. 602,42 9,9%

Deutsche Bank Europe GmbH - Sucursal

em Portugal 450,00 7,4%

Barclays Bank PLC 410,50 6,7%

Banco Espírito Santo, S.A. e Banco

Espírito Santo dos Açores, S.A. 425,00 7,0%

SGA Société Générale Acceptance

N.V. 372,50 6,1% BEST 255,25 4,2%

Citigroup Funding Inc 270,00 4,4%

Deutsche Bank AG – Sucursal em

Portugal 177,16 2,9%

BBVA Global Markets B.V. 160,86 2,6% Banco Espírito Santo, S.A. 165,00 2,7%

Morgan Stanley B.V. 150,00 2,5% Banco Comercial Português, S.A. 123,44 2,0%

Banco Comercial Português, S.A. 123,44 2,0%

Deutsche Bank Aktiengesellshaft –

Sucursal em Portugal 38,58 0,6%

Banco Espírito Santo, S.A. 100,00 1,6% Banco Português de Investimento, S.A. 37,72 0,6%

Morgan Stanley & Co.

International plc 60,00 1,0%

Banco Espírito Santo, S.A., Banco

Espírito Santo dos Açores, S.A. e Banco

BEST 30,00 0,5%

BES Finance Ltd. 50,00 0,8% Banco Invest 13,00 0,2%

44 This entity has changed its form of legal representation in Portugal in 2011, by the various denominations presented in table vary

depending on the date of issue of PFC, but should be taken as referring to the same entity.


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CMVM

Coöperatieve Centrale Raiffeisen-

Borenleenbank B.A. 50,00 0,8% BBVA 10,00 0,2%

Morgan Stanley 50,00 0,8% Caixa Económica Montepio Geral 7,00 0,1%

Société Générale 30,00 0,5% Sartorial 0,50 0,0%

Banco BPI Cayman Ltd 17,72 0,3% TOTAL 6.104,15 100,0%

UBS AG, London Branch 15,00 0,2%

Banco Invest 13,00 0,2%

UBS AG, Jersey Branch 13,00 0,2%

Crédit Agricole CIB Financial

Products (Guernsey) Limited 10,86 0,2%

Caixa Económica Montepio Geral 7,00 0,1%

HSBC Bank PLC 2,70 0,0%

TOTAL 6.104,15 100,0%

Source: CMVM.

Marketing entities in the group Deutsche Bank holds a market share of 35.2 % of the maximum total

issues of complex financial products in 2011, but its share in marketing products without capital

guarantee or unpaid guaranteed amounts to 55, 2 % and 46.7 %, respectively. This means that this

entity has a more aggressive trade policy in the supply of complex financial products which may

involve loss of capital initially applied by investors. It should also be noted that the branch of Barclays

Bank in Portugal, despite having a small market share in terms of PFC45 issue, has a share -level

marketing that is nearly quadruple that of the issue.

2.4 SECONDARY MARKET

2.4.1 Spot Market

2.4.1.1 Market Capitalisation

The market capitalisation of the financial instruments admitted to trading on Euronext Lisbon declined

in the last two years. This decrease was due to two effects in opposite directions. Thus, the market

capitalization of public debt and private debt increased shareholder but the segment recorded a decline

caused in particular by the falling share prices of financial companies.

45 18 PFCs (protection contracts on interest rates) are considered in this analysis that were issued and sold by Barclays’ group entities

whose information documents do not mention a maximum issue.

.


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CMVM

The combination of these two effects resulted in a reduction of the overall market capitalization of

12.1 % in 2011 (-16.5 % in the last two years). The market capitalization of shares, which in 2010

accounted for about two-thirds of the total market capitalisation, saw its share fall back on.

The year 2011 was marked by the strengthening of the market capitalization of two types of financial

instruments - warrants and certificates. These were issued and marketed by financial intermediaries to

retail investors and institutional information documents contemplated subsequent admission to the

market. During the year were admitted on Easynext Lisbon warrants 3,931 (1,409 more than in 2010)

and 126 certificates (39 more than in 2010).

Table 30 – Market Capitalisation

Unit: 10^6 Euro

2009 2010 2011 Var.%

Valor % Valor % Valor % (2010-11)

Bonds 31.432,6 15,4 57.426,2 29,6 65.453,4 38,4 14,0

Public Debt 26.753,1 13,1 52.942,7 27,3 59.247,5 34,7 11,9

Government & Similar Funds 23,0 0,0 35,6 0,0 0,0 0,0 -100,0

Misc. 4.656,4 2,3 4.447,9 2,3 6.205,9 3,6 39,5

Shares 172.431,1 84,4 135.383,0 69,8 102.752,0 60,2 -24,1

PSI 20 62.814,1 30,8 58.252,4 30,0 45.929,3 26,9 -21,2

Other 109.617,0 53,7 77.130,6 39,7 56.822,8 33,3 -26,3

Investment Certicates and Investmetn Units 164,4 0,1 217,0 0,1 187,3 0,1 -13,7

Rights 0,0 0,0 0,0 0,0 0,0 0,0 -

Warrants 195,4 0,1 151,2 0,1 781,5 0,5 416,7

Certificates 0,0 0,0 887,7 0,5 1.360,4 0,8 53,3

Convertíbles 0,0 0,0 0,0 0,0 0,0 0,0 -

ETF 0,0 0,0 25,9 0,0 16,9 0,0 -34,7

TOTAL 204.223,5 100,0 194.091,1 100,0 170.551,6 100,0 -12,1

Euronext Lisbon 202.402,8 99,1 191.666,7 98,8 167.660,7 98,3 -12,5

EasyNext Lisbon 1.820,7 0,9 2.424,3 1,2 2.890,9 1,7 19,2

Source: Euronext Lisbon.

Note: Inlcui a capitalização bolsista de emitentes de direito estrangeiro.Includes market capitalisation of foreign law issuers.

2.4.1.2 Trading

Spot trading of financial instruments admitted to regulated markets and national MTFs operate on

three platforms that generate four markets: two regulated markets and two MTFs. Regulated markets

are MEDIP managed by MTS Portugal and Euronext, run by NYSE Euronext. The MTFs are PEX and

Easynext Lisbon, managed by OPEX and NYSE Euronext, respectively.


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CMVM

Trading continued the downward trend of the previous year, although much more pronounced. The

total value traded in secondary markets decreased 58.9 %, while in 2010 registered a fall of 1.6 %.

Said fall contributed significantly by reducing the volume of transactions on MEDIP (-80.7%). The

volume of transactions in the markets managed by Euronext Lisbon also decreased about 27%. Market

activity of the PEX, which represents only 0.5 % of total trading in secondary markets supervised by

CMVM, the transacted amount recorded a further decline (-36.4 %), after a decrease of 18.6 % in the

previous year.

The decrease of the value traded on Euronext Lisbon occurred in a context of sharp decline in the

prices of their constituents, to the extent that there has been an increase in the number of traded shares

and issued by larger companies and with greater liquidity. On MEDIP, the decrease of the value

transacted is associated with increased difficulty in transacting public debt in the context of the

sovereign debt crisis, with bond yields of Portuguese Treasury reaching high values .

Table 31 – Securities Trading in Secondary Markets Unit: 10^6 Euro

Sectors 2009 2010 2011

Value % Value % Value %

Euronext Lisbon

Bonds 394,9 0,4 583,1 0,6 286,9 0,7

Shares 31.789,9 30,1 40.697,1 39,2 27.892,7 65,4

Investment Certificates 0,2 0,0 2,6 0,0 0,5 0,0

Investment Units 0,8 0,0 0,9 0,0 1,9 0,0

Rights 128,6 0,1 0,1 0,0 67,9 0,2

Warrants 603,8 0,6 242,6 0,2 280,5 0,7

Certificates 0,1 0,0 26,7 0,0 168,1 0,4

Convertibles 0,0 0,0 0,0 0,0 0,0 0,0

ETFs 0,0 0,0 23,9 0,0 106,9 0,3

1.Subtotal Normal Sessions 32.918,3 31,2 41.577,0 40,0 28.805,4 67,5

2.Transaction at Special Sessions 13,8 0,0 374,3 0,4 1.763,8 4,1

3.Subtotal including Special Sessions (1) + (2) 32.932,1 31,2 41.951,3 40,4 30.569,2 71,6

4. MEDIP (Public Debt) 72.241,0 68,4 61.607,0 59,3 11.879,0 27,8

5. PEX 418,8 0,4 340,8 0,3 216,6 0,5

7.Total Swecondary Market -VC (3)+(4)+(5) 105.591,8 100,0 103.899,1 100,0 42.664,8 100,0

Source: Euronext Lisbon, MTS-Portugal and OPEX.

The value traded in secondary markets fell steadily throughout the year in the markets managed by

Euronext Lisbon, MEDIP and PEX. Throughout the year there was a general trend of decreasing prices

of securities traded in these markets, particularly in the price of the listed shares and the price of

national public debt securities. This trend was also observed in other countries affected by the euro

area sovereign debt crisis.


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CMVM

Chart 55 – Monthly Trend of Trading Volume on Secondary Markets

Sources: Euronext Lisbon, MTS Portugal and OPEX.

2.4.1.2.1 Euronext Lisbon

The volume of transactions in the primary market of Euronext Lisbon decreased 31.0 % over the

previous year and represented 94.1% of total value of transactions on the regulated market of Euronext

Lisbon.

Table 32 – Trading Volume of Euronext Lisbon

Unit: 10^6 Euro

Sectors 2009 2010 2011

Value % Value % Value %

Eurolist by Euronext Lisbon 32.223,7 97,8 41.091,9 98,0 28.342,9 92,7

Special Exchange Sessions 13,8 0,0 374,3 0,9 1.763,8 5,8

Total Regulated Market 32.237,5 97,9 41.466,2 98,8 30.106,7 98,5

Unlisted Market (1)

0,5 0,0 0,0 0,0 0,0 0,0

EasyNext Lisbon 694,1 2,1 485,1 1,2 462,5 1,5

Total Unregulated Market 694,6 2,1 485,1 1,2 462,5 1,5

Overall Total 32.932,1 100,0 41.951,3 100,0 30.569,2 100,0


Legend: (1) The unlisted market is part of EasyNext Lisbon as from 01.10.2009.

0

10

20

30

40

50

0

500

1.000

1.500

2.000

2.500

3.000

3.500

Jan Fev Mar Abr Mai Jun Jul Ago Set Out Nov Dez

PE

X

Eu

ro M

illi

on

s

Euro

Mil

lio

ns

Euronext Lisbon MEDIP PEX


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CMVM

In terms of sector activites, the banking sector was the most active, followed by the oil and gas

industries, represented exclusively by Galp Energia. Together, these two sectors accounted for 39.1%

of the value traded on Euronext Lisbon. Following the trend in previous years, the most traded liquid

shares increased significantly but not enough to prevent a decline in the volume of transactions in these

securities since there has been a marked decrease in the general prices of the most liquid shares, i.e.

Portugal Telecom and banking shares.

Table 33 – Liquidity Benchmarks Trend in Shares Listed on Euronext Lisbon

In the twenty most traded shares, the average daily turnover fell to 42.9%, which means that, on

average, the most liquid shares traded amount significantly less than the quantity admitted to trading.

Thus, throughout the year the amount transacted of the 20 most liquid shares was on average less than

half the amount admitted to trading. Since the beginning of this millennium, until 2003 there was an

average turnover (36.9 %) lower than in the year under review, which shows a decrease in liquidity

and therefore greater difficulty for investors to be able to undo their positions without causing

significant changes to share prices. Nevertheless, those securities were traded in 99.9% of sessions

wherein they were admitted to trading, which reveals a high frequency of daily trading.


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CMVM

The average frequency of trading of less liquid shares increased slightly to 50.6%. This value means

that less liquid shares admitted to the main market of Euronext Lisbon were only traded on average in

only one of two exchange session.

Continuing the trend of the previous year, the turnover index46 in the shares segment increased to

49.74%, the highest value of the last ten years. The turnover index for warrants reversed the downward

trend observed in previous years and climbed more than 10 percentage points. The turnover in public

debt remained very low, despite the increase. Transactions of this type of debt continued to be

uncommon and one can assume that the secondary market for retail debt is still residual, a situation

similar to those seen for private debt.

Table 34 - Turnover per Market Sector

2009 2010 2011

Var (2009-

10)

Var (2010-

11)

Public Debt 0,01% 0,06% 0,09% 0,051 p.p. 0,025 p.p.

Various Bonds 0,93% 0,85% 0,27% -0,078 p.p. -0,584 p.p.

Shares 42,01% 47,69% 49,74% 5,681 p.p. 2,049 p.p.

Investment Certificates 0,71% 9,40% 1,87% 8,689 p.p. -7,524 p.p.

Investmetn Units 0,03% 0,22% 0,57% 0,191 p.p. 0,348 p.p.

Warrants 109,49% 60,20% 70,88% -49,297 p.p. 10,685 p.p.

Certificates 0,22% 1,79% 17,34% 1,57 p.p. 15,55 p.p.

ETF's 0,25% 101,97% 417,93% 101,718 p.p. 315,957 p.p.

Source: Euronext Lisbon (CMVM data).

The turnover for exchange traded funds (ETF) exceeded 400% despite the low base, as a result of the

promotion of this market segment, through information sessions and public advertising, performed by

the respective fund manager. In late 2011 there were three ETF traded.

The increase in turnover for warrants, certificates and ETFs, financial instruments of greater

complexity and risk, suggests the existence of so-called "search for yield", which cannot be dissociated

from the difficult conditions that the national markets for financial instruments have crossed.

46 Ratio of the value traded on stock exchanges throughout the year and the market capitalisation calculated at the end of the year


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CMVM

2.4.1.2.2 MEDIP

The amount traded in MEDIP decreased 80.7% compared to 2010, a drop that occurred in Treasury

bonds (-81.7 %) and treasury bills (-80.0 %). This reduction in the volume of transactions in the

secondary market coincides with a period of strong selling pressure in the secondary markets for

European sovereign debt that experienced sovereign debt crises (Portugal, Greece, Ireland, Spain and

Italy). The weighting of government bonds in total amount traded on MEDIP amounted to 38.8 %,

which is slightly lower than in the previous year (40.9%).

Chart 56 - Monthly Trading Volume Trend on MEDIP

Source: MTS Portugal.

The volume of transactions in MEDIP fell sharply from the second quarter onwards. One is remindes

of the fact that on 6 April the Portuguese government requested financial assistance from the

international community. The asymmetric behaviour observed between the first quarter and the other

quarters was similar in the trading of bonds and treasury bills. All Treasury bonds admitted on MEDIP

were also subject to trading on foreign MTFs (ICAP BrokerTec, Tradeweb, Tradegate Exchange

Freiverkehr, Frankfurter Wertpapierboerse Freiverkehr, Freiverkehr Borse Berlin and London Stock

Exchange AIM).

0

500

1.000

1.500

2.000

2.500

3.000

3.500


Eu

ro M

illi

on


127

CMVM

2.4.1.2.3 PEX

Also in the PEX, the value traded fell significantly (-36.4 %). This market registered a tendency of

gradual reduction in the volume of transactions during the year, reaching its minimum in December

(one million Euros).

Similarly to the previous year, the certificates were the type of financial instrument traded over this

MTF, with approximately 61.7% of the total value traded. Said followed, in order of importance, by

the turbo warrants (25.5 %), the cash bonds (7.5 %) and mutual funds (3.2%) .

Chart 57 – Monthly Trading Volume Trend on the PEX

Source: OPEX.

2.4.1.2.4 Admissions and Exclusions of Exchange Trading

The number of new issues of securities listed on the main market of Euronext Lisbon amounted to 595,

higher than the previous year (407). This increase was due primarily to new admissions of commercial

paper (306 in 2010 versus 503 in 2011). There was no admission of shares. The number of exclusions

was also higher than the previous year, due to the short maturity of commercial paper.

0

5

10

15

20

25

30

35

40



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CMVM

On EasyNext Lisbon, the market designed for structured products, 1,665 warrants, 2,266 structured

warrants, one bond, one right and 126 certificates were admitted to trading. These numbers represent

an overall increase in the number of admissions in this market of about 46% apropos the previous year.

3,992 warrants were excluded due to maturity or due to early maturity after reaching the knock –out

barrier.

2.4.2 Spot Market

2.4.2.1 Futures and Option Market

The volume of transactions in futures registered a sharp decline, reaching 531 million Euros. The

reduction was found either in futures contracts on the PSI 20 index or futures contracts on shares,

although futures on shares has been more significant in relative terms. The same 13 contracts on shares

have been admitted: BPI, BCP, BES, Brisa, EDP Renováveis, EDP, Galp, Jerónimo Martins, Portugal

Telecom, REN, Sonae SGPS, Sonaecom and Zon Multimedia. The most traded future on national

shares both in value and number of contracts was the contract on the shares of BCP, followed by the

contract on shares of Jerónimo Martins. As with the previous year, there were no options admitted to

trading.

Table 35 – Trading on Futures Contracts

Open

Positions Number Number of Traded

Futures Contract of Contracts Amount

(end year) Trades (10^6 Euro)

PSI-20

2009 2.085 1.579 61.225 458,1

2010 6.982 3.652 126.127 959,5

2011 4.389 2.008 77.939 528,0

Acções

2009 19.601 497 174.214 33,3

2010 6.406 125 93.398 11,4

2011 60 83 23.188 2,7

TOTAL

2009 21.686 2.076 235.439 491,4

2010 13.388 3.777 219.525 970,9

2011 4.449 2.091 101.127 530,8



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CMVM

2.4.2.2 MIBEL Derivatives Market

On the Iberian Electricity Market (MIBEL), futures contract on electricity are admitted to trading. At

the beginning of its activity there were only SPEL Base futures contract admitted to trading: contracts

whose reference price corresponds to the price of electricity for the Spanish zone (SPEL index) and are

physically settled or exclusively financially settled and its delivery period corresponds to 24 hours,

Monday to Sunday (baseload), every day of the delivery period. In terms of maturity, contract with a

weekly, quarterly and annual maturity were admitted. During 2010, were admitted to SPEL peak futres

contract: peak load contracts (whose delivery period corresponds to 12 hours, between 8:00 and 20:00,

Monday to Friday for all delivery period days), with physical and financial settlement based soley on

the electricity price in the Spanish zone, with reference to only the price of electricity to the Spanish

zone . These contracts were also available for existing maturities.

In 2011, in addition to the admission of futures contracts on the PTEL index, base load, with physical

settlement for the four existing maturities, daily maturity futures contracts were admitted to trading

(financial based SPEL futures contracts and financial peak SPEL futures contracts) and weekend

(financial based SPEL futures contracts), with reference prices of the Spanish zone. With the

admission of these contracts, the market has made available a wide range of futures contracts on

electricity, and is able trade contracts with the market reference price from the Portuguese and Spanish

zones, with peak load and load base and maturities that cover virtually the entire maturity curve, from

daily to annual. 660 futures contracts were admitted to trading: 341 SPEL Base futures contracts, 242

SPEL Peak forward contracts and 77 PTEL Base futures contracts.

The volume traded in the MIBEL derivatives market grew by 30 % over the previous year, with

32,869 GWh traded. In terms of auction trading, it is worth noting the achievement, in December of

the Special Regime Production (PRE) auction. The auction mechanism corresponds to a regulated sale

of PRE by EDP – Serviço Universal, SA (the last resort to a Portuguese distributor), by selling futures

contracts with delivery in Portugal (MIBEL, PTEL Físicos). The auction was determined by the

Regulatory Authority for Energy Services (ERSE), and OMIP - Iberian Energy Market Operator

(Portuguese branch), SGMR, SA has been appointed as the entity responsible for its organisation. 200

contracts were auctioned and delivered in Portugal during the the first quarter of 2012 and 100


130

CMVM

contracts with delivery in 2012. The volume traded in this type of contract amounted to 1,315 GWh

(593 GWh in the previous year). No auctions were held for the compulsory acquisitions on the MIBEL

derivatives market, as has happened in previous years.

Chart 58 – Trading Trend in the MIBEL Futures Market

Source: OMIP

Regarding the most traded maturities on the market, market trading of SPEL Base futures contracts

with weekly delivery increased and, less prompt, the SPEL Base futures contracts with monthly

delivery for both trading number and trading volume. No SPEL Peak on the market contracts was

traded.

OTC trading decreased by 8 % in energy volume and amounted to 27,085 GWh, which accounted for

17,139 recorded SPEL Base, SPEL Peak and PTEL Base futures contracts. There were no records of

forward contracts or swaps in 2011.

Considering the trend of international markets akin to MIBEL derivatives market, it is a fact that the

reference price of the futures contract delivery month in December 2011 that occurred in OMIP was

lower than in EEX (EPEX DE) and Powernext (EPEX FR) markets, but higher than the NordPool

market.

0

500

1.000

1.500

2.000

2.500

3.000

3.500

01.000.0002.000.0003.000.0004.000.0005.000.0006.000.0007.000.0008.000.0009.000.000

10.000.00011.000.00012.000.000

jan-11 fev-11 mar-11 abr-11 mai-11 jun-11 jul-11 ago-11 set-11 out-11 nov-11 dez-11

No

. o

f C

ontr

acts

MW

h

Continuous Auction OTC No. of OTC Contracts No of Market Contracts


131

CMVM

Chart 59 – Trading Trends in Several Futures Markets

Source: Bloomberg and OMIP.

The arithmetic average of the daily prices of the Portuguese zone (50.45 Euros / MWh) was higher

than that of the daily prices of the Spanish zone (49.92 Euros / MWh). Although the average price

differential between Portugal and Spain was slightly higher than the calculated differential during the

year 2010 (0.34 Euros / MWh), it was found that most of the session prices of the two zones are

equal, and the Portuguese area price was higher than the price of the Spanish zone in only one out of

four sessions. Price volatility was slightly higher than in Spain (13.9 % versus 13.4%).

Chart 60 –PTEL and SPEL Trend (€/MWh)

Source: OMEL.

30

35

40

45

50

55

60

65

70

75

80

30-Mai-11 14-Jun-11 29-Jun-11 14-Jul-11 29-Jul-11 13-Ago-11 28-Ago-11 12-Set-11 27-Set-11 12-Out-11 27-Out-11 11-Nov-11 26-Nov-11

€/M

Wh

OMIP EEX German EEX French NordPool

0,0

20,0

40,0

60,0

80,0

Jan-11 Fev-11 Mar-11 Abr-11 Mai-11 Jun-11 Jul-11 Ago-11 Set-11 Out-11 Nov-11 Dez-11

SPEL PTEL


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CMVM

2.4.3 Centralised Securities System

3,257 securities issues were registered in the Central Securities Depository (CVM) by the end of the

year – an increase of 5.8% e than in the previous year. 27.0% of these issues correspond to warrants,

46.7% to corporate bonds, 15.8% to shares and the remaining 10.5% to other securities.

The amount of securities at the CVM reached 10,812,566 million units, 1.5 % less than at the previous

end-year. More than 96.1 % were government debt bonds, 2.2% shares and only 1.7 % related to other

securities. Commercial paper was included into Interbolsa in December 2008, and by the end of 2011,

54 issues, corresponding to 40,000 million units, were registered at the CVM by end 2011.

The amount of securities for secured and unsecured transactions settled through the general settlement

system of Interbolsa increased 113.2% in the year to 31,866,389 thousand units. In secured

transactions there were very significant positive changes in the amount settled for all securities apart

from investment certificates (-80.1%) and transactions on unsecured bonds (-90.5%). Unsecured

transactions on shares increased +296.7%.

The number of setttlements via the SLrt (Settlement System real time) in Euros decreased 30.3%. The

SLrt processes transactions related to the settlement of purchase and sale transactions outside the

market. There were no settlements through SLrt dollar, which had happened in the previous year.

During the year, 111,230 thousands of securities were redenominated giving rise to 208,275 thousands

of securities included in the CVM (pertaining to three securities).

2.4.4 Public Offers

2.4.4.1 Takeover Bids

Ten takeover bids were launched in 2011, whereof eight were completed and finalized. Highlighted is

the idiosyncrasies arising from the fact that, on the one hand, in some cases the offeror is the issuer of

the securities whose purchase is targeted by the offer, the fact that the object of some of the offers has

been made up of debt securities - rather than the typical case wherein the shares represent the equity of


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a public company - and also the fact that, in some cases, the consideration offered under a takeover

bid, in the form of the exchange offer, consists of a combination of different types of securities.

Table 36 – Takeover Bids

Offeror Target Company Type

Number of

Securities to

be Acquired

Price

(Euro)

Envisaged

Value

(10^3 Euro)

Final Value

(10^3 Euro)

Successful

Outcome(%)

Banco

Comercial

Português, SA

Banco Comercial

Português, SA

General and

Voluntary(1) 1.000.000 (2) 1.000.000 990.147 99,0%

Sociedade

Comercial Orey

Antunes, SA

Sociedade

Comercial Orey

Antunes, SA

Partial and

Voluntary 1.232.310 2,17 2.674 2.674 100,0%

Banco Espírito

Santo, SA

Banco Espírito

Santo, SA

General and

Voluntary

(1)

(4) (5) 1.002.674 1.040.062

(3) 64,3%

Source CMVM.

Legend: * Completed and completed in 2011. (1) Offer in the consideration consisted of securities, (2) 1,600 shares without nominal value and issue price

of 0.625 euro for each value whose nominal value is 1,000 euros, (3) The amounts were converted to USD EUR exchange rate EUR / USD of 1.3776, (4) Securities subject of an offer corresponding to 6 separate issues, (5) the consideration offered consisted of securities of a different nature (stocks and cash

bonds).

2.4.4.1.1 Share representing the equity of public companies

The takeover bid of Traffic Sport Europe Ltd on Estoril Praia - Futebol SAD began the previous year,

with the preliminary announcement disclosed on 12 October, 2010. Its purpose comprised of 55,000

shares issued by the target company, corresponding to 11% of its capital. After the release of three

reports of the board of the offeree company, as well as the auditor's report on the offer price during

2011, the prospectus and the launch announcement was approved and the offer period ran from 28

December 2011 to 11 January 2012. The offer ended in 2012, and only 2,451 shares were acquired,

corresponding to a total value of 1348.05 Euros.


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On 13 April 2011, via a purchase and sale of shares contract, the company TAEM – Processamento

Alimentar, SGPS, SA bought the majority of voting rights of the equity of Manuel Inácio & Filhos,

SGPS, SA, a management company of investment in several companies, inter alia Rações Progado

Centro Sul, SA, a public company. Due to this and since an indirect control acquisition was launched

on said company, it was required that a takeover bid be launched. On said date, a preliminary launch

announcement for a general and mandatory public offer was made on the 1994 shares that were still

held by the offeror – Manuel Inácio & Filhos, SGPS, SA,. The consideration bid was set at 30.46

euros per share as per article 188 of the Securities Code by an independent auditor. The shares were

held by a small number of shareholders that were clearly identified, and the offeror requested the

CMVM’s authorisation in order that the acquisition be carried out via private legal business deal. As

from the moment said terms were met, the transactions that allowed the offeror to purchase the all the

shares that were not held yet, was fulfilled albeit via a diferent route – the underlying purpose of the

duty to launch a takeover bid, and as such, it was impractical to maintain the acquiring procedure that

said wished to establish and consequently, the relevant administrative procedure was defunct. On 7

December 2011, the extinction of the administrative for the registration of a general and mandatory

takeover bid on the shares representing the equity of Rações Progado Centro Sul, SA that was

preliminarily announced by Manuel Inácio & Filhos, SGPS, SA was disclosed by the CMVM to the

market due to the the lack on need to proceed since the offeror had acquired out of market and the

consideration bid had been set by an independent auditor as regards the entire amount of shares at

hand.

On 24 June 2011, Sociedade Comercial Orey Antunes SA, published via a preliminary announcement,

a decision to launch a partial and voluntary takeover bid, on 1,232,310 shares of its own capital, with

the compensation set at 2.17 euros per share. The takeover bid in question was the procedure found, in

accordance with the terms decided by the company, to perform one of the steps of a complex

transaction involving a subsequent addition of a public offering and capital reduction. Given the

circumstances of this offer, particularly the fact that the objective was that of the shares issued by the

offeror, said limited by the acquisition, of a minimum number of shares. However since it is a partial

bid, it was limited to the acquisition of a maximum of 9.5 % of the shares.


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The offer ran from 8 to 21 July 2011 and sale orders by shareholders totaled 11.805,049 shares

representing 90.8% of the equity of Sociedade Comercial Orey Antunes, SA, . The number of shares

was then allotted by the sale orders in order to provide equal treatment for the recipients of the offer.

2.4.4.1.2 Debt

For the first time in 2011, acquiring debt securities resorted to using the takeover bid mechanism. In

the transactions registered at the CMVM, the underlying reason for resorting to said mechanism was

the possibility of early redemption of issued bond loans or the possibility of allocating in exchange for

securities despite its distinctiveness. Said mechanism was used in in sequence, by Banco Comercial

Português, SA, Banco Espírito Santo, SA and Banif - Banco Internacional do Funchal, S.A that

launched general takeover bids for said purpose.

The launch announcement for the takeover bid (exchange) was released on 29 April by Banco

Comercial Português, SA.(BCP). BCP issued 1,000,000 undated deeply subordinated notes with a par

value of €1,000, representing each of the four series entirely which was previously issued by said

company. The consideration offered was new shares to be issued by Banco Comercial Português, SA.

Said offer ran from 2 to 13 May 2011 and have a 99.0% success rate. Only one of the series out of the

four was not totally purchased by the offeror.

On 11 November, the launch announcement and it prospectus for the takeover bid (exchange) was

disclosed and launched by Banco Espirito Santo, SA. The purpose was that of a total of six different

securities issuances (Perpetual Subordinated Debt Instruments with Conditional Interest issued by the

former and Banco Espírito Santo de Investimento, SA undated subordinated notes e non-cumulative

guaranteed step-up preference shares series A, issued by BES Finance, Ltd). The consideration that

was offered was comprised of securities following the issuance by Banco Espírito Santo, SA, of up to

437.192.751 ordinary shares with a par value of €1.80 and up to 639,758 cash bonds with a par value

of €100. Investors had two consideration options: consideration made up entirely of shares or 80%

shares and 20% cash bonds. The remaining fractions that did not entitle a security of those previously

mentioned were paid in cash.


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The offer ran from 14 to 30 November 2011 and had an acceptance level of 64.3% and 294,573,418

new ordinary, book-entry, par and no-par value representing 20.2% of the equity of BES after the

capital increase as well as 81.736 subordinated cash bonds with a par value of £100 each.

On 21 December 2011, a launch announcement for the general and voluntary takeover bid (Exchange)

was announced and launched by Banif – Banco Internacional de Funchal, SA for 100,000 self-

subordinated bonds. The offer was registered and ran between 22 December 2011 and 5 January 2012

and the relevant consideration to be paid in cash – comprised of up to 100,000 subordinated bonds to

be issued by Banif - Banco Internacional do Funchal, S.A..

2.4.4.2 Public Offers for Sale

As per resolution of the general meeting, Sociedade Comercial Orey Antunes carried out a public offer

for sale, reserved for shareholder with a maximum of 1,300,000 own shares (representing 10% of the

equity) at a unit price of €0.01. Said operation was carried out after acquiring 1,232,310 shares

equivalent to 9.5% of the equity of the issuer at a unit price of €2.17. Additionally, the company

carried out a capital reduction and distributed earnings brought forward. The number of shares sold

within the scope of said offer was 1,126,894 which correspond to a 91.4% success rate.

Table 37 – Public Offers for Sale

2.4.4.3 Publicity for Public Offers

Approval of publicity by the CMVM aims to fulfil the legal requirements of information quality for publicity

advertisement, namely, completeness, accurancy, authenticity, clarity, objectivity and lawfulness of said

information and furthermore and if applicable, as to harmonizing it with the information disclosed in the

prospectus.

Unit: Euro 10^3

Offeror Company Offer Period Final Amount Sociedade Comercial Orey Antunes, SA Sociedade Comercial Orey Antunes, SA 27 July to 1 August

2011 11.3

TOTAL

Source: CMVM.


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Most of the publicity approved by the CMVM concerned debt or derivative securities offers carried out by non-

residing issuers in Portugal. Concurrent with the prospectus disclosure, said issuers disclosed publicity

advertisements during the offer. However, the publicity concerning offers wherein its prospectus was approved

by the CMVM increased dramatically and even surpassed in number, the offers with prospectus passport.

.

Table 38 – Approval of Publicity Campaigns

2.4.4.4 European Prospectus Passport

The number of passport offers in Portugal received by counterpart authorities increased yet again. The CMVM

received 129 prospectus notices approved by other European authorities (98 in 2010). However, not all the

passports were actually used in Portugal.

Six of these passports pertained to Portuguese banking sector issuers:

: i) BCP and BCP Finance Bank, Ltd - 25,000,000,000 Euro Note Programme; ii) Banco BPI, SA/ Banco BPI

Cayman Ltd/ BPI Capital Finance, Ltd - Euro 10.000.000.000 Euro Medium Term Note Programme; iii) Banco

Espírito Santo, S.A./ BES Finance Ltd. – Euro 20,000,000,000 Euro Medium Term Note Programme; iv) Caixa

Geral de Depósitos Finance/Caixa Geral de Depósitos, SA - Euro 15,000,000,000 Euro Medium Term Note

Programme; v) Espirito Santo Investment p.l.c. & Banco Espirito Santo de Investimento, S.A. – euro

2.500.000.000 Euro Medium Term Note Programme; and vi) - Banif – Banco Internacional do Funchal, SA e

Banif Finance, Ltd – Euro 2,500,000,000 Euro Medium Term Note Programme.

Apropos the previous year, solely Banco Santander Totta, SA no longer had the prospectus approved by another

competent authority. EDP – Energias de Portugal, SA also had a prospectus approved based on a passport for

Portugal for the ‘Euro 12,500,000,000 Euro Programme for the Issuance of Debt Instruments’. Said prospectus

pertained to the bond offer worth 200 million Euro.

2009 2010 2011 Offers for Employees 8 8 12 Offers with Prospectus approved by CMVM 4 11 40 Offers with Prospectus Passport 30 83 39 Source : CMVM


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2.4.5 Loss of Public Company Status

The CMVM did not announce any loss of public company status, albeit Estoril-Praia – Futebol, SAD did

request loss of public company status as per and for the purposes of Article 27/1/b of the Securities Code by

Grupo Lagos. Said request was suspended based on the takeover bid by

Traffic Sports Europe, Lda. in accordance with the provided for in article 187 of the Securities Code which

derived from ascribing to the offeror, as per article 20/1 of the Securities code, over more than half the voting

rights that correspond to the equity of Estoril-Praia – Futebol SAD. The mentioned participation of the voting

rights of the target company resulted in a promissory contract, entered into by the offeror and Grupo Lagos on

the 11th of October 2010 for the acquisition of 370.000 shares at the total price of 200.000 Euro which

represents 74% of the equity of the target company and thus ascribing 74% of the voting rights. The result of

the takeover bid was disclosed on the 13th January 2012 and the loss of public company status was carried over

to 2012. Traffic Sports Europe, Lda took over from Grupo Lagos and is now the designated shareholder by the

company to acquire the shares in the loss of company status pursuant to article 27/3 of the Securities Code.

2.5 FINANCIAL INTERMEDIATION

2.5.1 Reception of Order on behalf of Third-Parties

2011 was denoted by a substantial drop in the value and number of orders submitted by investors to the

domestic financial intermediaries. There was also a reduction in the average size of orders (from €42,000 to

€36,900 overall). An increase in the number of orders and the corresponding value in the warrants and other

securities sectors were particularly salient in counteracting this trend.

Table 39 - Reception of Orders per Security


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CMVM

The decline in the average amount of the orders was particularly due to the reduction of this indicator in the

public debt sector, from an amount close to €2.8 million down to less than €1 million. This potentially displays

a drop in institutional investment in securities sovereign debt following the recent debt crisis, but it may

likewise illustrate a greater role by individuals in this sector of the capital market. In particular, there was a

notable reduction recorded in the value of orders for public debt by non-resident investors (-46.3%), namely,

institutional. A significant increase in the amount of orders from resident investors, especially, insurance

companies, pension funds and other institutional investors counteracted this decline. Implementing financial and

budgetary stabilization programs in addition to successive downgrading of credit ratings of certain European

states, has certainly contributed to withdrawal by non-resident investors from investing in the national sovereign

debt, despite the appeal of the yields highlighted in this market.

The shareholder sector was the largest contributor towards the decrease in the value of orders transmitted. The

uncertainties in the markets, the recessive impact that was perceived during the year and the effects thereof on

the performance of shares admitted to trading, led to the declining number of orders and value thereof. A drop,

in particular, was recorded in the value of orders issued by non-resident institutional investors, as the non-

institutional boosted by 35.8% in the overall value of orders aimed at financial intermediaries that were

authorised to carry out the activity in Portugal. The value of orders directed at Euronext Lisbon market was

significantly reduced to approximately €20.9 billion (as against €30.4 billion in 2010), along with a drop of

close to 10.5% in the respective average value (€1,400 less).47 Nonetheless, orders directed to Euronext Lisbon

accounted for around 40% of the total value of orders on shares. This is a percentage that is slightly higher than

that recorded in the previous year (approximately 38%). Furthermore, considering that the trading volume on

Euronext Lisbon reached €27,892.7 million, it was concluded that approximately 75% thereof was carried out

by domestic financial intermediaries.

Despite the substantial increase in the number of orders in private debt, the overall value declined by

approximately 20%. This contributed towards reducing the average value of orders by about €200 000 (-39.5%).

The abovementioned increase in the risk level of certain European States and successive rating cuts had some

contagion on the private debt and led to the departure of some investors from this market sector. The value of

orders issued by resident institutional investors fell significantly, particularly asset management companies (-

63.4%, with a prevailing effect on portfolio management activity) and insurance companies and pension funds (-

43.3%).

47

The increased volume of orders aimed at other markets such as Xetra, NYSE Arca, Euronext Paris and Deutsche Boerse

should be pointed out in this shareholder sector.


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The non-institutional investors displayed a distinct behaviour, with a 137.5% increase in the value of orders on

these securities (up to €7.6697 billion). The resident non-institutional investors substantially increased their

investment in this sector, being responsible for 63.5% of orders' value. An increase in "off market" trading was

also recorded with a weighting of approximately 73% of total orders on private debt.

Countering the trend of previous years, there was an increased investor yearning for trading covered warrants,

with a rebound in the overall value of orders issued on said instrument to levels higher than that of 2009.

Together with the upsurge (although slight) in the number of orders, the average size of orders rose by about

€700 (+23% in comparison with 2010). The insurance companies and pension funds were responsible for this

domestic recovery. Nevertheless, the increase in value of orders for this financial instrument was only partially

aimed at the domestic market. Institutional investors, in total, demonstrated certain stability in the value of

orders issued on covered warrants. However, an upswing of approximately €43 million in the value of orders

issued by non-resident institutional investors (+10.8%) was noticeable. Said investors were responsible for

nearly 71.1% of orders issued on these securities.

A significant drop was recorded in the orders on financial derivatives that were directed at domestic financial

intermediaries. It countered the vigorous recovery trend experienced in the previous year. This trend was

especially denoted by the reduction in transmission of orders on futures and contracts for differences.

Table 40 – Volume of Orders Received per Derivative

The decline highlighted in the contracts for difference sector (CFD) is not entirely unexpected. These financial

instruments are primarily traded by retail investors, largely resident, via electronic platforms (which is classified

by being OTC trading). These investors accounted for 95% of total number of orders. The potential reasons for

the decline of orders in this sector are the uncertainty due to domestic macroeconomic and trends in markets,

and also the growing supply of alternative products with a more appealing risk-return combination (such as

deposits). Another possible explanation stems from a possible replacement effect between trading platforms,

with the CFD investors conveying their orders to platforms held by non-domestic financial intermediaries (that

are under no obligation to report data to the CMVM).


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CMVM

There was a substantial contraction in the futures sector, with particular emphasis on contracts that have

exchange rates as the underlying asset (-76.3% compared to 2010). The value of orders on futures, which have

long-term interest rates (-26.4%) and Indices (-25.7%) as underlying assets, also fell. These three kinds of

contracts contributed towards a €83,000 million downswing in the value of orders. A considerable increase in

the value of orders on futures contracts, which have short-term interest rates and commodities as underlying

assets, off-set this decline.

Futures are widely used by institutional investors that aim to cover risks arising from their activities and also for

speculation on future developments of the underlying assets. The sharp decline in orders on exchange rates

futures and long-term interest futures is not separable from the instability that was experienced in the forex

market (especially the EUR/USD exchange rate trend) and the uncertainty as to the monetary policy trend of the

ECB and the Federal Reserve Bank, against a backdrop of financial crisis and restricting credit market. The

increase in trading commodity futures (and contracts for differences with the same underlying asset)

demonstrates a natural outcome of the instability currently prevailing in the equity and debt markets, in

particular, investor demand for higher rates of return.

The trend in investing in commodity derivatives is not indicative of the domestic financial intermediaries'

specific features. As previously mentioned, this is a global trend and there is indication of an increase in

propensity of exposure to precious metals (gold and silver) and crude oil. In 2011, the spot price of gold reached

a 33.8% gain (until September) and closed the year with an 11.0% gain. The spot price of silver also

experienced a substantial correction in the first couple of months of 2011, reaching 56.6% gain (until April) but

ended the year with approximately a 9.1% decline. The price of crude oil also displayed a positive trend during

the year, with the futures of the two leading benchmarks (West Texas Intermediate and Brent) indicating an

average appreciation of 12%.

The value of derivative orders directed to the Euronext Lisbon market fell to nearly half (-54%) when compared

with 2010, as a result of a substantial reduction in the value of orders from resident institutional investors (asset

management companies). The resident non-institutional investors displayed distinctive behaviour, by recording

an increase of €38.5 million in the value of orders and somewhat offsetting the contraction in investment by the

institutional investors. While the value of orders transmitted by residents remained relatively stable in the spot

market, the value of orders derived from non-residents (both institutional and non-institutional), dropped by

approximately 50%. This is indicative of lower penchant from foreign investors for the Portuguese market,

which results from uncertainty concerning the development of the domestic economy. Overall, it is estimated


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CMVM

that roughly 32.1% of orders received and executed on Euronext Lisbon are from domestic financial

intermediaries.

As in past years, investors went back to using the traditional channels (by telephone or fax, or in person at the

premises of financial intermediaries) for transmitting their orders. 84.4% of the orders in the spot market was

transmitted via these channels (83.9% in 2010), whereas in the forward market the same percentages were

68.5% and 67.5%.

Internet use was relatively stable in the forward market. The decline in transmission of orders on futures was

almost wholly offset by an increase in orders on contracts for differences transmitted via the Internet. The

stability recorded was also achieved by reducing the relative importance of other electronic means in the futures

market, due to the decrease in the value of contracts for difference orders transmitted via this route.

Table 41 – Volume of Orders Received on Behalf of Third Parties and Per Type of Investor


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CMVM

TEXTBOX 2 – TRADING OF SHARES IN THE EURONEXT REGULATED MARKET

The technological development that took place during the last decade led to most structures in worldwide

trading embracing electronic trading systems. Sustained by super computers, the trading logic in its design is

reflected and embedded into a set of meaningful electronic programmes that make use of regulatory criteria

previously laid down. The promotion of competition among trading venues within the European context, that

was rendered possible by MiFID in late 2007, stepped up recourse to using advanced technology in trading. This

improved the quality both of trading venues and the access means (connection) to these structures. In either

case, this provided an incentive for implementing trading strategies supported by electronic platforms.

The domestic context is not an exception thereto. Within the universe of Euronext trading markets, financial

intermediaries (Members) authorised to operate on the Portuguese regulated market of Euronext Lisbon feature

fully electronic trading electronic algorithms that are capable of carrying out transactions at time intervals of

less than a millisecond (e.g. in microseconds, or 10-6

seconds).

Therefore, it is important to get to know the Portuguese regulated market in greater detail. This is in regard both

to registration and the execution of intentions to (dis) investment (offers) from clients of financial intermediaries

(FIs) and/or FIs' own portfolio. The share sector of Euronext Lisbon is analysed below, notably as regards

securities of PSI 20 Index.


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Offers

An offer constitutes compliance with the intention to invest (order) by any investor or financial intermediary

before the trading system. The number of offers transmitted to the trading system of Euronext Lisbon in 2011

experienced a further increase (+5.4%). More than 48 million offers for the share sector were registered.48

As in preceding years, the securities comprising the PSI 20 Index were the most depicted, with about 91.5%

(44.1 million of offers) than that registered for the share segment. The 10 shares with the greatest number of

offers represent 79.4% of the total number of registered offers for this sector, with only one security

corresponding to 25.5% of this total. This means that there is a high concentration of intentions to invest that are

transmitted to the Euronext Lisbon trading system.

High Concentration of Offers – PSI20

Source: Euronext (CMVM Calculations).

Executed Offers

The level of execution of orders (i.e., orders that led to one or more trades for securities on the PSI 20 Index), on

average, was lower (-1.2%) that that recorded in 2010. Nevertheless, the total number of offers transmitted to

the share sector was higher (+3.1%) than that recorded in the same period, and the percentage of offers executed

fell, especially over the last 5 months.

48 On average, the shares sector is around 10.3% of the total number of offers registered each day on the Euronext Lisbon. The offers

registered for warrants and certificates account for the majority of said offers.


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Round Lot

As regards the round lot, (i.e. the number of shares 'offered' to buy or to sell in each offer and for each security),

on average, 88.5% of buy orders recorded in the trading system of Euronext Lisbon in 2011 showed a number

between 100 and 10,000 shares. The same average percentage for offers for sales was 87.9%.


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CMVM


Round Lot versus Offer Status.

From the association between the round lot of offers registered by FIs and its actual status resulting from

processing by the trading system, it was possible to detect that only 9.7% were executed within the 88.9% of

offers to buy with amounts between 100 and 10,000 shares, only 9.7% were executed. This figure reached

10.0% in the offers to sell, amounting to 88.3%.

A very small percentage of execution of orders (12.0% on average) in the share sector of the Portuguese

regulated market, as opposed to the high percentage of cancellations and modifications of orders (86.2%)

similarly mirrors, to some degree that seen in main world markets, the intense use of electronic trading

algorithms that respond to market events in milliseconds. It should be noted that the PSI 20 Index depreciated

by 27.6% during the course of 2011, but the percentage of sessions with positive appreciation (47.9%) was

somewhat less than that of the negative sessions (52.1%). This indicates constant changes (and the opposite) in


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the pricing of securities that comprise the said Index, which is very often triggered by shifts of position

(buy/sell) over short time intervals. This is a setting that is conducive to the use of electronic algorithms.

Share Sector Total

Offers to Buy Offers to Sell

Note: The group "Others" includes the other states (situation) that an offer may display before the trading system: cancelled at the end of the trading

session due to deadline date or because it is an exclusive offer for the session; cancelled due to a corporate event (e.g., payment of dividends, redenomination of the nominal value, inter alia); cancelled by the supervision of trading.


Processing Time

The processing time (latency) of an offer is one of the key conditions for the successful implementing of

strategies for High Frequency Trading (HFT). This indicator is obtained from the sum of two parts - the

processing time of an offer in the trading system49

and the time obtained by the distance between the FI and

trading system.50

In this analysis, only processing time with the first component was estimated since it was not

possible to obtain information on the latter.

In 2011, around one in three offers registered in the share sector of the Portuguese market was processed in a

millisecond (ms) (10-3

s). Processing in microseconds (µs = 10-6

s) took place in 2.7% of the offers. Nonetheless,

only 5.9% of offers were executed in milliseconds, which demonstrate that the high rate of cancelled offers

results in the crucial performance of electronic algorithms to instantly react to small variations in the quotation

of securities.

49 The time interval where the trading system takes to receive (via the firewall), execute, if applicable, and send the response (via the

firewall) about an offer. Also designated as “round-trip latency”. 50 Also known as “proprietary latency”.


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Offers Processed in Milliseconds

Note: (1) The executed offers only regard processing in millisecond. Source: Euronext (CMVM Calculations).

2.5.2 Execution of Orders on behalf of Third Parties

Orders executed on the spot market dropped 32.3%. This is a more significant downturn than that recorded in

the reception of orders for third parties (-25.0%). Nevertheless, the trend is similar in the reception and

execution due to the economy's slowdown and increasing instability in the markets.

The drop was largely determined by the execution of orders in the share and private debt sectors (-41.9% and -

30.6% compared to 2010). Shares continue to be the instrument with the greatest weighting in the execution of

orders with a 45.2% quota, despite the increased relative importance of the other sectors of the spot market,

especially public debt.


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Table 42 - Spot Market Trading per Type of Security

The substantial increase in the execution of other securities is in line with the increased value of the orders

transmitted by investors in this sector. The ratio of order execution as a percentage of the transmitted value rose

from 31.7% to 62.9%.

Orders executed on the futures market fell 10.2% (buffering the impact of the decline recorded in the preceding

year). This was to a large extent due to a substantial reduction in orders executed on futures (-51.9%). More

dramatic reductions were recorded in futures contracts on Indices and long-term interest rates.

The executed contracts for differences (CFD) (+66.3%) became the derivative financial instrument with greater

weighting in the total number of orders executed in the forward market. This reaffirms the growing number of

investors in said financial instrument. An increase of approximately €3.7 billion in the value of orders executed

on exchange rates contributed towards this (despite the sharp decrease in value of orders transmitted mentioned

above).

Table 43 – Orders Executed per Derivative

Overall, the domestic markets were again more important in executing orders as against the international

markets, with a 22% weighting in the total number of orders executed. Separating the two types of markets (spot

and forward markets), the international markets is of the utmost importance in forward trading while it was the

opposite in the spot market.


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Executing orders in the Futures Market experienced sweeping changes, with a steady reduction in the

importance of international markets offset by a substantial increase in the weighting of "off market" execution

(which currently accounts for 69.5% of the value of orders executed in the Futures Market compared to 29.6%

in 2009). This increase is largely due to the significant increase in the execution of orders on contracts for

differences, which is carried out entirely "off market".

Table 44 - Trading per Type of Market

The increased significance of OTC markets, both in the spot market and the futures market should be regarded

with particular concern since it contributes towards increased opaqueness of trading and reduced efficiency of

pricing and price signal systems resulting from a high level of market fragmentation and subsequent price

dispersion.

MiFID set up a regulatory framework for alternative forms of trading (already available) commonly referred to

as MTFs. Stepping up competition against the regulated markets contributed towards a decline in transaction

costs for investors. The adverse effects emanating from reducing trading transparency, the fragmentation of the

pricing system and liquidity in the markets cannot be excluded.

As stated above, the execution of orders OTC in the spot market accounted for 58.2% of the total number of

orders executed (slightly up from 2010.) Thus, the execution of market orders, regardless of type, is less than

half of the orders executed.

26.3% of the total number of orders was executed in Euronext Lisbon. This is a higher percentage than that of

last year (25.4%). This trend does not result from an increase in absolute terms of value of the orders aimed at

the Euronext market but it results from substantial decreases of orders executed by other means, particularly,

internalisation. By comparing execution on Euronext Lisbon with other regulated markets demonstrates that the

latter only represents 8% of the total value of orders executed in the spot market and therefore is negligible.

The execution of orders on Multi-Lateral Trading Systems (MTFs) by domestic financial intermediaries is

extremely low and recorded a drop in comparison to the preceding year. Only 0.31% (€263.7 million) of the


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total number of orders executed in the spot market was in the MTF (0.35% in 2010). The value of orders

executed in these systems represents 1.2% of the total executed in Euronext Lisbon (1.4% in 2010). PEX was

the most used MTF. This represented almost all the orders executed in these markets (97.1%). Unlike Portugal,

an impressive growth of trading on MTFs has been internationally recorded as opposed to regulated markets.

2.5.3 Trading for Own Account

Financial intermediaries may trade for own account on the spot market for the trading book, investment and

within the context of market making. The purpose of trading for own account on the futures

market may be for the trading book or hedging.

More than 80% of the value traded for own account in the spot market was directed at investment portfolio. As

for transactions on domestic shares, Portugal Telecom, EDP, Galp, REN and BCP corresponded to 71.5% of

total trading in shares for own account of domestic financial intermediaries. The trading book (85.3%) was the

key destination for transactions (almost entirely futures) in the futures market.

The securities traded for own account remained broadly the same as in the preceding year. Particularly salient

was some substitution of public debt for private debt on trading for own account. Since the value of trading for

own account involves price effect, this situation may have been due not only to the sharper devaluation of

sovereign debt than that recorded in private debt but also to the public offers carried out by domestic banks who

purchased debt already in circulation in exchange for new shares issued.

The value of trading for own account in other securities also remained fairly similar to that of 2010. However, it

should be pointed out that one financial intermediary was responsible for approximately three quarters of the

trading in this sector, basically due to trading in commercial paper.

Table 45 - Trading for Own Account per Security


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As regards trading for own account in derivatives, financial intermediaries have tended towards transactions in

futures. The relative weighting thereof has been steadily increasing. This type of trading in futures can mean

that for the last three years financial intermediaries have been opting for opening positions in instruments with

the purpose of covering the risk of spot positions held, especially within a market environment where a

substantial increase in volatility was recorded, or alternatively, use the futures for speculation and arbitrage in

the spot market. The value traded for own account in derivatives is nearly 16 times greater than that executed for

third parties.

Table 46 - Trading for Own Account per Derivative

2.5.4 Day-Trading

There was a drop in the average number of financial intermediaries carrying out day-trading during the year.

This decline follows on from a downward trend recorded over the last couple of years and hence the unusual

scope by being more substantial.

The total number of securities traded on day-trading climbed significantly, by moving closer to that recorded in

2008. However, the value51

traded fell 38.9% as it was affected by the general reduction in the price of traded

securities. The steady decline in share prices creates an atmosphere that is conducive to intraday transactions

wherein investors try to take advantage of the (anticipated) decreases in the securities price through short selling

that are offset, even within the same trading session, by transactions buying the same amount of securities.

51 The monetary values concerning day-trading result from one approximation exercise that regards as reference the closing figures in the

last session of each month for each security in the PSI 20 and therefore does not represent the actual value of transactions carried out in

in the market.


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Table 47 - Aggregate Data on Day-Trading

The value of intraday transactions conducted by institutional investors accounted for 17.1% (16.8% in 2010),

thereby breaking the trend towards an increased participation by institutional investors in recent years. Between

institutional and non-institutional investors, the Internet substantially enhanced its role as the preferred channel

to issue intraday orders. This is possibly as a result of faster transmission of orders that the electronic means

deliver within a sharper market volatility, which as it is well known, propels intraday transactions.

Table 48 - Day-Trading Distribution per Channel and Type of Investor


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2.5.5 Registration and Deposit of Financial Instruments on behalf of Third Parties

The value of financial instruments on behalf of third parties amounted to approximately €321 million. The

reduced values recorded on behalf of third parties were particularly acute in public debt (-39.3%) and shares (-

18.0%). Reducing the amount recorded on behalf of non-residents in public debt, was more pronounced and

resulted from the overall decline in prices of sovereign debt and also the divestment by foreign investors in this

kind of financial instrument as a consequence from the substantial increase in credit risk of Portuguese

government debt.

The weighting of values under registration and deposit attributed to resident investors surpassed that of non-

residents. This was more sharply reflected than that in 2010.

Table 49 - Type of Security per Holder

Last year, the industry’s concentration level fell 2.6 pp. The market share of the five largest securities custodians

reached 83.8%, whereas the HHI Index fell from 2,334.7 down to 1,994.1 points. BCP continued to hold the

largest market share (slightly over one-third of the value under registration and deposit in the domestic market).

2.6 ASSET MANAGEMENT

2.6.1 Individual Portfolio Management on behalf of Third Parties

After showing certain resiliency to the impact of the financial crisis, the year was prominent for the substantial

decline in the assets managed under individual portfolio management. The fall in assets managed extended

across all kinds of management entities that were active in this sector, but was more dramatic in credit


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institutions. However, in absolute terms, the decline in amounts under management was more severe (greater

than six billion Euros, corresponding to more than 50% of the total drop in the amounts managed in this

activity) in asset management companies. The decline in the assets managed appears to have been due to the

price effect resulting from lowering prices in the debt and equity markets and also due to a significant investor

withdrawal (in 2011 the number of portfolios under management fell by more than 10,000 i.e., approximately

one third of all managed portfolios at the end of last year).

Table 50 - Amount under Management per Type of Entity

An analysis per type of financial instrument managed shows that the decline in amount under management was

due to devaluation and disinvestment in private bonds, particularly those issued by financial institutions. The

"Other securities" category, which broadly-speaking includes financial instruments with returns profiles

contingent to the performance of other assets (futures, options, warrants and other derivatives), although hardly

relevant in absolute terms, was the only category where the value under management increased (and quite

significantly). This could demonstrate that managers have stepped up hedging transactions in portfolios and/or

used this type of instruments as possible leverage for increasing the profitability of these portfolios.


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Table 51 - Amount under Management per Type of Security

Regarding the distribution of investments per markets where financial instruments are admitted to trading,

excluding Portugal, the "Others" recorded a decline in amounts invested that were sharper in countries such as

Ireland (subject to an International Financial Assistance Programme) and Italy (which recorded a deterioration

of financing conditions in international markets).

The particular situation of increased investment in assets listed in the domestic market resulted from increased

investment in public debt. Notwithstanding a decline in the respective market value, increasing investment by

the managers enabled the amount invested in the Portuguese sovereign debt to reach €5.1 billion at the end of

the year (€600 million more than at the end of 2010).


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Table 52 - Investment per Country

2.6.2 Undertakings for Collective Investment in Transferable Securities and Special Investment

Funds

Once again, the amounts under management in securities investment funds declined substantially. This

reduction was sharper in the harmonised funds (UCITS) than in special investment funds. The treasury funds

and domestic share funds were the most blacklisted in the harmonised funds. The drop in amounts under

management was brought about by the withdrawal of investors (the number of participants in harmonized funds

declined by about 240,000, of which approximately 98,000 related to the treasury funds and 10,000 to domestic

share funds) and by the fall in prices of financial instruments comprising the funds' portfolio.

However, the number of active funds increased due to the establishment of new special investment funds (there

were nine active funds by the end of the year). It should also be mentioned that there are no more guaranteed

harmonised funds.


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Table 53 - Number of Funds and Amount under Management per Fund Category

A typical portfolio of harmonized funds and special investment funds underwent a few changes worth nothing.

On the one hand, and notwithstanding the adverse conditions that the debt markets suffered, there was increased

investment in domestic public debt and short-term debt instruments (which roughly include Treasury bills and

Commercial paper). On the other hand, there was a similar drop in the investment of domestic and foreign

shares. However, due to its magnitude, it was greater than the downswing in the PSI 20 Index, and postulating

that this Index's portfolio is typical of the average portfolio of investment funds in domestic shares, it appears

that besides the price effect there was also divestment by the fund managers in shares of Portuguese companies.


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Table 54 - UCITS and SIFs Portfolio Structure per Asset and Market Type

2.6.3 Holdings in Foreign Collective Investment Schemes Marketed in Portugal

Foreign UCITS marketed in the Portuguese market experienced a sharp downswing in the amounts placed, after

recording an inverse trend in the preceding year to the domestic securities investment funds. The percentage

decline in the value placed was almost double than that recorded in the amount under management of domestic

securities investment funds and special investment funds. This was not only due to the price effect because of

the drop in prices of most equity markets, but also the volume effect, reflected in the decrease of the number of

UCITS with placed amounts (-9) and reduction in the number of participants (more than 20,000 participants,

which means that nearly one in four participants fully redeemed its investments in foreign UCITS).


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Table 53 - Aggregate Benchmarks of Foreign UCITS

The number of marketing entities remained steady but the three key marketing entities had a very substantial

market share (65.4%) by the end of 2011. This is indicative of an increasing concentration in this sector.

2.6.4 Real Estate Investment Funds

The amounts under management in real estate investment funds fell 1.8% when compared to the end of last

year. In a value chain analysis of the amounts under management at the end of each year, it is the first time this

applies since real estate investment funds exist in Portugal.

The structure of the real estate portfolio remained fairly steady. The investment of funds in real estate outside

Portugal continued to be negligible but the value of immovable property in the EU Member States continued to

grow (particularly land and completed construction).


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Table 54 – Portfolio Structure of Real Estate Investment Funds

Nonetheless, there are two facts that are particularly salient and interconnected. The first relates to the decline in

the power of liquidity (-3 percentage points between 2009 and 2011) and the second to more debt weighting

(around about 450 million more between 2009 and 2011, without the amounts under management recording any

perceptible changes). Both facts can be explained by the pressure experienced by the management entities

regarding applications for redemption that were submitted by participants (only last year the number of

participants in real estate investment funds fell - just over 10,000 and all were retail investors). However, in

light of the adverse market conditions, there was also inability in disposing the properties pursuant to the

conditions compatible with the value recorded in the portfolios.


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TEXTBOX 3 – OPEN-END REAL ESTATE INVESTMENT FUNDS

The construction sector has been distinguished by a contraction in production since 2006. The output Index in

construction and public works by the Portuguese Statistics Institute stood at 52.6 points in December 2011 when

compared to 95.3 in September 2006 (corresponding only to output in the building construction). On the other

hand, real estate assets in Portugal have depreciated. A decline in mean Index of the banks' assessment of

accommodation, which began in the first quarter of 2010 and remains to this day, is indicative of the current

situation. For example, in the Lisbon metropolitan area, the value per square metre of accommodation was

€1,267 in December 2011 compared to a €1,447 in March 2010. In the Porto metropolitan area, there was a

similar scenario, with the average price per square metre falling from €1,126 recorded in February 2010 down to

€1,007 in December 2011. These figures point to price corrections of 12.4% and 10.6%, respectively, over a

period of less than one year. Although this serves as an example, for not encompassing the whole real estate

assets and in particular those normally comprising portfolios of open-end real estate investment funds

(services, commercial property and others), these price cuts are symptomatic of the difficulties encountered in

real estate in Portugal.

Real Estate Investment Funds Indebtedness

Source: CMVM.

Note: Including REAMF.


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These difficulties are further magnified by the decreasing number of investors, and respective sum invested. O

The real estate funds sector recently recorded a decline in subscriptions from participants. The open-end real

estate investment funds lost participants for six quarters in a row between June 2010 and December 2011. The

value of assets under management recorded consecutive quarterly decreases from September 2010 until

December 2011. As with most sectors of the fund industry, the reduced inflow of investment in open-end real

estate investment funds can also be explained by the competition that the funds are subject to by alternative

financial products (e.g. bank deposits, classic or structured, complex financial products, etc.).

The combination of contracting activity with price decline and an increase in indebtedness (and even some

unwillingness to granting credit) made carrying out economically priced real estate transactions from the selling

perspective of the fund. This led to difficulties in producing liquidity from essentially illiquid investments.

The issues described above and hardship that the open-end real estate investment fund sector is facing comes

down to the difficulty of raising financing for the purchase of real estate and addressing redemptions from

participants. The economic and financial conditions in the sector and investor behaviour led to an increase in

resorting to borrowing by the open-end real estate investment funds. The upswing in the real estate investment

funds’ indebtedness was due to an increase in the debt burden of open-end funds, as the closed-end funds

suffered a slight tumble.

Real Estate Investment Funds Indebtedness –

Open-End Vs Closed-End

Source: CMVM.

Note: Including REAMF.


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Open-End Real Estate Investment Funds Benchmarks

Though the number of open-end real estate investment funds is comparatively low against the total number of

real estate investment funds, the weighting of open-end real estate investment funds was 33.2% of the total

assets under management of real estate investment funds by the end of the year. Negative net subscriptions in

open-end real estate investment funds were recorded, around €395 million. This results in an 8.4% decline of the

net asset value of the funds from the previous year. The first edition of CMVM Risk Outlook CMVM shows a

detailed analysis of the real estate investment funds market.

2.7 SECURITISATION FUNDS

2011 continued with the strong trend with the banks resorting to securitisation and a substitution effect between

the establishment of funds for bond issuance by securitisation companies continues to prevail. These maintained

the number of issues, although there was also a drop in the amount of new transactions in comparison to the

preceding year. It is likely that in 2012 the banks' interest in securitisation will decline, (as a temporary

measure) as the ECB elected to allow the central banks of the countries in the Euro area to accept credit

portfolios without being securitized as collateral in Eurosystem credit transactions. This will be possible by

complying with specific requirements, including those related with the creditworthiness of the assets concerned.

The ECB's decision set a disincentive for banks to package securitisation transactions.


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Table 55 - Portfolio Structure of Securitisation Funds

2.8 VENTURE CAPITAL

The total amount under management of domestic venture capital operators increased by 12.4% in 2011,

amounting to approximately €2.6 billion at the end of the year (includes 754.8 million for venture capital

companies - VCC; and 1,887.6 million for venture capital funds - VCF). The increase in the amount under

management was primarily due to the venture capital funds. There was a €280 million upswing in the amount

under management mainly due to 20 new funds starting activity and paid-up capital formerly subscribed in

previously active funds. The dynamics of venture capital over the last few years has been focused on increasing

the amounts managed by venture capital funds. Said value has stayed fairly steady in venture capital

companies.

Nevertheless, it should be noted that as a result of implementing the Accounting Standardisation System

(SNC)52

, the net asset value of the funds (NAV) now includes merely the portion of capital subscribed and

already paid-up. Thus, trends in amounts under management in venture capital funds also reflects the impact of

capital calls that took place in 2011.

52 The SNC was approved by Decree-Law No. 158/2009 of 13 July and was implemented as from 1 January 2010.


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Table 56 – Venture Capital Companies Investment Portfolio

The increased number of funds is primarily due to the contribution of the Lisbon and Algarve Regional

Operational Programmes and the Financing Support System and Risk Sharing Innovation (SAFPRI) 53

within

the National Strategic Reference Framework (QREN), which subscribed to capital in 17 out of 20 funds

established in 2011. These support programs appear as a complementary mechanism for financing and risk

sharing of innovation within a context where the financial environment encourages the development of

strategies for innovation, growth and internationalisation of companies, particularly the most recent and smaller-

sized companies. Within this context, the increase in the amount managed by venture capital operators was due

mainly to two VCFs: ECS - SCR, SA (an increase of €296 million in amount under management) and Espírito

53 SAFPRI is implemented using as the preferred vehicle Support Fund for Financing Innovation (FINOV), which involved, among

others, the capital of Venture Capital Funds. The instruments of company financing are selected in the case of VCF by the following tenders:

a. No. 01/SAFPRI/2009 – Establishment or increase of Venture Capital Funds for Innovation and Internationalisation of SMEs;

b. No. 02/SAFPRI/2009 – Establishment or increase of Venture Capital Funds for Corporate Venture Capital;

c. No. 03/SAFPRI/2009 – Establishment or increase of Venture Capital Funds for supporting Early Stage projects; and

d. No. 04/SAFPRI/2009 – Establishment or increase of Venture Capital Funds for supporting Pre-Seed projects.


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Santo Ventures - SCR, SA (an increase of €40 million in managed assets for venture capital). However, this

upswing in the amounts under management triggered a decline in the weighting of equity capital in the VCFs

global portfolio (which was already lower than 50% in 2010). Taking into account that venture capital activity is

generally viewed as an intervention in companies via acquisition of equity interests, the specific structure of the

Portuguese market for venture capital is of particular concern.

Table 57 – Venture Capital Funds Investment Portfolio

As regards investment stages favoured by venture capital investors, there were no major changes to the structure

of investments, with the stages of expansion and replacement capital continuing to be the most important.

Nevertheless, the turnaround transactions were particularly salient, i.e. strategic reorientation or recovery of

companies, in light of structural changes in the economy. This venture capital stage recorded an increase of

€224.5 million in the amounts invested. With less prominence in light of the value, but nonetheless important

due to the restrictions and tightening of bank loans to domestic companies, venture capital played a role in

refinancing the bank debt (€21.2 million more than in 2010). On the contrary, investment in the incubating of

entrepreneurial ideas (seed capital) continued to be small.


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Table 58 – Investment Stages of VCF & VCC

Some changes were recorded in sectors that venture capital focused on. Financial activities continued to play a

crucial role in investments (approximately 25.5% of total investments). The manufacturing sector rose in

prominence as target for investment and now represents 18.7% of total investments. Finally, the sector relating

to technologies aimed at environmental areas (collection, treatment and distribution of water, sanitation and

waste management and clean-up system) accounted for 14.3% of venture capital investments. Nevertheless,

almost all investments in this sector were carried out by a large venture capital company that invests exclusively

in foreign companies' shares.


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3. SUPERVISION AND REGULATION

3.1. INTEGRITY, RELIABILITY AND PROTECTION OF THE SECURITIES MARKET

3.1.1 Supervision of the Markets, Management Entities of the Markets and Settlement

and Clearing Systems

As usual, the CMVM continued to pay close attention to the supervision of markets and management entities of

markets and clearing and settlement systems. This includes the spot and derivatives markets managed by

Euronext Lisbon, the Special Public Debt Market (MEDIP) managed by MTS Portugal, the PEX Multilateral

Trading System managed by OPEX, the Electricity Derivatives Market managed by OMIP, the Central

Depository and the Settlement System managed by Interbolsa and the Clearing and Settlement System managed

by OMIClear.

3.1.1.1 Supervision of Trading Structures

The supervision of market infrastructures includes two components: the prudential monitoring of management

entities and the daily monitoring of activity and reliability of markets and systems. Compliance with the

prudential rules relating to the economic and financial situation of the entities and activity's trends were

confirmed. The CMVM focussed attention on the internal control systems implemented, the amounts under

custody within the scope of the guarantee fund promoted and managed by Euronext Lisbon and compliance with

disclosure requirements.

Monitoring the management entities' activity included analysing the several amendments made to the operating

rules of the markets and systems. As regards new projects, the Alternext Multilateral Trading System was

established by Euronext Lisbon. The respective registration was recorded with the CMVM and the process for

European harmonisation of the respective rules was started. This was completed in 2012. The following are

particularly salient within this context: the reformulation of the ETF concept and the addition of ETN

(Exchange-Traded Note) and ETV (Exchange-Traded Vehicle) definitions. Supplemental liquidity providers

were created on the regulated market. These are market members qualifying for a reduced price list in

consideration for assuming liabilities for access to the market at certain price levels, i.e., European Best Bid and

Offer. In light of concerns over the quality of rules in force, adjustments were carried out whenever

improvements were identified (the following were amended, inter alia, Regulation I, Trading Manual and

Annex, Trading Procedures and Corporate Action Policy).


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OPEX rules for one of the mechanisms used for the settlement of transactions carried out on the PEX-MTF were

amended. The settlement system, PEXsettle, was terminated and mechanisms were established for the

settlement of transactions carried out thereon, including via bilateral settlement of transactions, with clearing

being possible, in accordance with the settlement option defined. Further adjustments were included that were

aimed at clarifying the rules or including new trading sectors.

Futures and swaps contracts with daily and weekend maturities were introduced in OMIP. The market started

offering the possibility of trading futures on a daily and weekend basis - SPEL base load, and also daily futures -

SPEL peak load. It also envisaged the possibility of recording off-market trades on swaps on a daily and

weekend basis - SPEL base load. All contracts permit only settlement. Modifications were also made for the

admission to trading of futures on the PTEL Index, with base load and settlement, as the market merely

envisages the trading of these contracts exclusively with settlement. Amendments to the operating rules of the

MIBEL derivatives market were also carried out so that auctions for sales under Special Regime Generation

could be accommodated. OMIClear, the clearinghouse with duties as central counterparty and management

entity for the settlement system of transactions carried out/registered on the MIBEL derivatives market was also

indicated as being responsible for ensuring said duties in respect of instruments placed in the auction sale of

Special Regime Generation. The necessary amendments were made to the applicable rules.

The rules of the settlement systems managed by Interbolsa were likewise amended. Improvements were

implemented in the automatic adjustment of interest payments and repayments in the transactions awaiting

settlement and amendments to the operating rules of the centralised systems deriving from procedures for

transferring the securities provided as collateral. The rules aimed at implementing the system applicable to the

registration, maintenance and settlement of investment units in investment funds were amended. New features

were developed in order to enable the registration and settlement of investment units to be automated. This

includes open-end funds and fractional amounts of investment units up to a maximum of eight decimal points.

3.1.1.2 Supervision of Trading

The procedures for supervising debt securities are undergoing an upgrade and also include financial instruments

relating thereto, such as the CDS. There are two investigation processes already linked to the sovereign debt

market: one aimed at performances in the equity market prior to the disclosure of declines in the credit rating of

sovereign debt, notably short selling strategies and the other had signs of debt market manipulation.

The Integrated Market Surveillance System (SIVAM) and transaction analysis continued to be decisive in

combating market abuse. Almost all the investigation cases opened came from analysing specific transactions

through SIVAM's operation. However, certain investigation processes arose from suspicious transaction reports


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undertaken by supervised entities subject to the analysis and reporting duty. A project was launched during 2011

to develop a new SIVAM module, envisaged on the establishment of said programme, so as to make it more

comprehensive and adapt same to new market conditions, especially algorithmic trading, including high

frequency trading.

The CMVM pursued real-time monitoring of trading in financial instruments with special attention being paid to

the share and bond markets managed by Euronext Lisbon. 1,022 potentially anomalous cases were detected and

recorded. These were analysed on a preliminary basis and discussed within the CMVM Supervision Committee.

The events examined corresponded in the vast majority of transactions carried out at prices considered to be

abnormal in light of the market having knowledge of the specific information, intervention quota in abnormal

trading and the disclosure of information through the mass media or other information sources, without prior

disclosure to the market via the information disclosure system.

Further progress was made in the supervising short selling in domestic regulated markets. Particular attention

was paid to the compliance of short positions reported to the CMVM and the market with the requirements of

Regulation No. 4/2010. 20 short positions were analysed on average per month. These were reported by 49

entities, including 18 issuers of domestic shares. Particularly salient at the European level are the measures

aimed at banning the holding of short positions in financial shares in five countries: Belgium, Spain, France,

Greece and Italy. These measures were taken during August 2011, which was a period depicted by high market

volatility, and in particular securities in the banking sector. The CMVM monitored developments in this field

nationally and paid special attention to the contagion effect that this ban might have within the Portuguese

market.

Failures in settling transactions carried out on the stock exchange were periodically analysed, focussing

particularly on the most volatile trading periods of the year.

Implementing the "General Procedures on Supervising Inside Information" enabled the time for identifying

information to be provided to the market by companies to be reduced. The continued implementation of these

procedures and knowledge and internalization thereof by companies resulted in a reduced response time when

compared to the past.

19 issuers were required to provide clarification in 54 cases. The procedures adopted led to the publication of 23

inside information communications to the market, whereof some were on the companies' initiative. In four

instances (involving six issuers) trading was suspended in order to ensure that same was due to circumstances

that were part of the information deemed relevant for a proper assessment of securities.


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The number of days (211) wherein the suspension of trading in securities took place dropped in comparison to

2010 (373). This number was motivated by the suspension of the shares of Papelaria Fernandes on 26 March

26 2009 that lasted until 27 July 2011. The trading suspensions included another seven shares and 13 futures.

The futures suspensions were due solely to technical factors relating to this market's management entity. The

suspensions recorded on the share market were decided by the CMVM, especially if there is evidence of

including information not publicly disclosed in the corresponding prices or require including material

information to disclose at the trading session. The CMVM ordered suspension of the following shares: Galp

Energia, Grupo Media Capital, Sporting SAD, SL Benfica SAD, Banco Popular Español (after the suspension

ordered by the Spanish Regulator - CNMV), EDP and EDP Renováveis. Furthermore, the suspension of trading

of bonds issued by Parpública and trading of perpetual securities with conditional coupons issued by Finibanco

were also ordered.

3.1.2 Supervision of Financial Intermediation

The CMVM stepped up the supervision of financial intermediation activities, the implementation of specific

mechanisms and procedures, which enable financial intermediaries to comply with current regulations and the

verification of practices followed by financial intermediaries in business relationships established with its

clients.

15 on-site supervisory actions were carried out throughout the year and concluded at the premises of financial

intermediaries and fund management entities. As regards asset management, four were conducted in

management entities of real estate investment funds, five in management entities of securities investment funds

and one in an asset management company. Five on-site supervisory actions at the premises of domestic credit

institutions were conducted in the field of financial intermediaries. The supervisory actions conducted within the

asset management context included new issues as against past experiences. Examples of this are compliance

with Management Regulation, subscriptions and redemptions and debt ratio transactions, the disposal of real

estate transactions, client complaints, the costs allocated to investment funds and contracts concluded on behalf

of investment funds, inter alia.


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TEXTBOX 4 – ON-SITE SUPERVISION AT THE PREMISES OF THE SUPERVISED ENTITIES

The activity of supervising financial intermediaries and investment fund management entities continued to be a

priority. Notwithstanding the prudent educational perspective of supervision, with the primary goal of

promoting compliance with regulations, there are areas of activity wherein the duration of the new rules (e.g.

MiFID) substantiates that full incorporation and compliance thereof by financial intermediaries is required. In

these circumstances, the educational component was followed by enforcement measures that are deemed

appropriate and proportional.

On-site Supervision

The supervisory actions that took place in the management companies of investment funds included seven

routine and two extraordinary actions. Five of the actions only covered the aspect of managing real estate

investment funds, only two related to the area of managing securities investment funds and the other two

covered both these areas. One of the extraordinary supervisory actions was aimed at the management entity of

an open-end real estate investment fund, and was prompted by successive breaches, for the cashflow situation

and other peculiarities. This action focused particularly on subscription and redemption transactions that took

place in this fund, the transactions carried out and the costs allocated by the fund (financial costs and

management fee). Although limited in scope, the other action was aimed at a management company of securities

investment funds and was prompted by continuous breaches of statutory requirements. This action especially

covered transactions carried out, validation of statutory and contractual requirements applicable (namely,

derivatives) and confirmation of enforcing the compliance with these requirements.


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As regards financial intermediaries, 2011 was denoted for supervisory actions that particularly addressed the

following issues: i) the classification of clients and assessment of the type of transactions suitable for clients ii)

the marketing of financial instruments and similar instruments with special focus on complex financial products;

iii) the provision of information to clients, iv) compliance with the procedures established for detecting and

managing potential conflicts of interest and v) within the duty to safeguard clients' assets, asset segregation

between the client and the supervised entity. The matters under supervision relating to the marketing and

advertising of complex financial products are dealt with in detail later in this report (Textbox 11).

Issues covered at On-Site Supervisory Actions in 2011

From the supervisory actions carried out, it was concluded that financial intermediaries comply broadly with the

behavioural standards applicable. However, some breaches and shortcomings were detected, with particular

focus on the areas of organisation, resources, enforcement system, risk management mechanisms, compliance

with management rules and regulations, registration and accounting. Notifications were issued by the CMVM to

financial intermediaries requiring compliance with regulations breached, within deadlines laid down for this

purpose. This triggered infraction proceedings in the most serious cases.


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Supervision of Reports from the Internal Control System and the External Auditor

The suitability and effective compliance with the policies and procedures implemented by financial

intermediaries was assessed by analysing the internal control reports. Said policies and procedures were

implemented for detecting and managing potential breaches of the duties to which said intermediaries are

subject. An analysis of the internal control system's reports included a critical review of the shortcomings

reported for the audit and risk management areas of financial intermediaries, together with their potential

impacts on the structure, organisation and financial soundness of these intermediaries. Whether there was any

specific plans for correcting such shortcomings and determine the reasonableness of the deadlines for

implementation thereof was checked. The main weaknesses identified in the internal control system's reports

were the following: i) inadequate IT developments and predominance of manual controls and mechanisms for

inserting information, ii) poor procedures for the marketing of complex financial products to clients; iii) lack of

procedures and inadequate controls for managing certain risks detected; iv) shortcomings in contracting with

entities responsible for the custody of securities, v) lack of or outdated business continuity plans and disaster

recovery plans, and vi) lack of independence and autonomy of the risk management role.

50 internal control reports were received and analysed. Said reports related to management companies for

securities and real estate investment funds (47) and management companies for securitization funds (three) for

the second half of 2010 and the first half of 2011. The analysis revealed a number of shortcomings, basically

concerning failure in the mandatory aspects and shortcomings in the fundamental aspects of the report.

Omissions were noted in i) identifying the persons responsible for the organisational unit and the presentation of

the correspondence between functional areas and structural units; ii) a description of the risks relating to each

financial intermediation activity carried out and the existing procedures and control systems; iii) show the

requirement of independence54 of the person responsible for compliance with the control system; iv)

demonstrate the development of procedures for enforcement by compliance; v) submitting the information,

separated per type and functional area, on the number and total amount of the transactions assessed in

accordance with Law on Money Laundering; vi) display information on the number and total amount of orders

and transactions in financial instruments assessed within the scope of market protection; and vii) calculation of

the number of complaints received, analysed per financial intermediation activity and subject matter and stating

the average response time to the complainant. Furthermore, there were also shortcomings in respect of

54

Proof of independence requirement of the compliance duty is based on checking compliance with the duties laid down in

Article 305-A of the Securities Code, and being required, particularly pursuant to paragraph 2 of the abovementioned

Article, the establishment of an independent enforcement system which covers at least the monitoring and assessment of

the suitability and effectiveness of measures and procedures adopted for detecting risks of failure to comply with legal

duties and regulations together with measures taken to address any shortcomings, by keeping a record of the infringements

and measures adopted (including the immediate submission to the Board of Directors of any sign of a breach) and also the

drawing up and submission of a report (at least on a yearly basis) on the system for monitoring compliance to the Board of

Directors and Supervisory Board.


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omissions carried over from preceding internal control systems, which had not been rectified or for which no

acceptable reason was provided for postponing the resolution thereof.

Additional information was requested where insufficient information was provided by the internal control

reports. It was conveyed to securitisation companies that the legal framework and current regulatory

requirements relating to internal control for financial intermediaries are applicable to said companies and that

these entities are required to draw up and submit the internal control report to the CMVM.

Auditors Reports

Pursuant to Articles 306 - 306-D of the Securities Code, the auditors should submit to the CMVM a report with

an analysis on the adequacy of procedures adopted by the financial intermediary for safeguarding clients' assets.

56 reports were examined. The following were identified as the leading shortcomings listed by auditors: i) lack

of rules and internal procedure manuals and/or outdated; ii) failure to notify the CMVM of the differences

between the amount of securities registered in enforcement of custody and quantities submitted by the

custodians, and which continued for over a month; iii) poor/no formal evaluation of custodians; and iv)

improper validation and monitoring of documentation relating to clients’ instructions.

The four large international auditing firms continued to provide its services to the majority (63%) of analysed

financial intermediaries. The number of individual auditors providing audit services to financial intermediaries

increased from two to three.

The audit reports on the financial statements of securities investment funds and real estate investment funds as

at 31 December 2010 and 30 June 2011 were analysed.

Table 59 - Auditors Reports concerning Securities and Real Estate Investment Funds


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The qualifications pointed out related mainly to issues of inadequate provisions and asset evaluation. The

observations identified basically focus on: i) criteria or methods of asset valuation, ii) failure to comply with

investment restrictions; iii) continuity of transactions, tax on potential gains; iv) ongoing legal proceedings, v)

property valuations where the difference exceeds 20%; and vi) comparability issues in financial statements (due

to current restrictions in past years or due to new funds).

41 auditors’ reports for the certification of annual financial statements of securitisation funds were also

analysed. Four of these reports contained observations. Four auditors’ reports on the annual financial statements

of securitisation companies were also analysed, whereof one contained observations. The four observations

pointed out by auditors primarily focused on: (i) exceeding the restrictions of the investment policy as defined in

the Management Regulations; (ii) mention of qualifications identified in prior years; and (iii) the existence of

the merger process related to the transferring entity. An observation pointed out by auditors in the annual report

of securitisation company was prompted by the sole shareholder (Lehman Brothers UK RE Holdings Limited)

in the company being bankrupt since September 2008.

Supervision of Financial Analysis

Supervising the drafting and disclosure of investment recommendations ("research") continued in 2011 with the

purpose of preventing the disclosure of financial analysis that is not in accordance with current regulations.

There are three main aspects to supervising this activity: (i) a formal analysis, in order to check whether the

reports include all the required information, (ii) a brief analysis of the contents of investment recommendations,

especially as regards the evaluation model and the underlying assumptions, so as to assess its consistency with

the target price displayed. Particular attention is paid to reports at the beginning of coverage circumstances that

changes the recommendation's meaning and may undergo an in-depth analysis, where applicable; (iii) a detailed

analysis, where the context within which the investment recommendation was issued is examined in more detail.

Whenever necessary, the CMVM asks for additional information and explanations from the financial

intermediaries so that the contents and meaning of investment recommendations can be ascertained, notably the

valuation model utilised. Furthermore, the news reports involving the sector/company and other investment

recommendations concerning the same issuer were also analysed.

The in-depth significant analysis of several financial analysis reports were stepped up. Several computer models

underlying investment recommendations were requested and analysed. The sharp price drops that domestic

issuers' shares experienced in the market led to the financial intermediaries revising downwards the price target

and/or investment recommendations repeatedly during the year. This prompted several requests for clarification


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from the supervisor. Some detailed analysis derived from questions posed by investors, issuers and financial

intermediaries, inter alia.

The CMVM found websites containing investment recommendations where the research analysts were not

registered. The CMVM ordered the immediate suspension of the investment recommendations' disclosure by

requiring preliminary registration of the research analysts and the adaptation of contents pursuant to legal

framework in this regard.

The CMVM currently receives research reports from 31 financial intermediaries. This includes 11 domestic and

20 foreign. Last year, the number of financial intermediaries that submitted reports to CMVM amounted to 41

(11 domestic and 30 foreign). Several foreign financial intermediaries dropped coverage of domestic shares as a

result of sharp depreciation of Portuguese share prices and mostly due to the increase in risk aversion of the

country by foreign investors.

Chart 61 – Types of Investment Recommendations

676 investment recommendations were identified in 2011, whereof 41% were drawn up by domestic financial

intermediaries and 59% by foreign financial intermediaries. The CMVM carried out in-depth analysis in 15

cases concerning investment recommendations (this included 42 financial analysis reports, two evaluation

models and a disclaimer of an investment report). Six financial intermediaries were responsible for 57% of total

investment recommendations identified, with BPI, Millennium Investment Banking and Espírito Santo Equity

Research and foreign - Goldman Sachs, Santander and UBS being the most active in producing financial

analysis of listed companies. 51% of the total recommendations identified were recommendations to "buy", 15%


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"sell" and 34% "hold". The percentage of "buy" recommendations dropped by 8% from the previous year, but

remained relatively high compared to what could be expected following the falling share prices (in some

instances above 60%). Approximately 38% of the recommendations identified concerned five securities (Galp

Energia, Brisa, EDP Renováveis, Jerónimo Martins and Portugal Telecom). This was a lower percentage than

that in 2010 (44%).

TEXTBOX 5 – MODELS FOR RISK SUPERVISION

The CMVM's supervisory models were revised and redesigned throughout the year. The principle behind this

review was the standardisation of the models applicable specifically to each of the groups of entities supervised

by the CMVM, by guiding them back to common principles and rules. It is purported through these measures to

ensure that the CMVM supervises every entity covered by Article 359 of the Securities Code more effectively

and efficiently. The ultimate aim is to protect investors, ensure efficiency and orderly functioning of the markets

in financial instruments, monitor the quality of information related to these markets and prevent the risk

(systemic or not). Basically, this is defining a global model for supervision, which, in accordance with

international best practices, risk-based, enables an effective allocation of current resources and prevents failures

from taking place in the market for financial instruments. The model assigns a risk rating to entities subject to

the CMVM's supervision, classifying and select said entities for supervision based on the level of risk posed.

Likewise, seven specific models of supervision were developed for different groups of entities: financial

intermediaries in general (including the individual portfolio management activity), collective investment

schemes, financial statements, auditors, qualifying holdings, securitization and venture capital. Each model

includes details resulting from the particular characteristics of the groups of entities aimed at, in particular the

type of information for the purposes of classification according to the risk criterion.

The global model is based on two key variables: impact and probability. Impact concerns the relative size of the

entity in the market segment wherein it operates. Probability refers to the susceptibility of a fault occurring

within the entity. Quantifying risk according to this variable allows for subjective intervention and depends on a

number of specific factors for each group of entities, such as the complexity of activities and the quality of

organisational requirements particularly with regard to the functions of internal control and auditing. The model

measures specific risk of each entity and identifies internal areas of higher risk within the organization, thus

guiding the effort and determining the depth of supervision among different entities by optimising human and

financial resources. Although all entities continue to be subject to supervision, the ones with a higher risk will

be more closely supervised.


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The risk model is a safeguard against occurrence of relevant failures in the market of financial instruments and

minimizes the likelihood that investors suffering asset losses or suffering threats to the security of their assets.

At least one supervisory action shall be carried out in each supervisory cycle on the premises of each entity with

head office or branch in Portugal, with the exception of securities issuers. The risk model requires the existence

and functioning of mechanisms for continuous monitoring of activities carried out by entities. There will be an

annual programme for supervision wherein are identified the entities to be supervised. Notwithstanding the

planning, entities not included in the annual programme may be subject to specific supervision whenever there

is a change in the respective risk during the course of continuous monitoring. The functioning of the model

assumes several security controls and an audit is scheduled for each supervisory cycle.

3.1.3 Supervision of Asset Management

Supervision of Collective Investment Management

The procedures for prudential supervision of securities and real estate investment funds were pursued in the

daily supervision of collective investment management, within the monitoring of periodic information (i.e.

daily, monthly or quarterly) reported by management entities, particularly as to the amounts disclosed for

investment units, eligibility and valuation of portfolio assets and the legal and contractual limits (by sampling)

which are binding on investment of the funds’ assets.

Instances of possible conflict of interests and procedures for error analysis of the appreciation of investment

units in investment funds were the priority areas under scrutiny. 126 errors in the appreciation of investment

units in investment funds were detected and corrected in the latter case. This included 97 relating to securities

investment funds and 29 to real estate investment funds.

Within the context of analysing possible conflict of interests, stress was placed on preventing such cases. The

portfolios of securities and real estate investment funds were analysed across the board, with the aim of

assessing the competitiveness of the remuneration of demand deposits and term deposits made on behalf of

funds and particular attention was paid to demand deposits with banking institutions within the same group as

the management company. This analysis resulted in the issuance of notices in order for management companies

to ensure competitive remuneration for such banking deposits. The performance of funds was also analysed

within asset exchange offers launched by banking institutions towards improving its own capital and

compliance with the minimum capital requirements as set out by the Portuguese Central Bank (Banco de

Portugal) in "Core Tier 1".


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The analysis measured whether, in light of the prevailing market conditions, the conduct of funds aimed at the

participants' sole interest. It was concluded that there were no signs of conflict of interests in the funds'

performance at time of sale, taking into account the conditions of the exchange offers analysed and prevailing

market conditions.

The CMVM closely monitored 22 cases of winding up funds, especially those involving structured funds that

were liquidated because said funds had reached the deadline envisaged in the respective constitution. The

mechanisms for examining cases of funds' liquidation was focused mainly on validating the correct calculation

of amounts to be paid to participants and compliance with the provisions, namely, based on the disclosure of

information.

Table 62 – Winding up of Investment Funds per Reason

As a result of the supervision carried out, management companies were notified in order for any irregularities

that were detected to be rectified. Cases were also drawn up aimed at establishing administrative infractional

liability. The number of shortcomings detected concerning securities investment funds was primarily concerned

with investment policy and included ineligible assets and exceeding the contractually established limits. The key

occurrences of non-compliance in real estate investment funds (REIF) pertained to shortcomings in the Reports

on real estate appraisal and the valuation of properties in the portfolio.

In view of the debt markets situation during 2011, particularly the high volatility in prices, instability of the

markets in financial instruments and declines in credit ratings of States, the valuation of assets comprising the

portfolios of investment funds was under close scrutiny, particularly concerning the bonds of securities

investment funds.


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Shortcomings in the quality of information disclosure to the CMVM were detected and certain discrepancies

between the values of assets utilized in the portfolio's valuation and its corroborative documents. This caused

the management entities to be notified, the subsequent rectification of shortcomings detected and the

implementation of mechanisms that should avoid the incidence of similar situations in the future.

In light of a number of changes (decreases) to the credit rating of sovereign issuers and other debt issuers, the

securities investment funds' portfolios were also analysed so as to confirm the minimum requirements for credit

rating contractually envisaged for the bond portfolio of these funds. In the wake of analysis performed,

occurrences of non-compliance were detected in some funds. The solution hereto comprised of changes in the

composition of the respective portfolios or adaptation of incorporation documents (essentially changing

investment policy). In the latter case, individual communication of the changes was ensured to the participants

and the possibility of these participants redeeming the investment units without paying the respective fee (if

there was a fee).

The progress of the economic and financial benchmarks of management companies of securities and real estate

investment funds and respective managed funds continued to be subjected to verification and control. Periodic

reports were drawn up based on quarterly data concerning investment funds and half-yearly data from financial

statements of management companies. The reports considered a number of economic and financial benchmarks

of the management entities and fund activity on aspects such as the marketing volume of investment units, the

amount of transactions and number of participants.

The purpose of preventing and managing possible conflict of interests was particularly salient during 2011. In

light of rules for managing potential conflict of interests applicable to the transactions carried out on behalf of

real estate investment funds with related parties, ten cases for authorising transactions relating to acquisition or

disposal of property by real estate investment funds to related entities and seven leases were subject to CMVM's

appraisal. Five transactions without proper authorization by the CMVM were also detected and cases were

drawn up aimed at establishing administrative infractional liability.

Venture Capital

The reliability and consistency between reporting by the supervised entities and statutory financial statements

within the venture capital context was confirmed, focusing in particular on compliance with the amendments

introduced by the 2010 accounting framework.

The venture capital funds' activity was especially monitored by the CMVM this year, in terms of not only the

respective supervision but also the stimulus for the industry and the risks involved in establishing funds, the

assets of which are companies undergoing restructuring.


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Thus, special attention was and will be paid to the management of conflict of interests and the valuation of

participating entities by venture capital funds. A model for mid-year analysis of economic and financial

benchmarks of venture capital companies was also implemented so as to enable an on-going monitoring of the

most significant financial ratios, the key balance sheet items and profit and loss statements and compliance with

the thresholds laid down by the Commercial Companies Act. The prudential supervision of venture capital

funds focused primarily in monitoring progress of the funds' net asset value and investment unit value, since the

industry was influenced by the country's economic and financial crisis and changes to accounting standards.

Securitisation

Nine transactions involving securitised bonds issuance were supervised (refer to Chapter 2). The structuring of

said transactions and the adequacy of the respective capital were monitored.

Supervision also focused on economic and financial analysis of securitisation companies. The report contains

information on the securitisation funds' activity and a detailed analysis of securitisation funds’ termination that

took place during the course of the year. Detailed analyses were carried out on six early redemption of funds

that took place during 2011. This involved checking the conditions for early redemption that was set out in the

management regulations, analysis of all available contract documents and analysis of the conditions relating to

credit retransfer. One of the early redemptions relied on the clean-up call55 and the others were based on the sole

holder's interests.

Real Estate Appraisers

166 evaluation reports drawn up by real estate appraisers were analysed. Its content, objectivity and

completeness, inter alia, were analysed. Mindful of the shortcomings detected in the analyses, requests for

clarification were sent to appraisers and rectifications were requested. This was carried out in order to safeguard

that future reports do not experience the same shortcomings. The shortcomings related overall to failure to state

reasons in the selection of assessment methods used and the rationale for the assumptions used.

55

This can be exercised when the securitization transaction's current value is significantly below its initial value (normally

below 10%).


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Supervising the Marketing of Investment Products in Tangible Assets

The marketing of this type of contract was not reported to the CMVM. Nevertheless, the CMVM will continue

to be attentive to the pursuit of this activity in Portugal.

3.1.4 Supervision of External Auditors

The CMVM intervened on-site with the auditors during the supervisory actions and was represented in

inspection teams appointed by the National Council for Audit Supervision (CNSA), pursuant to Article 14 of

Decree-Law N. 225/2008 of 20 November. The supervisory actions undertaken by the CMVM were carried out

under regular prudential activity and, essentially, were determined based on the risk model. The actions had the

following aims: i) check whether professional standards and audit guidelines, approved or recognized in the

accounts on audits of entities with securities admitted to trading on Euronext Lisbon and collective investment

schemes; ii) confirming suitability of the structure and functioning of the means used by the auditor concerning

the type and size of the work. This includes checking the requirements for independence requirements and

evaluation of internal quality auditor; and iii) contribute towards improving the quality of professional practices.

Participating in the CNSA inspections took place pursuant to Article 14 Decree-Law No. 225/2008 of 20

November. The CMVM may be represented in designated multifunctional teams, made up of representatives

from one or more of the entities that comprise it. Pursuant to the law, the inspection imply indications of

infringements and are intended to investigate, gather proof concerning the practice of irregularities and assess

suitability of the procedures, decisions and documents adopted by the auditor, especially on complying with

professional duties in the areas wherein there are suspicions of irregularity. The inspections that comprised of

CMVM representatives and carried over from 2010 were concluded. The final inspection reports were issued

after i) analysis and discussion with the auditors concerning respective processes; ii) hearings of entities

involved in providing audited financial statements; iii) the examination of communications submitted to the

CNSA by entities related to said processes; iv) assessment of specific legal issues by teams of legal advisors,

and finally, v) include in the report the adjustments deemed appropriate that resulted from analysing the

auditors' comments to the CNSA's preliminary reports. Bearing in mind the issues detected, the CNSA approved

the opening of an administrative case and a draft decision was sent to the auditor. The auditor's response to the

preliminary hearing is still being analysed. In another case, because circumstances were likely to lead to

disciplinary infractions within the jurisdiction of the Portuguese Institute of Statutory Auditors (OROC), the

CNSA communicated this to the professional association.


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Within the context of monitoring the auditors on a regular basis, the measures taken to address the irregularities

detected in supervisory actions carried out in past years were examined closely. The reports drawn up by

auditors registered with the CMVM pursuant to Article 8 of the Securities Code were also analysed. Said reports

related to financial information included in financial statements, or prospectuses, and, where applicable,

clarification and/or amendments to the respective texts were requested. The CMVM has continued its

cooperation with the OROC within its annual program for quality control of auditors registered with this

Commission. This involved 20 auditors.

The CMVM was also involved in several other activities related to the supervision of auditors, some of

which are under the CNSA and are particularly salient: i) participation in the Permanent Secretariat of the

CNSA; ii) participation in various international technical meetings, particularly in meetings of the European

Group of Auditors' Oversight Bodies (EGAOB) and the European Audit Inspection Group (EAIG); iii)

supporting the litigation department in the cases related to this area; iv) participation in the supervision of

quality control of developed by OROC; v) participation in revising the translation of decisions on adequacy of

supervisors of auditors from third countries pursuant to Article 47 of Directive 2006/43/EC; and vi) drafting

responses to requests for clarifications on different subjects.

The CMVM continued to encourage dialogue with the auditors including meetings aimed at clearing up certain

aspects concerning audited financial information. The CMVM also issued circulars on the duty to provide

annual financial statements by auditors in light of complying with the deadlines of the CMVM Regulation No.

6/2000 and disclose information sent to the issuers on drafting and presentation of financial statements.

3.1.5 Corporate Governance

The key features of the shareholder structure in companies under domestic law that are listed on Euronext

Lisbon remained unchanged from the preceding year, even though a raised growing number of resident

investors were denoted. On average, the free float as measured by share capital was 22.5% and close to 30%

when measured in terms of market capitalization. There were no changes in the selection by companies

concerning the governance models. The prevalence for the option for setting up an Executive Committee among

companies in the Latin model remained and thereby coming closer in this way the companies that chose the

Anglo-Saxon model.


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The average size of the management board was kept stable at around 10 members. The management boards

were predominantly made up of non-executive members (54.8%). The relative weighting of the independent

directors on the Boards of Directors rose to 30.0%, thus going beyond, on average, the CMVM recommendation

(minimum 25%) in this regard.

The average percentage of the share capital present or depicted in meetings held was 72.6%. There were seven

companies with ceilings for exercising voting rights, which ranged between 5% and 20%. Conversely, there

were 19 companies that stated there were resolutions by shareholders, required by bylaws, which could only be

taken with a qualified majority. The respective percentages oscillated between 50% (two companies) and 75%

(in three cases).

The CMVM closely followed information concerning the external auditors. Taking into consideration the

weighting for each listed company in the market capitalization, it was confirmed that there was a high degree of

concentration in this market. The three most important auditing firms according to this indicator (Deloitte,

KPMG and Price) accounted for 97.6% of the total. The HHI index was 3684.3 points by the end of 2010.56 The

external auditor rendered other services other than auditing to the company and/or the respective group in 33

companies. On average, the amount of audits represented 52.7% of the overall fees paid by listed companies to

external auditing. Like the previous year, this percentage conceals very significant differences between the

different types of companies. Six companies were identified where audit services amounted to less than 50% of

the fees paid, and in one case the weighting of audit services in the broad sense (Audit and Assurance) was less

than 50%.

The average level of compliance with the CMVM Recommendations on Corporate Governance tumbled from

80% in 2009 to 74% in 2010. Nevertheless, owing to the entry into force of the new CMVM Corporate

Governance Code, the group of recommendations assessed during these two years differs not only in the number

of recommendations (which increased from 43 to 54), but also the content of certain recommendations already

available. In general, these were subject to greater concentration and the introduction of stricter requirements.

When comparing recommendations that in the 2009 and 2010 Corporate Governance Codes kept its entire

contents or were subject to semantic clarification and its substance was not altered, it was concluded that the

level of compliance was similar in both years (84%).

Concerning the implementation of the "comply or explain" principle, there were 320 cases wherein it was held

that there was an acceptable explanation for the non-adherence to the recommendations. Thus, only 35% of

cases wherein there was no compliance with the recommendations and the explanation put forward by the

companies were seen as acceptable by the CMVM. The cases wherein no reason was put forward when

companies did not acknowledge the non-adoption were approximately 63%. The others cases are divided

56

This suggests that it is far from being typical in a perfectly competitive market.


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between lack of any explanation (54 cases) and the presence of an explanation that is not acceptable (63 cases).

These numbers do not differ that much from those of the preceding year. If only taking into consideration the

cases of failure to comply wherein there was no discrepancy between the self-assessment of companies and

CMVM as to non-compliance, then the level of explanations taken as being acceptable would have increased to

about 60%.

3.1.6 Control of Issuer Information

The issuers are subject to the duties of financial reporting in accordance with Articles 7 and 245 et seq. of the

Securities Code. This information was analysed under the continuous monitoring of these entities’ activities.

The CMVM may request publication of additional information pursuant to Article 250, within the powers

conferred in Article 360 et seq. of the Securities Code. This means that the disclosure of inside information and

information concerning qualifying holdings by the issuers was also required and confirmed.

3.1.6.1 Supervision of Financial Information

The model for supervising issuers' information utilised by the CMVM is based on risk and follows the ESMA

Guidelines.57

The proper implementation of the International Financial Reporting Standards (IAS/IFRS) was

checked and the comparability of information made available by different entities was ensured. In the final

analysis, a greater quality and transparency of the information used by investors when making decisions was

attained.

The supervision of issuers pays a great deal of attention to the clear and objective financial reporting on the risks

to which it is exposed, and also the policies implemented by the company for managing these risks (including

the acknowledgment of impairment losses attached to sovereign debt of Euro countries, accounts receivable and

appreciation of intangible assets, particularly goodwill). The financial statements' content of eight issuers was

closely examined and that of 13 issuers were partially reviewed.58 Two issuers were requested by the CMVM to

disclose supplementary information to the financial statements (approval thereof by the general meeting was not

required) and four others were requested to carry out the corrections in future financial statements. In four minor

cases, the issuers published other missing data, whereof one was an additional statement by the auditor to the

audit report. Five issuers republished its corporate governance report or addenda thereto, so as to comply with

the legal rules in force.

57

The supervision model in force at the CMVM is extensively outlined in the 2010 Annual Report. 58

The high number of partial analyses carried out in 2009 was the result of an external study on the risk areas in the

financial statements of listed companies.


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Chart 63 – Supervision of Financial Information –

Number of Adopted Actions

Chart 64 - Financial Statement Analysis – Number of

Issuers

There are certain areas concerning the quality of information available to the market that need to be improved,

for instance those relating to disclosures required by IFRS 7 (Financial Instruments: Disclosures), IFRS 3

(Corporate Activities) and IAS 36 (Assets Impairment). A CMVM circular was also issued, specifying the

situations that require further attention by the issuers when drawing up the annual financial statements. This has

enabled the CMVM to alert the companies of new rules issued, and also to draw attention to the areas where

shortcomings have been detected in implementing the current rules. Special attention continues to be paid to

deferred taxes acknowledged by the issuers, including those relating to tax losses carried forward. This is an

issue that will continue to be closely monitored.

3.1.6.2 Submission of Financial Reports

Entities with securities admitted to trading on a regulated market drew up their Consolidated Annual Financial

Statements in accordance with IAS/IFRS. When drawing up the individual financial statements, the companies

(at their option), could adopt the local GAAP (which became the National Accounting System - CNS) or the

international standards. Where only individual financial statements are drawn up, the entities should follow the

international standards.

2011 Annual Report on the Activity of the CMVM and the Securities Markets

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All issuers disclosed the annual financial statements for 2010 on the CMVM's website on the Internet. However

there were a couple of delays recorded. The number of delays (nine) recorded in submitting and/or disclosure of

annual financial statements remained unchanged in comparison the preceding year. The number of issuers

(three) with qualifications in the audit reports on the consolidated financial statements remained the same. The

qualifications noted (seven) by auditors refer in 75% of cases to the scope of the qualification, i.e. cases where

the auditor came across restrictions to work and dealing with situations mentioned, was unable to assess about

the financial situation of entity. As for individual financial statements, the number of issuers (four) remained

unchanged; 67% of qualifications identified by the auditors were due to scope of qualification and only 33% to

qualified opinions.

Chart 65 – Auditors Opinion

Source: CMVM

There were 58 issuers that reported annual financial statements, reflecting two less than the year before

(Papelaria Fernandes and Finibanco). Following the outcome of insolvency proceedings, Papelaria Fernandes

was excluded from the regulated market. In the case of Finibanco and as a result of Takeover Bid launched by

Montepio Geral over Finibanco Holding and subsequent compulsory acquisition, the shares representing the

capital of said company were no longer admitted to trading on a regulated market. The entities with other listed

securities that, pursuant to Article 245-A of the Securities Code, provided annual financial information for the

2010 financial year were the same 11 from last year.


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As for the half-yearly financial statements, 56 issuers of securities admitted to trading were required to disclose

financial information concerning the first six months of the year, whereof nine had only admitted to trading

bonds, warrants and/or certificates.

Table 60 - Half-Yearly Information to be published

Entities with shares admitted to trading on a regulated market are still required to disclose quarterly financial

information drawn up in accordance with IAS 34. Excluded from the scope of this standard are companies

which do not exceed the limits laid down in Article 246-A of the Securities Code and that report quarterly

information pursuant to the model approved by the CMVM. In 2011, only two delays were recorded in the

submission and disclosure of information for the first quarter. There was no delay in the submission and

disclosure of information for the third quarter.

3.1.6.3 Qualifying Holdings

Supervising the monitoring of the shareholder structure of corporate control and compliance with the disclosure

requirements of qualifying holdings in issuers led to two investigations. These were aimed at clarifying the

control chain and allocation of qualifying holdings. Three analyses that began in 2012 were finalised.


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3.1.6.4 Rebuttable Presumption

The CMVM received five applications for rebuttable presumption pursuant to Article 20/5 of the Securities

Code. The applications were submitted by parties who entered into agreements concerning the transfer of

shares, which are assumed to be instruments for concerted influence referred to in Article 20/4, for the purposes

of paragraph 1/h) thereof.

There are two types of agreements on the transferability of shares. The first group, with only one case, relates to

a clause on the (non)-transferability of shares. The second group contains four collateral loan agreements. In the

first type, the presumption was rebutted by an unavailability clause in the contract resulting from legal

requirement and does not correspond to the parties' contractual agreement. In the second type, it was considered

that a mere collateral loan agreement with no right of use was not covered by subparagraph h). Thus, it was

concluded by not allocating qualifying holdings. The three remaining loan agreements were backed by financial

pledges with right of use, pursuant to Decree-Law No. 105/2004 of 8 May. In these instances, it was considered

that Article 29/1/h) was complied with insofar as a right of use granted to the pledgee represents an agreement

on the transfer of shares. The applicants succeeded in rebutting the presumption of Article 20/4, having proved

that the relationship established with the participant is independent from the actual or potential influence on the

investee company. In all cases examined, the right of use aims to create liquidity for the pledgee, by avoiding

the restraint of financial instruments provided as collateral. Following the assessment of these applications, a

statement changing the allocation by the shareholder, as pledgor, was issued. Furthermore a statement disclosing

the acquisition of qualifying holdings, covering a long position, by a third party buyer that entered into swaps

contracts (with cash settlement) with the pledgee.

3.1.7 Registration and Authorisation

3.1.7.1 Financial Intermediation

By the end of the year, the number of financial intermediaries registered with the CMVM was 69 (less three

than in the preceding year). The following registrations were cancelled: Royal Bank of Scotland PLC – Branch

in Portugal; Lisbon Brokers Sociedade Corretora, SA and Fortune – Sociedade Gestora de Patrimónios, SA.

Regarding investment advice firms, there was one cancellation, C2i – Sociedade de Consultoria para

Investimento, Lda, and one registration of a new company, Reap – Family Office, Unipessoal, Lda. The legal

status of Deutsche Bank underwent changes. The name changed from Deutsche Bank (Portugal), SA to

Deutsche Bank Europe GmbH - Branch in Portugal and finally to Deutsche Bank Aktiengesellschaft - Branch in

Portugal.


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The number of investment firms under the freedom to provide services rose by 171 entities, reaching a total of

2,344 at year end.

The registration of the following was cancelled: two management companies of real estate investment funds -

(Azimuth Funds - SGFII, SA and Take Off - SGFII, SA), one management company of the securities investment

fund (Orey Gestão de Activos - SGFIM, SA) and one management company of the securitisation fund (Oceanus

- SGFTC, SA). No registration of new management companies for funds were recorded, but there was a new

registration in the CMVM for the financial management activities of collective securities and real estate

investment institutions - Orey IFC, SA. As a result of these changes, there were 20 Real Estate Investment Fund

Management Companies (SGFIM), 28 Securities Investment Fund Management Companies (SGFII) and three

Securitisation Fund Management Companies (SGFTC).

The cancellations of said companies led to the termination of only one Securities Investment Fund (FIM)

managed by Orey Gestão de Activos - SGFIM, SA. The other funds managed by this Real Estate Investment

Fund Management Company (SGFIM) (all Real Estate Investment Funds) were transferred to Orey IFC, SA, the

Securitisation funds (FTC) managed by Oceanus - SGFTC, SA were transferred to the Navigator - SGFTC, SA

and the two Securities Investment Fund Management Companies (SGFII) whereof the registration was

cancelled never managed any funds.

As regards the portfolio management on behalf of others, the registration of Fortune - Sociedade Gestora de

Patrimónios, S.A. was cancelled, and two restructurings at the Deutsche Bank financial group and the Orey

group were recorded. By the end of the year, the number of companies authorised to pursue this activity was 54.

TEXTBOX 6 – STREAMLINING PROCEDURES FOR REGISTRATION AT THE CMVM

The process for reworking and simplifying the authorisation proceedings by the CMVM was finalized at the end

of 2011. The internal procedures related to these were revised, updated and rectified, and the rules relating

thereto were harmonised, either directly or indirectly, with the authorisation processes so as to ensure the overall

consistency of the processes carried out by the CMVM. The revision focussed on the principles of speed, clarity,

transparency and efficiency in relation to the supervised entities.


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As regards revising internal rules, the internal manuals of the supervisory organisational units on the procedures

relating to authorisation, on the procedures for remote and on-site supervision, and on other internal procedures

were revised. Although the latter is externally low-profile, it contributes towards an increased efficiency of the

CMVM in carrying out its task.

As to external effectiveness of the rules, there are on-going procedures related to legislative and regulatory

amendments linked thereto, which will enable (in order to protect the interests of supervised entities and also the

effective functioning of the CMVM) implementing the principle of tacit approval in the absence of an express

decision by the CMVM and restrict the possibility of disrupting the deadlines to once only.

Following the redrafting and simplification process, 68 information dossiers replacing the previous dossiers will

be made available on the CMVM website in 2012. The new dossiers will be just as clear and complete where

possible, and include the identification of documents (checklist) required for investigating each application and

also the breakdown of the respective minimum contents (which derive from laws, regulations and CMVM

Understandings). The availability of these dossiers shall contribute towards attaining simultaneously two goals:

(i) speed up the thorough investigation of the application by supervised entities so that from now on applications

will only be accepted where documentation is formally complete and in accordance with the respective dossier,

and (ii) reduce the implementation deadlines for authorisation and thus streamline the functioning of the market

and its supervised entities.

Finally, a Green line (Support telephone number) will be installed in order to provide additional clarification to

the information in the dossiers and the implementation of an IT solution will be employed that will enable the

investigation of cases and respective online tracking by supervised entities to be carried out.

3.1.7.2 Asset Management

Securities and Real Estate Investment Funds

The decline in bank financing and increase in raising finance via deposits from clients by banks did not foster

the asset management activity in Portugal. As regards the establishment of investment funds, there was a

considerable decrease in the number of new securities and real estate investment funds authorised by the

CMVM (44), compared with 78 authorised last year. The slowdown in the appearance of new funds was


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primarily recorded in authorisations of Real Estate Investment Funds, in light of the adverse economic climate

for the property market in Portugal that exacerbated throughout the year.

36 new securities investment funds were authorised by the CMVM (35% less than the year before), including 33

Special Investment Funds and three harmonised funds. Seven authorisations for the establishment of Special

Investment Funds lapsed. Thus, only 26 funds were actually constituted, including 14 open-end, two closed-end

private offers and 10 closed-end public offers.

The CMVM granted authorisation for the formation of eight real estate investment funds. This includes three

Closed-End Special Real Estate Investment Funds, three Closed-End Real Estate Investment Funds for

Residential Letting, one Open-End Real estate Investment Fund and one Closed-End Real Estate Investment

Fund. Three authorisations lapsed as the funds were not constituted. Another three await the start of activity and

only two were established (one closed-end Special real estate Investment Fund with public offer and one

Closed-End Real Estate Investment Funds for Residential Letting with private placement).

During the year, 18 investment funds were paid (15 Special Investment Funds, two guaranteed funds and one

Equity Fund) due to end of the maturity period initially envisaged. Five securities investment funds at the

discretion of management entities were settled in light of the reduced amount under management and flow of

redemptions recorded. Two real estate investment funds were also settled. One was due to end of the maturity

period initially envisaged and the other due to early settlement by the management company's decision, mindful

of the principle for market protection.

Termination of other securities investment funds took place via mergers of funds. This was for the most part

driven by the small size and aimed at achieving economies of scale in the management of the respective assets.

There were also mergers on grounds of reorganising the financial group's management entity, as is the case of

the Montepio Group (due to a Takeover Bid launched in 2010 by Montepio Geral – Associação Mutualista

sobre o Finibanco – Holdings, SGPS, SA). Within this context, there were mergers by incorporation of

securities investment funds previously managed by Finivalor - SGFIM, SA, and the same type of funds managed

by Montepio Gestão de Activos - SGFI, S.A. At the end of the year, the other five securities investment funds

managed by Finivalor - SGFIM, SA were also transferred to Montepio Gestão de Activos - SGFI, S.A, with said

entity managing only real estate investment funds. In addition to these authorisations replacing the management

entity, the CMVM granted similar authorisations concerning six other real estate investment funds.


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214 cases of amendments to incorporation documents of investment funds did not face opposition from the

CMVM, whereof 132 was by tacit approval (54 UCITS five SIFs and 73 REIF) and 82 by express approval

(UCITS 46, 18 SIFs and 18 REIF). Particularly salient were changes to the funds' investment policies. For the

most part, this was due to the need to adapt the investment strategy to market conditions and future

developments.

Other analyses conducted by the CMVM within its administrative powers over investment funds related to the

conversion of funds. Two cases of converting REIFs were authorised in 2011. One of these referred to

converting the subscription system from private to public and the other to converting from REIF to SREIFs and

keeping the private placement system.

Public offers were of particular significance within the establishment of closed-end investment funds, thereby

reversing the trend seen in prior years of the private offers prevailing. This was due to decline in the

establishment of real estate investment funds, which is related both to the adverse conditions of the property

market or the removal of tax benefits formerly applicable to real estate investment funds with private placement.

Table 61 – Offers for Distribution of Closed-End Investment Funds

Securitisation

No authorisation for the establishment of securitisation funds was granted, however six funds were terminated

whereof one relied on the clean-up call59 and the other early redemptions were based on sole holder's interests.

The underlying credits in three cases were transferred to a new securitised bond issuance and covered bond

issuance. One of the early redemptions based on sole holder interests emanated from the securitization units

being held by a Special Purpose Vehicle that repaid all the issued Notes.

59 An option in securitization transactions wherein the issuer has the possibility of buying back the current remaining issue (usually small

amount, less than 10% of the original issue) in order to reduce the administrative expenses of the issuance. This option is often exercised

for mortgage-backed securities.


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Concerning administrative acts within the securitization context, there were also 34 cases relating to changes in

incorporation documents of securitization funds. This related mostly to the name of the holder of the

management company and the depositary, replacement of the management company and the agent bank, the

frequency of interest payments and the series of payments and the type of credit to be acquired on each

revolving date.

Table 62 – Securitisation Registration

Nine securitized bond issues took place in 2011. These basically related to consumer credit and other loans

(corporate loans, including term loans, credit lines, current accounts and commercial paper).

Table 63 – Issuance of Securitised Bonds

Venture Capital

The CMVM registered the following three new venture capital companies: Bem Comum, SCR, SA; Capital

Criativo, SCR, SA and Capital Growth, SCR, SA. Said companies are only authorised for the sole pursuit of

managing venture capital funds.


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As for venture capital funds (VCF), 20 VCF commenced activity commenced during the year, whereof 11

applied for respective simplified prior registration and nine benefited from the system of mere prior notice.

These new funds represent subscription placement of approximately €340 million, mostly from qualified

investors. In keeping with that recorded in the preceding year, this increase is largely due to the state financial

incentives, particularly the contribution of the Regional Operational Programmes of Lisbon and the Algarve and

the Support System Financing and Risk Sharing Innovation (SAFPRI ) entered in the National Strategic

Reference Framework (NSRF). Approximately €96 million were subscribed in those funds via these means.

One Venture Capital Investor (VCI) was registered. An application for the cancellation of the registration of a

VCI and a Venture Capital Company (VCC) was recorded.

3.1.7.3 Real Estate Appraisers

The trend towards an increase in the number of real estate appraisers continued. Nevertheless, such growth does

not mirror the actual assessment of properties activity in real estate investment funds. As the experts identified

in the REIF's management regulation and therefore eligible for evaluating properties held or for investment by

the REIFs are less than the total number of appraisers registered with the CMVM.

Table 64 – Registration of Real Estate Appraisers

3.1.7.4 External Auditors

At the beginning of this year there were 39 auditors registered with the CMVM. This included one individual

auditor. Registration was granted to a new auditing firm in April 2011. This firm is based in the Oporto area.

Twenty-six firms are based in Lisbon, 13 between Coimbra and Porto and one in Funchal. The auditors

registered with the CMVM employ a total of 327 statutory auditors, whereof 215 are partners and 112 are

employees. Only five companies employ more than ten statutory auditors (representing 177 auditors). The

average number of statutory auditors in the employ of other audit firms is 4.4. Nineteen companies have a single

partner who is not an auditor, with the participation of persons with other expertise being particularly salient.

This shows how the teams comprising auditing are multidisciplinary.


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Pursuant to Article 8 of the CMVM Regulation No. 6/2000, 33 applications for subsequent registration in the

record of auditors registered at the CMVM were submitted. This resulted in 65 entries being recorded.

Table 65 – Registration of External Auditors

3.1.7.5 Transactions

Five takeover bids were subject to registration. All three cases aimed at debt securities, in the form of exchange,

related to the capital restructuring of domestic financial institutions. Two cases were finalised in 2011. The

takeover bid over shares representing the share capital of Sociedade Comercial Orey Antunes SA was also

subject to registration. Coming from the previous year, the takeover bid over the shares representing the capital

of Estoril Praia - Futebol, SAD, which was brought forward from the preceding year, was registered. The

takeover bids on Interhotel and Fisipe that were also from prior years were carried over to 2012. The takeover

bid on Rações Progado Centro Sul, SA launched by Manuel Inácio e Filhos, SGPS, SA was withdrawn due to

there being no need to adjudicate on the application submitted.

There was a substantial increase in the number of approval processes for prospectuses of public offer of debt

securities, related to the offers addressed to the public by Banif SGPS, SA, Banco Santander Totta and two

sports public limited companies - Porto and Sporting. There was also a slight increase in the approval of base

prospectuses (for issuance and/or admission to trading on a regulated market) with five base prospectuses being

subject to approval. These base prospectuses were pursuant to programmes for debt issued by Banif - Banco

Internacional do Funchal, SA, Banco Comercial Português, SA, Banco Popular Portugal, SA, Banco Santander

Totta and Caixa Económica Montepio Geral. The approval processes for admission prospectuses was mostly


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aimed at trading on a regulated market of securitized bonds which had been privately placed. There was one

exception which was the single admission of classic bonds of Zon Multimedia SA.

The two processes for approval of the prospectus for public offer of shares submitted in 2011 concern the offer

reserved for shareholders of 1,300,000 own shares in Sociedade Comercial Orey Antunes SA and an offer that a

resident entity purports to carry out in another country in the Euro zone (the latter process was carried forward

to 2012). Three said approval of prospectus for public offer of subscription for shares are related to the above

mentioned transactions for public acquisition of debt. Said transactions, which, in enabling the exchange of debt

for new shares to be subscribed, embody the capital increases by public subscription of financial institutions that

launched same. The other two public offers for subscription of shares refer to the capital increase of Inapa, SA

and Reditus, SGPS, SA.

Table 66 – Registration of Transactions

3.1.8 Litigation

There were 126 administrative infraction cases at the CMVM during 2011. The Executive Board of the CMVM

imposed a total of 14 fines amounting to €500,000. In nine of the cases decided in 2011 there was scope for

applying the disclosure of sanction envisaged in Article 422 of Securities Code.


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Table 67 – Administrative Infraction Proceedings

As regards the cases brought to a close, the number of cases involving collective management of savings and

market integrity and fairness increased, whereas the number of cases relating to the quality and timeliness of

information, provision of regular information and financial intermediation slumped.

The number of court cases dropped from 32 in 2010 down to 26 in 2011 (in both cases, adding the cases

brought to a close together with those in progress at the end of each year). Particularly salient in administrative

litigation was the support provided to the Investors Compensation Scheme (SII) in six interlocutory proceedings

and four administrative proceedings wherein said Scheme is the litigant, adversary or defendant.

TEXTBOX 7 – COURT DECISIONS IN 2011: ADMINISTRATIVE INFRACTIONS

Decisions were rendered on the merits of ten appeals against administrative infractions cases by the Lisbon

Petty Criminal Court. Four confirmed the CMVM's decision, four changed the CMVM's decision by reducing

the amount of the fine imposed, and two rescinded the CMVM's decision. The CMVM appealed against the

latter to the Lisbon Court of Appeal. One of these features was decided in 2011, and the Lisbon Court of Appeal

hereby repealed the decision of the Lisbon Petty Criminal Court and determined to transfer the case for a new

trial. The other appeal is still waiting for a decision.


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In addition to said judgement, the Lisbon Court of Appeal rendered eleven decisions, six appeals were filed in

2010 - one by the defendant sentenced in the lower court and five by the CMVM (three whereof the Public

Prosecutor's Office also filed appeals) - and five appeals filed in 2011 - three by the defendants sentenced in the

lower court and two by the CMVM and the Public Prosecutor's Office. As regards the judgements handed down

on the four appeals filed by defendants sentenced in the lower courts, the Court upheld the condemnatory

sentences by the lower courts. In the judgments on the seven appeals filed by the CMVM, the Court upheld the

lower courts' sentences in three appeals, rescinded the sentences and ordered new trials for three appeals and

partially upheld the lower court's sentence and ordered a new trial for part of the process that was subject to

appeal.

The Constitutional Court also delivered three decisions. In an appeal against an administrative infraction, the

Court delivered a ruling that upheld the summary decision, rendered in 2010, of not hearing the appeal filed

against the judgment of the Lisbon Court of Appeal that had ordered the imposition of a fine on the defendant.

In another appeal against an administrative infraction, the defendant appealed to the Constitutional Court

judgment of the Court of Appeal of Lisbon delivered in 2011 that upheld the lower court's the condemnatory

sentences of 2010 (which in turn confirmed the CMVM's decision), a summary decision was rendered wherein

the Constitutional Court ruled that it could not hear the appeal. However, a complaint was lodged against this

summary judgment and the Court decided to hear the appeal on two constitutional issues posed by the appellant.

The appeal was still pending a decision at the end of 2011. The appeal raised several legality issues relating to

applicable types and compliance with the principles of blame and proportionality of penalties. In February 2012,

the Constitutional Court concurred with the CMVM on all the points, by concluding that there were

unconstitutional issues.

Furthermore, there were three decisions handed down by the Petty Criminal Court in appeals against CMVM

interlocutory acts that was carried out during the administrative stage of the infraction processes. Two rulings

upheld the CMVM's decisions relating to access to cases (one of those rulings is still under appeal) and the other

upheld the CMVM's decision concerning the absence of nullity for not referring in the allegations of the

administrative infraction process of the evidence that underpins the indictment of the facts described in the

allegation. An appeal against the last ruling was filed with the Constitutional Court, which upheld the decision.

The following summarises the key points of a judgment by the Lisbon Court of Appeal in 2011 that upheld the

condemnatory sentence against the defendant that was rendered by the lower court, and a ruling by the

Constitutional Court handed down in the appeal against an interlocutory decision by the CMVM, rendered in

administrative stage of an administrative infraction process.


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Judgment by the Lisbon Court of Appeal on 25 October 2011

In the appeal, the Lisbon Court of Appeal ruled on the sentence that convicted the appellant for the

administrative infraction involving the negligent breach of the duty to disclose inside information (Articles

248/1/a) and /2, 388/1/a) and /3, 394/1i), 401 and 402 of the Securities Code and Article 17/4 of the Legal

Framework for Administrative Infractions (RGCO). The court held that the information in question was likely

to have a substantial effect on the price, namely, because at issue was the announcement of a partnership that

would have a large impact on the appellant’s global economic activity, with a possible sharp increase in its

turnover in a market with a strategic role worldwide, regarding a product with an increasing global demand, in

an activity creating very large profits and high liquidity. The court held that the appellant was aware of his

duties and cannot ignore the importance of the specific duties in question. Said appellant was required to have a

manner of detecting these situations when it takes place and be prepared for this with the necessary means for

the timely compliance with its duties.

Furthermore the Court held that Article 248/1 is not in the throes of unconstitutional issues as it resorts to

concepts having an unambiguous meaning, and likely to be extended to specific facts that do not allow for

punitive arbitrary intervention. Finally, the court held that the high severity of the infraction and the legal

interests undermined preclude suspending the sanctions, or opting for warning, which the applicant had

requested. This would prove to be insufficient for a proper admonishment of conduct.

Judgment by the Constitutional Court on 15 November 2011

In the appeal against the sentence of the Petty Criminal Court that ruled the judicial review of an interlocutory

decision rendered by the CMVM during an administrative infraction case, the Constitutional Court ruled on

whether the interpretation of Article 50 of RGCO, as meaning that this provision allows the defendant's

notification to comment on the alleged administrative infraction alleged does not involve any

statement/identification of factual evidence on which is founded the adjudication on the merits of the case,

infringes Articles 32/10 and 267/5 of the Portuguese Constitution.

The Constitutional Court firstly pointed out its own jurisprudence to the effect that there is no close comparison

between the administrative infraction and criminal offence, as against a lower ethical effect than the first, which

draws on the strictest requirements from valid definition of a criminal offence, and that the administrative

infraction legislation has its own rules, that could allow input from criminal regulations, and is not restricted to

an indiscriminate transfer of frameworks and provisions.


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Addressing the issue, the Court stated that Article 50 RGCO only requires that the alleged facts, the respective

legal status and penalties that this may entail be communicated to the defendants, and does not impose that such

notification includes a reference to the evidence taken into account by the administrative authority and that

underpins the allegation addressed to them, Furthermore, the Record 1/2003 of the Supreme Court of Justice,

which held that the notification issued pursuant to the aforementioned Article 50 should provide the necessary

information so that the defendant finds out all the relevant aspects for the decision, does not remove the

requirement that said notification should be accompanied with a statement of evidence supporting the

administrative authority's decision.

The Court pointed out that the defendants were not denied access to the file, by consulting it, having exercised

their right to be heard and defend themselves, thus concluded respect for their right of defence, as they had the

opportunity to find out the material evidence collected by the CMVM, to present new evidence or request due

diligence reports and, of course, involved in the decision that concern them, with the constitutional guarantees

being safeguarded. The Constitutional Court concluded that any legal provisions stipulating the requirement, at

the time of notifying the defendant pursuant to Article 50 RGCO, that the administrative authority should carry

out statement/identification of factual evidence that underpins the adjudication on the merits of the case does not

follow from applicable constitutional parameters, particularly, Articles 32/10 and 267/5 of the Constitution of

the Portuguese Republic.

3.1.9 Investigation and Market Crimes

During the course of the year 44 cases of market transaction analysis were concluded and 50 cases were opened.

Irregularities were reported to the Public Prosecutor when there were indications of a crime, particularly against

the market, or led to administrative infraction cases being instituted. The finalised analyses included 27 cases of

possible market abuse or breach of the duty to protect the market, 16 possible insider trading and one of earning

seasons (trading close to the release of financial information). Irregularities were detected in 17 transactions

analyses, which led to investigation proceedings being opened. Five other cases resulted in written notices to

financial intermediaries or notices to foreign competent authorities for further investigation. The remaining

cases were filed away.


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Table 68 – Cases on Transactions Analyses and Investigation Completed in 2011

23 investigation cases were closed in 2011: 15 for possible market abuse, five for possible insider trading and

three involved other types of irregularities concerning the behaviour of entities subject to supervision by the

CMVM in the financial instruments market. It was concluded that there were irregularities in nine of these

cases. Irregularities were reported to the Public Prosecutor when there were indications of a crime, particularly

against the market, or led to administrative infraction cases being instituted.

Following investigation processes, nine were reported to the Public Prosecutor: three for the crime of insider

trading (Article 378 of the Securities Code), two for the crime of market abuse (Article 379 of the Securities

Code); two for fraud, one for suspected money laundering and one for unlawful receipt of funds (Article 200 of

the RGICSF). Furthermore, two statements of facts that could indicate other crimes were drawn up.


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Table 69 – Complaints and Infractions Instituted

Reducing the period for completing investigation processes continues to be an objective for the CMVM. It is

purported that this swiftness operates as a deterrent for unlawful conduct causing damage to the market in

general and any other investors in particular. It was possible in 2011 to complete the investigation proceedings

in less than one year following the date of the facts. Most of the investigated cases that were concluded were

due to irregularities in the supervision of the market and in the mechanisms for monitoring and detecting

irregularities of the CMVM.

The objective of reducing the backlog of outstanding investigations was met. These dropped to just five by the

end of the year. However, the outstanding cases were all under investigation, with four cases nearing

completion. The other case deals with automated trading and due to its complexity require appropriate

technological tools for its analysis, which are still being developed.

16 cases were concluded on unauthorised financial intermediation. After finding out indications of unauthorized

intermediation, the CMVM's quick response lessened the negative impact of this practice for investors. Due to

the illicitness of the unauthorized activities, difficulties continued to be encountered in gathering information

required for obtaining accurate information on the activities. Nevertheless, four administrative infraction cases

were instituted: three for carrying out unauthorized financial intermediation and one for advertising investment

services.


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Three were reported to the Public Prosecutor as the investigations of unauthorized intermediation identified

indications of criminal offenses. Furthermore, an overall survey of websites was also carried out. Only three of

the cases investigated were filed away.

Most of the cases investigated emanated from or were related to providing - or trying to provide - services by

residents in Portugal. There were also some instances of international origin, designated as cold calling, where

investors resident in Portugal are contacted by supposedly foreign investment firms with very attractive

investment proposals, and asked to transfer money to international bank accounts. Three notifications were

issued for removing unlawful advertising or information content from the Internet websites. An order was

issued for the removal of illegal contents in one of these cases.

The CMVM cooperated with competent foreign supervisory authorities in three cases of possible insider trading

relating to financial instruments admitted to trading on international regulated markets by investors resident in

Portugal or foreign investors that use the domestic intermediaries' services. In every case the indications were

identified in Portugal. Some communications by financial intermediaries and market's management entity fund

managers conveyed to the CMVM concerning suspect transactions proved useful for detecting market abuse.

TEXTBOX 8 – COURT JUDGEMENTS IN 2011: CRIMES OF INSIDER TRADING

AND MARKET ABUSE

Three judgments were handed down in two cases. Said cases derived from complaints submitted to the CMVM.

Insider Trading

In an insider trading case that was reported by the CMVM in September 2001, the Lisbon Court of Appeal

(Judgment of 21 September 2010 or the second judgment) annulled the sentence of the first instance of 25

March 2010 due to the imposition of additional penalties pursuant to Article 380 of the Securities Code

(publication of sentence for the three defendants and prohibition of professional activity for two years), without

the defendants having been notified of the possibility of these penalties being implemented, in accordance with

the abovementioned judgment. This ruling dismissed the defendants' appeal to the extent that said defendants

sought a new debate of the facts and aspects pertaining to whether or not same are crimes because it was

considered a final judgment on the facts that a previous judgment by the Lisbon Appeal Court (of 3 June 2009

or first judgment) considered already proved and also the question of the defendants' guilt.


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The second judgment considered (resulting from the aforementioned annulment of the lower court's decision)

the assessment of the prosecution's appeal to be futile, confined to the fact that the lower court's decision had not

been implemented pursuant to Article 111 of the Criminal Code, the loss of the pecuniary benefits obtained by

committing the crime which in the Public Prosecutor's opinion amounted to EUR 343,600.

Having referred the case back to the lower court, a ruling was issued on 18 February 2011, stating the criminal

proceedings to be closed as a result of checking the prescription period of the criminal proceedings on 30

September 2010 (10 days after the Lisbon Court of Appeal handed down the second judgment). The Public

Prosecutor filed an appeal against this ruling.

In the judgement handed down on 16 June 2011 (third judgment), the Lisbon Court of Appeal, dismissed the

appeal and confirmed the lower court's order. This judgment finds that the first judgment is res judicata with

regard to the decision convicting the defendants, i.e., in the matter relating to the judgment imputing the crime

on the agents: in convicting the three defendants for committing insider trading crimes, having been clearly

specified the facts regarded as proven that supported said convictions. Yet, this third judgment held that in the

absence of a decision as to the sentence imposed on the defendants (the lower court's decision imposing the

sentences was overturned by the Appeal Court's second judgment) the res judicata was only partial, and cannot

therefore establish the moment for calculating the prescription period of the criminal proceedings. The Lisbon

Court of Appeal's judgement handed down on 10 September 2010 is final and not subject to further appeal, and

thus the court ruling deeming the criminal proceedings as prescribed is res judicata.

Market Abuse

In another case which the CMVM reported, judgment was handed down relating to the crime dealing with

market abuse, as a result of the Public Prosecutor in 2009 charging the defendant with the actual crime of

market abuse on shares. The defendant was charged with having posted an offer to sell large scale at very low

price, cancelled moments before the close. This was aimed at attracting demand on the market and raises the

price in order to run a further offer to sell small at a higher price and thus artificially conditioning the pricing of

those shares and the regular functioning of the securities market.

The trial ended with an acquittal that was delivered on 16 September 2011, where the lower Court held that the

fictitiousness of transactions carried out and the purported manipulative performance by the defendant were not

proved. The Public Prosecutor lodged an appeal against the sentence by alleging several errors. For this reason,

the decision is not yet res judicata.


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3.2.PROTECTION OF INVESTORS AS SAVERS AND CONSUMERS OF FINANCIAL

SERVICES

3.2.1 Complaints and Mediation

In 2011 the CMVM received 598 complaints, 28 denouncements, 1,613 requests for information and 1,699

requests for certificates for tax purposes. Financial intermediaries continued to be the entities against which the

highest number of complaints is filed. Particularly salient were banks that market financial instruments.

Table 70 – Complaints filed per Entity

Table 71 – Total Complaints brought against Financial Intermediaries


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1,023 complaints against financial intermediaries were analysed, most of which were carried over from

preceding years. Over half (584) revealed potential irregularities in the financial intermediaries' behaviour. In

these cases, the nature of the situations identified in order to ascertain whether it was sporadic cases or repeated

practices (which could flag a pattern of conduct). The survey carried out formed the basis of the risk model for

planning on-site supervision. Fourteen cases resulted in establishing administrative infraction liability.

The analyses of 535 complaints were concluded. In approximately 70% of said complaints, the CMVM

considered that there was an appropriate response by the financial intermediary and in 37% of these the

financial intermediary reimbursed some or all of the losses incurred by the complainant. In the concluded cases

of justifiable complaints 60 where the investor presented facts that disputed the carrying out of the financial

intermediary's duties, an opinion in favour of the investor was given in 54% of the cases. This indicates that in

most cases and the CMVM's opinion, the financial intermediary should have taken a different approach. The

financial intermediary accepted the CMVM's opinion in 80% of these cases.

Table 72 - Resolution of Complaints against Financial Intermediaries Concluded in 2011 per Type

Within the context of activating the Investors Compensation Scheme (SII) and pursuant to the legal duty of

ensuring the technical and administrative services essential to the proper functioning of the Scheme, the CMVM

replied to 598 applications and complaints from clients of Banco Privado Português relating to compensation

payments. Most of the contacts focussed on the payment date and the criteria adopted by SII in considering how

not to rebut the legal presumption of exclusion from the Scheme's coverage as to the holders that were added.

60

Justifiable complaints exclude withdrawals, outside the CMVM's competence, mere clarification and en route to mediation.


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The handling of complaints has shown the significance of strict compliance with the duty of safekeeping

documents by financial intermediaries as the client registration and storage of documents protects the proof of

the legal capacity and justification of financial intermediary intervention with the client. Many cases where the

opinion of the CMVM considered the financial intermediary's response as adequate although opposite to the

complainant’s intentions, were those wherein the arguments presented by financial intermediaries were proven,

namely, by showing the documents signed by investors. In defense of their own interests as consumers of

financial services, investors have been warned of the importance of carefully reading all documents before

signing same. Nevertheless, there are investors who can not read. Further to receiving a number of complaints

from illiterate investors concerning the subscription of investment units of a special investment fund, whereof

the subscription forms showed signed by request or with the investor's digital signature affixed theretoestor, the

CMVM assessed the procedures adopted by marketing entities in the marketing of financial instruments to

illiterate persons. This measure aimed at ensuring the reliability and authenticity of the request and safeguard

strict compliance with disclosure requirements to the client and suitability thereof , taking into account that

presumably illiterate investors do not have the basic skills enabling them to understand the features and risks

linked to the products, and the financial intermediaries are required to take greater care and due diligence with

those investors.

As in the preceding two years, the financial instruments most targeted in complaints were collective investment

schemes. Failure to provide information on the terms for redemption, investment risk and expected return, inter

alia, and the defaulting on the compulsory delivery of simplified prospectus to investors prior to subscribing to

the funds were the key shortcomings identified by the complainants. The duties to disclose in general and the

duty of delivering the required written information particularly aim to protect the investor's with regard to the

access to information needed to make an informed and justified investment decision. These duties are especially

important in correcting informative asymmetries where retail investors (unqualified) before market players

(financial intermediaries) with high professional level and expertise are concerned. Similar to what happened

last year, financial instruments and complex financial products were the second type of financial instrument to

be the target for the greatest number of complaints. Particularly salient were the complaints regarding marketing

of bonds and structured products, interest rate swaps and unit-linked.

As for complaints on the marketing of interest rate swaps, it was noted that most contracts complained against

was signed between late 2007 and 2009. Taking into account the complexity of the interest rate swaps, the

complaints revealed that the features and risks overall were not properly explained to clients. In many of the

complaints, the product did not appear to be appropriate to the complainants' expertise and experience. In some

cases the complainants had educational qualifications below the fourth grade and had no experience whatsoever

of investing in this type of product or similar risk.


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Table 73 - Complaints Concluded in 2011 per Type of Financial Instrument

The common issues raised within complaints were the following: i) reception, transmission and execution of

orders; ii) marketing of collective investment undertakings (CIU) and complex financial instruments; iii)

registration and deposit of securities; iv) disclosure requirements; e v) statements, costs and fees. As an

example, these issues include the following: i) investing without the client's (complainant) express consent and

knowledge; ii) marketing products with no capital guarantee in terms similar to that of marketing a term deposit;

iii) failure to provide information on capital guarantee and the possibility of early redemption /termination

without any penalty, especially as to the risks of investing in funds, unit-linked or swaps; iv) marketing complex

financial products (notably unit-linked) to investors with little or no schooling (including emigrants) and

products with long maturities to elderly investors; v) failure to follow the complainants' instructions as to the

execution of orders for subscription, redemption or transfer between accounts; vi) inadequate marketing of

preferred shares and Undated Subordinated Notes; vii) failure to issue statements and change the statement's

frequency without the client's consent; viii) send statements on unit-linked that did not reflect the product's

valuation on the statement date and/or improper billing or exorbitant fees; ix) irregularities in pricing applicable

to the transactions; and x) unsuitability of products to complainants' expertise and experience.


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The reception, transmission and execution of orders on behalf of third parties accounts for 72% of the total

number of complaints by financial intermediation's type of service. Most of these complaints were caused by the

lack of or poor execution of orders. The financial intermediary is required to execute an order to buy or sell a

financial instrument promptly, pursuant to the market rules and seek the best possible outcome for the client

according to the best execution policy. The financial intermediary should inform the client if it encounters

problems that prevent the order to be executed on these conditions. The registration and deposit of securities

was the second most complained about service, followed by the management of CIU and portfolio management.

The processing of information concerning the complaints examined above led to the establishment of

administrative infraction liability and other supervisory measures.

3.2.2 Information

1,613 requests for information were received from investors, the general public and professionals in the sector.

The most substantial increase in the number of requests when compared to last year took place with students and

focused on data related to academic projects. 2.75 days was the average response time. More than 97% of

requests were conducted by telephone via the Toll-free Number (Green Line) of Investor Assistance and via the

form provided on the CMVM website.

Chart 17 - Requests for Information to the CMVM and the appropriate Access Means Used


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The most common matters that featured in the requests for information were:

– The duty of providing information to clients by financial intermediaries, prior to the subscription or

purchase of complex financial instruments and holding corporate events for listed issuers;

– Fees charged by financial intermediaries to investors concerning securities transactions;

– Payment of dividends by listed issuers, which included questions on dividend policy, dates set for

payment thereof, net amount of dividend per share, sum of IRS/IRC deducted at source, proper

implementation of fees and other charges and the date from when the shares are be traded on the market

without conferring a right to dividends;

– The real estate appraisers of real estate investment funds and certification entities, especially

information that real estate appraisers should notify the CMVM before beginning carrying out the

activity;

– Entities authorised to provide financial intermediation services in Portugal, particularly confirm

registration with the CMVM of entities providing financial intermediation services (including the

foreign exchange markets).

As for the prevention plan, nine notifications were published announcing the lack of authorised persons,

companies and Internet websites for provision of intermediary services (international publication in two cases).

The number of documents disclosed in 2011 on the website recorded a 23.5% upsurge. Communications

disclosed by issuers, investment funds, financial intermediaries and marketing entities of the complex financial

products represented 70% of the total number of communications.

The number of documents and number of consultations by addressees becomes more prevalent in non-periodic

information. 155 announcements were published in 2011 concerning the CMVM decisions, research and the key

areas of its expertise, 31 decisions relating to fines imposed in cases of administrative infraction proceedings

and the court decisions on appeals against sanctions imposed by the CMVM, 598 warning alerts on

unauthorised financial intermediation, over 4,200 events in the "Investors' Calendar" and several documents

relating to regulation and public consultations.

Particularly salient among the new areas created on the CMVM website are complex financial products and

investor protection associations. The new area on complex financial products now covers not just the technical

datasheets and information documents of bonds, structured warrants and other complex products, but also

includes the prospectuses of unit-linked and special investment funds. Several documents encouraging financial

literacy for making responsible choices concerning complex financial products were disclosed in this area of the

website. The number of users of the CMVM website amounted to 2,367,923.


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3.2.3 Information Disclosure System

The disclosure by the CMVM of information provided to the market by the supervised entities in compliance

with its legal duties, the information contained in its records and also other relevant data is in accordance with

Article 367 of the Securities Code. The Information Disclosure System is utilized by issuers, investment funds,

financial intermediaries and other marketing entities of complex financial products, including unit-linked and

private pension funds, thereby, complying with their reporting duties to investors. 14,511 documents were

published by said entities. This corresponds to 33.8% more than the year before.

Table 74 – Number of Announcements per Issuer via the CMVM Website

The number of issuing entities of shares, bonds and other securities that disclosed announcements via the

Information Disclosure System reached 116. Issuers of PSI 20 shares accounted for 56% of announcements. The

announcements on material information and the payment of interest on debenture loans corresponded to 40% of

total announcements. The number of announcements issued by investment funds fell due to a decrease in the

number of prospectuses (which points to a downswing in this market - see paragraph 2.10) and management

regulations.


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3.2.4 Supervision of Advertising and Marketing of Products in Banking and

Insurance Sectors

The CMVM has been setting up the mechanisms required for supervising complex financial products pursuant

to the powers envisaged in Decree-Law No. 211-A/2008 of 3 November, relating to disclosure duties on

complex financial products. Progress was made in 2011 as regards supervising the distribution and advertising

of these products. The development of a specific information system is underway so as to enable the public to

effectively understand the characteristics and risks of said complex financial product.

Setting up the Committee for Financial Innovation (CIF) in February 2011 complies with the plan for a more

systematic, comprehensive and uniform intervention in the marketing of complex financial instruments in

Portugal and, more broadly, provide a systematically and internally coordinated response in matters relating to

the financial innovation requiring the CMVM's intervention. The CIF's endeavour was notably reflected in

analysing the information documents and advertising concerning complex financial instruments and the trading

platforms supporting the respective transaction. Close monitoring of key international developments in the

marketing of financial instruments was carried out.

Among other initiatives, supervision of the marketing network of such products was stepped up. The

appropriateness of the respective sales teams' knowledge and the presence or absence of conflicts of interest in

the marketing of complex financial products was closely examined. The effective compliance with the

disclosure requirements imposed on traders of these products was also increased.

At year-end the financial products in insurance and banking sector that are subject to conduct supervision by the

CMVM comprised of transactions and assurances linked to investment funds, commonly known as unit-linked,

dual products (investing funds together with independent financial instrument), private pension funds, structured

bonds, debt securities with possible capital loss (Notes), certificates, covered warrants, interest rate protection

solutions, currency derivatives, ETF, CFD, inter alia.

The CMVM examined 222 advertisements concerning products in the banking and insurance sector (classified

as complex financial products). It was necessary to request changes in 211 of said advertisements. This

represented 95% of cases. During 2011 the number of advertisements on complex financial products approved

by the CMVM increased as regards trading platforms. As the marketing through trading platforms already

accounts for a substantial proportion of the market, the CMVM stepped up supervision on these platforms,

thereby monitoring the trends of the market for complex financial products. There were also developments of


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the advertising means that favours Internet usage, either through the website of the issuer itself or marketing

entity on the Internet, or sites of third party entities on the Internet, such as national online newspapers.

The number of advertisements approved without requiring any changes still corresponds to a very small

percentage of the total number of advertisements that were analysed. This is related mainly to compliance with

the rules concerning the warning alerts that should appear in the advertisements. This situation is expected to

turn around after the forthcoming legislation on complex financial products comes into force.

Table 75 - Analysis of Advertising Campaigns of Products in Banking and Insurance Sectors (including

Complex Financial Products)

Countless recommendations were issued as a result of the analysis on the marketing documents of complex

financial products, simplified prospectuses and information documents. This was carried out in order to

safeguard investor interests, by ensuring that the above mentioned documents display the information clearly,

concisely and in easily comprehensible language describing the products’ key features and risks. Particularly

salient from the most common recommendations made by the CMVM when examining simplified prospectuses

and information documents of complex financial products is the requirement for the following: i) the respective

classification as a complex financial product; ii) to highlight the product's key risks, especially identifying the

risk of conflicts of interest where the product implies investment in the group's assets; iii) the objectivity and

clarity of the information provided; iv) to render investment policy clearly and objectively; and v) the clear

identification of direct and/or indirect costs related to complex financial product and resoluteness concerning the

product's characteristics.


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In light of the increasing trend of marketing complex financial products to retail clients and the complexity of

the vast majority of said financial products, the CMVM placed for public consultation a draft Regulation on this

matter wherein a number of remedial measures on information asymmetry between investors and entities that

market these products are envisaged. This topic is dealt with in the Textbox below. Nevertheless, a set of

documents on complex financial products directed at investors was published on the CMVM website.

Particularly salient were the Glossary of Financial Instruments, a Guide on Complex Financial Products

(describing the key features of certain products), a set of Recommendations for investors and also the CMVM

Policy on Complex Financial Products. These measures actually formed part of a broader effort to promote

financial literacy among retail investors.

TEXTBOX 9 – INVESTOR PROTECTION IN COMPLEX FINANCIAL PRODUCTS

The key task of the CMVM is to protect investors. The Portuguese financial market has been characterized by

the offer of financial instruments whereof the complexity, operation and type of cash flows undertaken to pay

investors differ widely. The financial instrument's complexities do not necessarily have a direct and positive

relation with the degree of risk and/or return that the instrument provides. A factor that investors need to take

into consideration in their investment decision is the link between risk and expected return on the financial

instrument and the suitability of the instrument to their profile. It is vital in this analysis that the information,

which forms the basis for the investor's decision making process, is complete, true, current, clear, objective and

existent, particularly when the financial instrument is a complex one.

It was found through supervision and complaint processing that in a large number of cases, the conditions that

would enable investors to have a clear and thorough perception of risks and remuneration terms of complex

financial instruments were not complied with. It was found, inter alia, that i) the expected return of a substantial

number of complex financial instruments was lower than that of substitute traditional instruments; ii) omitting

information to retail investors on the risk and the fair value of financial instruments; iii) difficulty in

understanding the contractual terms and mathematical formulas that defined the financial flows and yield of the

financial instrument; iv) the presentation of high yield targets for which the likelihood of it taking place was

very low; v) there being considerable potential for conflicts of interest between the investor and the issuer,

marketing entity and calculation agent, which almost invariably are from the same financial group; and vi)

contractual uncertainty relating to date of redemption or repayment of the capital invested in the complex

financial instrument.


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The number of complaints submitted on complex financial products showed that many investors were surprised

by the low yield of their investments against the expectations or the finding that the investments displayed

unexpected characteristics and confirmation of circumstances that they truly were not aware of the likelihood of

it taking place. A large number of complaints concerning the marketing of complex financial products were

submitted by investors who showed that they did not have the suitable profile in order to have been advised to

subscribe to this type of product. Furthermore, these investors claimed to be unaware that the product carried

capital risk and did not guarantee minimum yields. There was no lack of cases wherein the complainant's

profile, particularly aged 70-80 years at the time of subscription and without any know-how and expertise

therein, had subscribed to complex financial products. This often included maturity of 10 years or more and

accounted for almost all of these clients' investments.

The emergence and development of new products led to the need for a more vigilant approach and specific

action for the financial products concerned. Establishing the Committee of Financial Innovation (Comité de

Inovação Financeira - CIF) at the beginning of 2011 was the solution. Said Committee centralises and

coordinates the involvement of the CMVM in matters related to financial innovation, notably within the

complex financial products context. The CIF also anticipates the implementation of the measures envisaged in

European legislation that is being drawn up by ESMA. The CIF examined the information documents and

advertising concerning complex financial instruments and the trading platforms wherein said instruments are

traded. The close monitoring of key international developments in the marketing of financial instruments was

also carried out in order for its goals to be achieved. The measures implemented during 2011 also included but

were not confined to the following: stepping up the supervision of marketing networks; determining

appropriateness of the respective teams of salespeople and the absence of conflicts of interests; increasing the

initial and periodical disclosure duties by issuers or marketing entities of complex financial instruments

concerning its expected performance; remodel the CMVM website so as to increase visibility and information

content; and disclosure of educational recommendations to investors with a clear description of the kinds of

financial instruments and risks related thereto.

In 2012, the CMVM has already placed for public consultation a draft regulation on this matter. The scope of

the draft regulation includes any contract or asset for raising savings or financial risk management that despite

adopting the legal form of an existing instrument or product has characteristics that are not directly identifiable

with said product or instrument, because it has other products or instruments that are linked thereto and the

performance of which of which totally or partially depends on its yield. The draft regulation classifies certain

products that are subject to said regulation, especially: i) financial derivatives,


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ii) structured bonds and other debt securities with possible redemption below par value, iii) certificates; iv)

insurance contracts linked to investment funds (unit-linked), including insurance linked to investment funds and

capitalisation transactions linked to investment funds; v) dual products; and vi) certain holdings in non-

harmonised collective investment undertakings that are not real estate investment funds or venture capital funds

according to the composition of the respective investment portfolio with regard to including complex financial

products.

Amid remedial measures of information asymmetry, the draft clarifies concepts and lays down the requirement

for including a warning symbol on the product's risks in the information document that is crucial for the investor

and also in the advertising. This is to ensure that the subscribers to these products are appropriately cautioned as

to the risks they may incur. The range of warnings was broadened and defined in order not only to streamline

the process of drawing up the documents, but also to make it easier to understand the possible that might result

from subscribing to the financial product. It also intends to regulate the display of scenarios, requiring that the

information on the best and worst possible outcome will approximate, in certain cases, a worst case scenario, an

average scenario and an optimistic scenario.

3.2.5 Financial Literacy

The national financial supervisors, including the CMVM, have taken a number of steps in terms of financial

literacy. Particularly salient within the CNSF context is the drawing up of a draft National Plan for Financial

Education (Plano Nacional de Formação Financeira - PNPP). This was submitted for public consultation in

May and approved in September. The PNFF's implementation period is from 2011 till 2015 and includes key

activities such as establishing the Gateway for the National Plan for Financial Education, implementing bilateral

contacts with partners in the Plan in order to carry out financial education initiatives and the celebrations for

World Savings Day (in 2012). Interest in this subject has been a constant factor in the CMVM's activity with the

surveys and studies carried out in the past on investor profile corroborating this.

The growing complexity of financial products, the increasing number of complex financial products issued and

subjected to close examination by the CMVM and the escalation of complaints submitted to the CMVM as to

the marketing of said products, exacerbated the need to better understand the profile of the financial services

consumer and thereby providing investors with more information so that a better informed decision can be

reached. In light of this, the CMVM published the following documents (instructional and recommendatory) in

July 2011.


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Said documents were drafted in clear language and accessible to the majority of investors: i) "Guide to Complex

Financial Products", which includes a simple description of the operation and the major risks linked to certain

products, ii) "Recommendations for Investors in Financial Instruments", iii) "Recommendations for Investors in

Financial Instruments" iv)" Glossary of Terms relating to Financial Instruments" and v) "CMVM Policy on

Complex Financial Products" which describes the main lines for action by the CMVM in this regard,

particularly as to approving the advertising of such products.

Particularly salient within financial education is the CMVM's cooperation within the ESMA Consumer Network

towards developing Investor's Corner area on the Internet website of this institution. This is described in more

detail under the section of this report covering international activities.

3.3. COMPETITIVE AND DYNAMIC PORTUGUESE FINANCIAL MARKET

3.3.1 Completed Law Reform and Key Implications

The CMVM actively took part in the negotiation of EU legislation, especially in projects resulting from EU

initiatives emanating from the European Commission, providing professional expertise to the Ministry of

Finance within the context of national delegations in the Council of the European Union. At national level the

CMVM also directly or indirectly encouraged amendments to national legislation.

The CMVM took part in the negotiations of four EU Directives and three Regulations. It also provided input for

the transposition of an EU Directive into the national legal system and drafted two public consultations at the

national level. Particularly salient within the finalised legislative and regulatory measures (or on-going) are the

following:

Review of the Markets in Financial Instruments Directive 2004/39/EC

In October 2011, the European Commission presented proposals for a review of the Markets in Financial

Instruments Directive that were embodied in a Directive and a Regulation, in order to make financial markets

more efficient, robust, and transparent and step up the protection of investors. The approval of proposals to

amend the MiFID is envisaged for 2012. The proposals were aimed at providing answers to the changes

recorded on the financial markets since the implementation of MiFID in 2004 and distinguished, namely, the

development of new trading platforms such as broker crossing networks, new products and technological

developments that enable high frequency trading (HFT).


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The measures proposed by the European Commission include i) establishing a new kind of organized trading

(Organised Trading Facilities or OTF), aiming to give a framework to the unregulated alternative trading forms;

ii) extending the disclosure rules for pre and post-trade, and also stepping up and harmonising rules for reporting

information to the competent authorities, so as to increase the financial markets' transparency and the quality of

information provided to competent supervisory authorities; and iii) increasing the internal organisational

requirements and standards of conduct for financial intermediaries and operators of regulated markets, including

new organisational duties and conduct in response to the risks of high-frequency or algorithmic trading.

The marketing of greenhouse gas emission allowances is classified as placing financial instruments aimed at

subjecting the trading thereof to financial markets' regulation.

It is also envisaged that the mandatory trading of eligible derivatives (standardised) in organised trading

structures is to be regulated and powers for intervention over the holding of derivative positions to be increased.

Particularly salient are the proposals for extending the MiFID rules to the marketing of complex bank deposits,

the creation of mechanisms aimed at consolidating post-trade information; expanding the powers of national

authorities and ESMA so as to enable said authorities to ban or restrict the marketing of financial instruments or

pursuit of certain financial activities, particularly in cases involving investor protection or financial markets'

stability; harmonised rules for access to investment firms in third countries; and harmonising administrative

sanctions and measures applied by the competent authorities.

Review of Directive 2003/6/EC on Insider Trading and Market Manipulation

The European Commission's proposal to review the Directive 2003/6/EC on insider trading and market

manipulation was submitted in October 2011. The draft Regulation aims to replace the rules that are currently

envisaged in the Directive and will become the key instrument for regulating the market abuse framework in the

European Union. Key proposed amendments include the following: i) broadening the scope of rules envisaged

Directive 2003/6/EC to financial instruments traded solely on MTFs or OTFs; ii) implementation of rules on

market abuse to specific derivatives, notably credit default swaps; iii) extending the concepts of insider trading

and market manipulation with regard to derivatives of raw materials; iv) measures designed to cope with market

manipulation strategies resorting to high-frequency or algorithmic trading; v) the duty of issuers to report the

decision deferring disclosure of inside information to the competent authorities; vi) establish an authorisation

system to defer the disclosure of inside information on the grounds of systemic risk; and vii) harmonisation of

rules on drawing up lists of insiders and disclosure of managers' transactions.


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The following are envisaged: greater powers for competent authorities, minimum rules on administrative

sanctions by these authorities and the establishment of a system for protection and incentive to report breaches

of bans and duties envisaged in the Regulation (whistleblowing). The proposal establishes the duty of Member

States to impose criminal sanctions for crimes on insider trading and market manipulation with the aim of

harmonising criminal sanctions for this kind of crime within the European Union.

Review of the Investor Compensation Scheme Directive, 97/9/EC

In July 2010, the European Commission submitted a proposal for a Directive amending Directive 97/9/EC of the

European Parliament and of the Council on Investor Compensation Schemes. The European Commission's

original proposal included a number of significant changes to harmonise the SII's financing rules and increase

investor confidence in financial markets. These include raising the minimum compensation, rules for anticipated

funding of the system and extend the scope of systems' coverage. The common position adopted focused mainly

on the following: i) setting a compensation range of between €30,000 and €100,000; ii) the requirement

for Member States to implement appropriate systems to fund the compensation mechanisms so as to ensure

adequate cover for the complaints from investors; iii) exclude third party entities (especially custodians) where

the investor has deposited financial instruments from the SII's scope; and iv) exclude participants of harmonized

investment funds from the SII's scope.

Proposal to revise the Transparency Directive

The European Commission tabled a proposal for the revision of Directive 2004/109/EC of the European

Parliament and of the Council on the harmonisation of transparency requirements. The proposal is designed to

make the capital markets more attractive for the small and medium companies and as an alternative source for

funding. Furthermore, it purports to ensure greater transparency in acquiring the economic rights in companies,

notably, by extending the concept of eligible financial instrument for the purposes of determining the voting

rights and harmonising the aggregation of all the voting rights, irrespective of the underlying financial

instrument, by reducing the possibility of hidden qualifying holdings. It is also proposed that the requirement of

reporting interim or quarterly information should be ended, especially in the case of small and medium-sized

issuers. Finally, it acknowledges that access to regulated information at the European level should be improved

upon by proposing an increase in the functional integration of European capital markets and the cross-border

visibility of small and medium-sized issuers. In accordance with the latest guideline from the European

Commission on the harmonisation of the sanctions framework in Europe, a set of sanctions and administrative

measures is envisaged in order to punish the failure to comply with the requirements that are imposed. It is

expected that the regulation is likely to be approved by the third quarter of 2012.


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Proposal for Regulation on OTC Derivatives, Central Counterparties and the Trade Repositories

The European Market Infrastructure Regulation (EMIR) proposal purports to promote greater transparency in

the derivatives markets and grant additional and harmonised powers to Regulators. Inter alia, it envisages

compensation of standard derivative contracts through central counterparties to reduce the risk in case of default

by a party and the reporting of information on all derivative transactions to trade repositories (centralised

databases). Same should be made available to the supervisory authorities. The procedure for The negotiation of

the proposed EMIR took place during the course of 2011, with the CMVM, the Ministry of Finance and the

Portuguese Central Bank (Banco de Portugal) taking part therein. Approval of the EMIR proposal should take

place during the first quarter of 2012.

TEXTBOX 10 – EUROPEAN REGULATION OF THE OTC DERIVATIVES MARKET

Background

The opacity of the OTC markets was brought to the fore with the collapse of Lehman Brothers and AIG in 2008.

Lack of transparency in these markets is linked to the absence of reporting requirements and with the manner

same is cleared. Lack of transparency in these markets is linked to the absence of reporting requirements and

with the manner same is cleared. Against this background, the G20 leaders at the summit held in Pittsburgh in

2009 agreed that all standardardised OTC derivative contracts should be subject to mandatory clearing through

CCPs (Central Counterparties - CCPs) by the end of 2012 and the OTC derivative contracts should be reported

to centralized database - the Trade Repositories (Trade Repositories - TR). At the Toronto summit in 2010, the

leaders agreed to intensify the commitments laid down and undertook to further speed up the implementation of

measures for improving the transparency and monitoring of OTC derivatives in line with non-discriminatory

global standards.

In its conclusions of December 2009, the European Council agreed that there is a need to implement measures

designed to mitigate the counterparty credit risk and increase transparency, efficiency and integrity for

derivative transactions. Along the same lines, particularly salient is the European Parliament's guidelines of 15

June 2010 that called for mandatory clearing and reporting of OTC derivatives in the resolution on "Derivatives

Markets: Future Measures".

The European Commission submitted on 15 September 2010 a proposal for a Regulation of the European

Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (European

Market Infrastructure Regulation - EMIR). This should be approved in the first six months of 2012.


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General Guidelines of the EMIR Proposal

The following are the key points of the EMIR proposal: (i) mandatory clearing for all standardised OTC

derivatives through CCPs; (ii) setting objective and subjective conditions for central clearing requirement; (iii)

rules on risk mitigation for non-centrally cleared trade; (iv) prudential and operational requirements applicable

to CCPs and aspects relating to the authorisation and supervision of CCPs; (v) duty to report derivative contracts

to TR, the TR being subject to registration, supervision and aspects relating to harmonising the respective

operating rules; (vi) the framework applicable to CCPs and TRs in third countries; and (vii) interoperability for

CCPs.

Mandatory Clearing

The proposed EMIR sets out criteria for establishing the requirement of subjecting certain categories of OTC

derivatives to clearing. Based on the draft rules for implementation that are to be drawn up by ESMA, the

European Commission shall be responsible for deciding whether a certain category of OTC derivatives should

be subject to the clearing requirement and also the date from which said clearing becomes compulsory.

In order to ensure a uniform and consistent implementation of the clearing framework and level playing field for

market participants when a category of OTC derivatives is declared to be subject to the clearing requirement,

this requirement should be extended to all contracts falling within this category of OTC derivatives that were

concluded as from this Regulation's date of entry into force.

The proposed EMIR requires counterparties to introduce internal procedures aimed at mitigating operational

risk and credit risk for the OTC derivatives that are not eligible for clearing through CCPs. This will be subject

to specific regulations that are to be approved by ESMA/European Commission.

Mandatory Reporting

The draft EMIR envisages that both derivative contracts subject to clearing through CCPs and others are

required to report to the TR. The TRs are entities that aim to centrally store information on derivative

transactions. The TR shall be responsible for making the information available to the authorities that require

said information in order to carry out their activities. The counterparties and the CCP should submit information

to ESMA when it is not possible to register certain derivatives with the TR.


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Subjective Scope

As defined in the proposal for the EMIR, the duties of mandatory clearing apply to all financial entities that

include, inter alia, investment firms, credit institutions, insurance and reinsurance firms, pension funds and

collective investment institutions.

If the added value of OTC derivative transactions from non-financial entities exceed the threshold laid down by

the European Commission (acting on ESMA's proposal), these will also fall under the EMIR Regulation. For the

purpose of this assessment, the OTC derivatives that objectively cover risks directly related to the commercial

activity of such entities are not included.

The EMIR proposal envisages that, inter alia, the following are excluded from its scope: the members of the

European System of Central Banks (ESCB), the EU public bodies responsible for the management of public

debt or participating in the management thereof, and certain Multilateral Development Banks (MDB), the

European Financial Stability Facility (EFSF), the European Stability Mechanism (ESM) and the European

Company for the Financing of Railroad Rolling Stock (EUROFIMA).

Pension funds are temporarily exempt from the clearing obligation through CCPs. As a general rule, these funds

require the kind of assets required by the CCP to meet daily margins. Therefore the EMIR proposal introduced a

temporary defined exemption in order to enable the market to find suitable solutions.

Prudential and Behavioural Requirements for CCPs and TRs

The EMIR proposal envisages that the CCPs may be established in any EU Member State and it is up to the

authority of the Member State where the CCP purports to provide clearing service to grant the authorisation

thereof. The authorisation is subject to the opinion issued by colleges set up for this purpose. The following,

inter alia, take part in the colleges: ESMA, the competent authority of the Member State where the CCP is

established; the competent authorities responsible for supervising the clearing members of the CCP established

within the three Member States with the highest contributions (aggregate value during the course of one year)

for the fund against the default of the CCP and the issuing central banks of the more significant EU currencies.

Capital and liquidity requirements are envisaged as a precondition in order to obtain the authorisation for CCPs

to provide clearing services.


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Having obtained the authorisation, the CCPs are subject to comply with organisational duties (e.g. record

keeping, the existence and operation of boards for management and risk control), prudential duties (e.g. risk

management, maintenance of fund for cases of default, investment policy, guarantees and stress testing) and

behavioural duties (e.g. non-discrimination, transparency, accessibility and asset segregation).

TRs are subject to registration with ESMA and also subject to organisational, operational and behavioural

requirements (eg transparency, data and record keeping, protecting the confidentiality and integrity thereof).

Review of the Regulation on Credit Rating Agencies

Regulation No. 513/2011 of 11 May amended Regulation No. 1060/2009, in order to assign ESMA with the

sole responsibility for registration and supervision of credit rating agencies across the European Union as from 1

July 2011. Nevertheless, this new Regulation provided that the registration procedures already started were to be

finalised by the competent national authorities and only transferred to ESMA after registration. The new

Regulation also laid down that ESMA should carry out at least one supervisory action within two years

concerning each of the credit rating agencies under its supervision. This is to be decided based on an internal

risk assessment model, on the contribution made by national authorities regarding registration procedures, in the

exchange of information between these authorities on the information to be reported periodically by the credit

rating agencies to ESMA and the information included in the central database operated by ESMA.

Short-Selling and certain aspects of Credit Default Swaps

The proposal for a Regulation on Short-Selling and Credit Default Swaps (CDS) was under discussion with the

EU authorities throughout 2011. This proposal purports to set limits on naked short-selling and subject investors

to duties of transparency regarding short net positions, inter alia requirements that lead to market stability and

investor protection. The proposal also lays down mechanisms to regulate the sovereign debt market. Thereby,

said proposal aims to establish a common legal framework as regards the requirements and powers relating to

short selling and CDS. It also aims to ensure greater coordination and convergence among competent

authorities.


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Other Legislative and Regulatory Measures

The CMVM took part in transposing an EU Directive No. 2009/65/EC of the European Parliament and of the

Council, of 13 July 2009, on the coordination of laws, regulations and administrative provisions relating to

Undertakings for Collective Investment in Transferable Securities (UCITS).

Two public consultations (see 3.3.2) were carried out at the national level. Amendments to update 11 CMVM

Instructions were put forward whereof the majority related to the reporting of information on financial

intermediation activities.

TEXTBOX 11 – TRANSPOSITION OF UCITS IV DIRECTIVE

The Directive 2009/65/EC of the European Parliament and of the Council, of 13 July 2009, on the coordination

of laws, regulations and administrative provisions relating to Undertakings for Collective Investment in

Transferable Securities (UCITS IV Directive) entered into force in December 2009. The UCITS IV Directive

brings about substantial amendments to the existing law.

Key Amendments to Directive

It became clear over the years that the UCITS system did not provide for the full monitoring at the pace of

financial innovation. Two initiatives are the basis for the set of proposals for particular amendments to the

UCITS IV Directive. Firstly, the European Commission's Green Paper sought to enhance the Framework for

Investment Funds that started the public debate in 2005 over the need for action in the European Union.

Secondly, the White Paper on enhancing the Framework that governs Investment Funds within the single

market, that submitted measures amending Directive 85/611/EEC.


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There were two types of key measures for the proposed legislative amendments: those aimed at improving

current legislation towards clarifying or rendering said legislation more effective; and those aiming to improve

the scope of new single market freedoms. Particularly salient in the first group of measures are: i) introducing

the management company passport aimed at ensuring greater flexibility in carrying out activities and enable

further integration of the single market and the competitiveness of the fund industry; ii) simplifying procedures

for notification that , although already available, suffered from issues relating to the different interpretations by

Member States as to the discretionary implementation of requirements that thwarted swift crossborder

marketing; iii) replacing the simplified prospectus by a document containing the key investor information aimed

at harmonising the format and content of pre-contractual information required to be made available to investors;

and iv) introducing cooperation procedures in line with those proposed in other EU legislative initiatives. The

second group of measures includes establishing a framework for cross border mergers that simplifies the

procedure for merging UCITS authorised in different Member States (and that seeks to increase the size and

flexibility of investment fund management and thereby achieve increased productivity through this route); and

create master-feeder structures (that consist of mechanisms whereof the investment is similar to a "Fund of

Funds" but concentration limits per fund to which it is subject are not applicable thereto and would increase the

size of the funds and extend its offer).

Implementation Measures

The following legislation was approved in July 2010: i) Commission Directive No. 2010/43/EU of 1 July 2010

implementing Directive 2009/65/EC of the European Parliament and of the Council as regards organisational

requirements, conflicts of interest, conduct of business, risk management and content of the agreement between

a depositary and a management company; ii) Commission Directive 2010/42/EU of 1 July 2010, implementing

Directive 2009/65/EC of the European Parliament and of the Council as regards certain provisions concerning

fund mergers, master-feeder structures and faster notification procedure; iii) Commission Regulation (EU) No.

583/2010 of 1 July 2010, implementing Directive 2009/65/EC of the European Parliament and of the Council,

as regards key investor information and conditions to be met when providing key investor information or the

prospectus in a durable medium other than paper or by means of a website; iv) Commission Regulation (EU)

No. 584/2010 of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the

Council as regards the form and content of the standard notification letter and UCITS attestation, the use of

electronic communication between competent authorities for the purpose of notification, and procedures for on-

the-spot verifications and investigations and the exchange of information between competent authorities.


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Transposition into National Law

Transposing the UCITS IV Directive into national law requires amendments to the laws on investment funds

and the format on how the entities responsible for supervising said implementation are organised. The CMVM

and the Portuguese Central Bank (BdP) were involved in the discussions relating to the implementation thereof.

The amendments envisaged in the UCITS IV Directive and those resulting from the implementing Directives

and Regulations are considerable and therefore the current Legal Framework for Collective Investment

Undertakings was repealed and a new legal system was created. The transposition took place during the course

of 2011 and the preliminary draft legislation is expected to be placed on public consultation during the first

quarter of 2012 with the entry into force also taking place in 2012.

3.3.2 Consultation Papers

Two public consultations were carried out in 2011 at the national level. The first concerned the Draft

Understanding aimed at improving the quality of disclosure of Financial Information in Summary Form by

issuers pursuant to Article 7 of the Securities Code. The second related to the Proposed Draft Amendment to

Article 182-A of the Securities Code that aims to review the rules concerning restrictions on the transfer of

shares and the exercise of voting rights in public companies.

Chart 66 – Consultation Papers


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3.3.3 National Coordination for Supervising and Promoting Financial Stability

National Council of Financial Supervisors

The National Council of Financial Supervisors (Conselho Nacional de Supervisores Financeiros - CNSF) has

been regularly contributing towards the analysis of risks in the domestic financial system, in the form of

drawing up a quarterly report. The CNSF has also regularly carried out the networking of matters relevant to

the supervision of the domestic financial system.

Via the CNSF, the CMVM took part in the European Systemic Risk Board (ESRB), an institution set up with

the coming into operation of the European System of Financial Supervisors, and the Joint Committee of

European Supervisory Authorities (as described in Section 3.4.5.1).

Under the CNSF’s auspices, many initiatives were undertaken in terms of financial literacy, including the

drawing up of a proposal for the National Plan of Financial Education. This was submitted for public

consultation in May and approved in September (see 3.2.5).

The CNSF proposed a number of legislative and regulatory initiatives, which include the transposition of the

UCITS IV Directive and a draft Ministerial Order for the list of countries or jurisdictions that make up the

concept of "third country equivalent" for the purposes of implementing the current Community framework on

the prevention and control of money laundering and terrorist financing. In matters relating to issuing warnings

and disclosure of information, the CNSF fostered the link of the three supervisory authorities that comprise

same.

National Committee for Financial Stability

The National Committee for Financial Stability (CNEF) was established in 2007 and is designed to promote

financial stability through close cooperation among the respective supervisors and the Ministry of Finance. In a

period denoted by obvious difficulties in the financial markets, the CNEF has been a key element for

exchanging information, by ensuring the consistency of the response of the national authorities to the

crisis. This consistency has been pursued not just domestically but also externally, under the

coordination of the activities of the various entities that comprise the CNEF in international decision

centres where same is represented.


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National Council for Audit Supervision

Inspections consisting of CMVM representatives and carried forward from 2010 were finalised. The final

inspection reports were issued after i) the respective processes were analysed and discussed with the auditors,

which included some targeted interventions, ii) hearings held with entities involved in providing audited

financial statements, iii) reviewing the notifications submitted to the CNSA by entities related to said processes,

iv) the appraisal of particular issues by teams of legal advisors, and v) incorporating adjustments due to reviews

by the auditors to the CNSA preliminary reports, within the context of a right to a fair hearing. The CNSA ruled

the opening of an administrative process, currently in progress, and in another case notified the OROC of cases

prone to disciplinary offences.

Within the annual programme of quality control to the work of auditors registered with the CMVM, close

contacts with OROC covering 20 auditors were pursued. The CMVM was also involved in many other activities

relating to the supervision of national and international auditors. Particularly salient as an example, is the

participation in the European Group of Auditors' Oversight Bodies and the European Audit Inspection Group.

Other Institutional Cooperation

The CMVM cooperated with the Office for Planning, Strategy, Assessment and International Affairs at the

Ministry of Finance in response to a European Commission Survey on the implementation of Directive

2005/29/EC on unfair commercial practices. Furthermore, the CMVM also cooperated with the Directorate-

General for Consumer on issues relating to investor complaints and enforcement of consumer economic

interests.

54 international assistance requests were made, six requests for assistance were received from counterparts and

replies were sent to 15 requests for the institutional cooperation from legal authorities. Cooperation with the

Public Prosecutor was redoubled as regards particular requests for cooperation and current criminal proceedings

resulting from reports submitted by the CMVM.

The CMVM is on the Executive Board of the Commission of Accounting Standards, as the representative of

financial information users and thereby contributes to aligning the CNC with IFRS. A smoother vertical

integration (notably in the case of consolidated financial statements) is ensured and easier access to the

financial markets, thereby enabling a comparison across different applicable rules, based on similar principles

for recognition and measurement.


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3.4. INTERNATIONAL ACTIVITY

3.4.1. NYSE Euronext College of Regulators

2011 was denoted for the process that aimed at the merger between NYSE Euronext and Deutsche Bӧrse group

(announcement on February 2011), which took place under the six-month rotating presidency of NYSE

Euronext College of Regulators by the CMVM (January to June 2011). The merger failed to take place owing to

the objection raised by the European Commission in February 2012, which was based on the competitive effects

considered to be averse to the regular functioning of the market. The merger process has significant implications

for the functioning of the College of Regulators, and in particular the need for analysing the proposed corporate

model and overriding reorganisation of the regulatory authorities' cooperation model in the event of the merger

taking place. In addition to analysing the impact of the merger and the respective hearings with related parties to

the merger, formal contacts were established with the competent German authorities responsible for supervising

the Deutsche Bӧrse. Although the final outcome of the planned operation took place in February 2012, the

necessary requirements for analysing and the preliminary investigation of the process for authorising the merger

by the College of Regulators were complied with. This resulted in the Steering Committee holding 16 meetings

and the Committee Chairs holding four meetings.

The NYSE Euronext rules were amended by NYSE Euronext or regulatory authorities' initiative, and the

purpose thereof was to implement, update or clarify the meaning of the rules (eg on disruption of trading due to

share volatility, on the system of admission to trading or, in the case of ETFs, ETNs and ETVs, with the

removal of the legal term NextTrack). As stated in Section 3.1.1, the supplemental liquidity providers

framework was adopted and this enables market players to qualify for a reduction in the price list applicable in

contrast to the taking over of duties from continued presence on the market by introducing in the trading system

the bids to the European Best Bid and Offer (EBBO). In the last quarter of 2011, a review of IOSCO

Recommendations and ESMA Guidelines on the issue of technological innovations in trading, and in particular,

Algorithmic Trading and High Frequency Trading was started.

The suitability of tools available to NYSE Euronext for market surveillance was analysed on a regular basis so

as to ensure the appropriate supervision thereof and also the projects developed by NYSE Euronext for

diversifying the provision of services (e.g. through the establishment and management of new trading

platforms). Furthermore, the following was also carried out: (i) the existence and effective implementation of

circuit breakers on trading in financial instruments (especially in cases that trade with a comparatively low


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price) was checked; (ii) the periodic provision of information by NYSE Euronext as regards market supervision

was analysed; and (iii) and the potential impact of high frequency trading on the efficient price formation in the

market was examined.

The projects led by NYSE Euronext for the migration, adaptation or upgrades of systems used in the markets

that it operates were likewise monitored. Concerning the means employed within the context of the markets'

functioning, the human resources in the markets managed by NYSE Euronext in each of the European

jurisdictions were checked in order to assess the capacity of the market operator ensuring quality and efficiency

standards required in managing the markets under their responsibility. The current internal procedures for

resolving any disturbances in the normal functioning of the markets, and the respective measures implemented

were checked.

Mechanisms for identifying and monitoring risks inherent to the performance of the activity and the

mechanisms that ensure compliance with applicable law were found within the internal control system.

Recommendations for improving or correcting the implemented procedures were issued.

The proposed NYSE Euronext migration of derivatives markets to a new trading platform, called Universal

Trading Platform (UTP) was carried out. The migration of the derivatives markets will be undertaken on a

phased basis with the first phase carried out at the end of 2011. The migration of the Portuguese derivatives

market - Futures and Options Market, managed by Euronext Lisbon is scheduled for 2012.

As a result of incidents with an impact across different markets, independent monitoring was initiated so as to

identify the causes that led to these occurrences and the steps taken to resolve same.

3.4.2 LCH.Clearnet

The CMVM continued to be involved in the supervisory college of LCH.Clearnet SA (clearing house for trades

carried out in the market managed by Euronext Lisbon) through the Co-ordination Committee on Clearing

(CCC), the Board where the supervision of this entity is jointly pursued by the Portuguese, French, Dutch and

Belgian authorities. Particularly salient in 2011 were the following matters that were dealt with by the CCC: i)

the close examination of the termination process for clearing agreements with NYSE Euronext that end on 30

June and 31 December 2013, respectively, for the derivatives and spot markets; ii) analysis of the

implementation of a project designed to increase the transparency of the bond market and the platforms which

consist of the NYSE BondMatch (Euronext Paris) and Galaxy MTF - and the impact thereof on the rules of

LCH.Clearnet SA; iii) review of the Clearing Rule Book concerning the change in the name from Clearing Fund


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to Default Fund as a result of harmonising the operating rules in the LCH.Clearnet Group Ltd ; iv) review of the

Clearing Rule Book and regulations (i.e. Instructions) for the clearance of transactions in Spanish sovereign debt

securities; v) the analysis of acceptance as collateral with the LCH.Clearnet SA, of securities issued by leading

multilateral international financial institutions, the European Union and the European Financial Stability Facility

(EFSF), for a minimum sum of €100,000, thereby extending the group of securities that clearing members could

guarantee to handle market trading; vi) review of the Clearing Rule Book on the possibility of "close-out

netting" by members of a clearing house against possible default by the clearing house; vii) analyse the

amendments to the regulations of LCH.Clearnet SA (i.e. Instructions) as to the principle of segregating

collateral in accounts opened with the clearing house and harmonisation of amounts paid as collateral to the

default fund; viii) analysis of the case involving the breach by clearing member from the LCH.Clearnet Group

Ltd, and ix) analyse the risk policies implemented by LCH.Clearnet SA.

Within the Joint Regulatory Authorities (JRA) group that comprises of the Financial Services Authority (FSA)

in the UK and the Bank of England in addition to the entities represented in the CCC, and insofar as the

LCH.Clearnet Group Ltd is based in UK. The respective financial progress and its policies and projects were

periodically examined.

3.4.3 MIBEL

The MIBEL Board of Regulators (CR MIBEL) is responsible for monitoring the Iberian Electricity Market and

coordinating the members' activities. The CR MIBEL followed the development of the spot market that is

managed by OMIE (OMI-Polo Español, SA, using the Portugal-Spain interconnection and also the development

of the futures market that is managed by OMIP. To this end, the attendance of market operators of the futures

and spot markets and also system operators (REN and REE) at the meetings of CR MIBEL was promoted. The

key international initiatives that impact on MIBEL’s functioning were also monitored.

Within the Regulatory Harmonisation Plan between Portugal and Spain for the energy sector, the CR MIBEL

submitted a proposal to harmonise the methodology for calculating the tariffs for access to the governments of

both countries. This proposal purports to establish mechanisms for coordinating and harmonising the tariffs for

access in order to ensure a uniform access cost in the Iberian Peninsula.

In order to ensure a more effective supervision of the market, a Memorandum of Understanding for cooperation

and exchange of information between the entities comprising the CR MIBEL was signed. The memorandum

lays down a principle of mutual cooperation and includes the exchange of information between regulators,

within its competence, in order to enable adequate supervision and regulation of MIBEL.


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A document on regulatory harmonisation of Special Regime Producers (SRP) in MIBEL and the operation of

the respective electrical system was submitted for public consultation in the last quarter of the year. This

initiative is designed to develop the objectives established for consolidating MIBEL. This was likewise the

result of the reiteration between Iberian regulators and transportation operators. The document submitted for

public consultation addresses several aspects related to the SRP and integration thereof in the operation and

functioning of the systems and the market.

Within the scope of international developments on the term management of interconnections, worth noting is

the commitment made by CR MIBEL, in close cooperation with the Iberian Market Operator (IMO) and with

REN and REE in order to implement the necessary actions for ensuring that MIBEL meets the conditions for

coupling with the markets of the Northwest area in Europe (which includes the markets of France, Belgium, The

Netherlands, Germany, Luxembourg, UK, Norway, Denmark, Sweden and Finland) before the end of 2012. As

for term management of the interconnection capacity between Portugal and Spain, the CR MIBEL confirmed its

preference, in line with the work undertaken internationally, by using financial products, option, and considering

the possibility of auctioning financial products for term management of an interconnection on a European

harmonised platform (e.g. CASC.EU platform).

3.4.4 Credit Rating Agencies

ESMA has played the key role in developing the regulatory policy and supervision of credit rating agencies in

the European Union. Via the Standing Committee on Credit Rating Agencies, ESMA benefitted from the

cooperation of the national competent authorities, including the CMVM, for developing a broad range of

actions, including the registration of credit rating agencies operating in the EU, the issue of guidelines and

recommendations regarding the supervision activity, registration and the establishment and entry into force of a

central database concerning the performance of credit rating agencies as regards the ratings assigned. Until July

2011, the supervision of credit rating agencies continued to be carried out by national supervisory authorities

and after said date this was transferred to ESMA.

At the end of August 2011, Companhia Portuguesa de Rating was registered by the CMVM under the new

system. Although Moody's does not have a physical presence in Portugal, CMVM joined the college of this

credit rating agency and took part in the respective registration process, by availing of the power of the national

competent authorities envisaged in Article 29/3/b) of the said Regulation.


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3.4.5 Participation in International Organisations

3.4.5.1 European Systemic Risk Board

Based in Frankfurt, the ESRB is responsible for the macro-prudential supervision of the financial system and

includes the supervisory authorities of the financial sector (banking, markets and insurance), the European

Commission and the ECB. Said Board contributes to the prevention and mitigation of systemic risks and

financial stability in the European Union. The CMVM Chairman is a member of the General Board. This

committee decides on, inter alia, issuing recommendations and warning alerts on risks in the financial system.

The CMVM also took part in the Advisory Technical Committee (ATC) of the ESRB. The ATC's role is to

closely examine and advise on issues that is relevant to the mission of the ESRB. The CMVM contributed

towards identifying the major risks in the financial system from the point of view of markets' supervisors using

its internal skills from market analysis and risk identification. The In 2011, the ESRB issued a recommendation

on the risks related to granting credit in foreign currencies.

TEXTBOX 12 – EUROPEAN SYSTEMIC RISK BOARD

Together with the three European Supervisory Authorities (one for each institutional sector: banking,

insurance and securities) and the national supervisory authorities of the financial sector, the European

Systemic Risk Board (ESRB) is one of the members of the new European System of Financial Supervisors

(ESFS). The ESRB is responsible for the macro monitoring of the European financial sector and contributes

towards identifying, preventing and mitigating the systemic risk. Insofar as said risks impact on financial

stability and the steady funding of the European economy, the ESRB's aim for the latter is to contribute to

the smooth functioning of the single market and ensure that the financial sector makes a positive

contribution towards economic growth in the European Union.

In carrying out its task, the ESRB i) gathers and analyses macroeconomic and microeconomic data, which,

inter alia, is provided by the other ESFS members ii) identifies systemic risks threatening the European

financial sector; iii) issues warning alerts and recommendations (that can be publicly available) aimed at

mitigating risks or correcting procedures liable to create systemic risks, iv) whenever there is a risk of an

emergency, issue confidential warnings addressed to the Council of the European Union, so that said

Council may, in accordance with the provisions in the regulations that established the European Supervisory

Authorities, declare an emergency situation aimed at said authorities; and


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v) closely cooperates both with the other institutions comprising the ESFS, and the international financial

organisations, such as the IMF or the Financial Stability Board (FSB).

During the first year of activity (2011), the ESRB drafted a package of seven recommendations that is

particularly important in order to contain the risk attached to growth of lending in foreign currency when

there is no currency risk hedging (see Recommendation of the European Systemic Risk Board of 21

September 2011 on lending in foreign currencies (CERS/2011/1)). Such recommendations are especially

aimed at ensuring the consistency of the domestic regulatory framework (so as to avoid the possibility of

arbitration), to restrict the exposure to credit risk and market risk and control the excessive growth of credit

in foreign currency. The ESRB Recommendations is overall addressed to the countries in Central and

Eastern Europe, where foreign currency lending to the non-financial private sector is more common and led

to an accumulation of significant currency discrepancies in the balance sheets of the respective non-

financial private sector. For instance, lending in foreign currency in Hungary (particularly the Swiss Franc)

to individuals whose income was denominated in a different currency (domestic currency) led to serious

problems of compliance by these borrowers during the appreciation of the Swiss Franc in the international

currency markets when compared to the Hungarian forint.

The ESRB comprises of three decision-making bodies (General Council, Secretariat and Steering

Committee) and two advisory bodies (the Advisory Scientific Committee and Advisory Technical

Committee). The General Board is the highest decision-making body. The following comprises the General

Board with voting rights, i) the President and Deputy-President of the ECB; ii) the Governors of the national

central banks of the EU Member States; iii) a member from the European Commission; iv) the Chairpersons

of the three European Supervisory Authorities; v) the Chair and the two Vice-chairs of the Scientific

Committee; and vi) the Chair of the Advisory Committee. One senior representative of the national

supervisory authorities from each Member State and the President of the Economic and Financial

Committee of the European Union are also members with no voting rights of the General Board.

The Steering Committee consists of members of the General Board and prepares the process for decision

making by the General Board. The Advisory Scientific Committee and Advisory Technical Committee are

comprised of experts that provide advice and assistance on matters deemed relevant to the ESRB work.

Advice may be sought from other sources, including market players, Consumer organizations and academic

experts.


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The ESRB work may be opened so as to include senior representatives from interested authorities of third

countries particularly the countries from the European Economic Area (EEA), where issues of particular

importance to these countries are concerned.

3.4.5.2 IOSCO

IOSCO approved strategic guidelines for the 2011 to 2015 five-year term in 2011 and underwent substantial

internal restructuring. This was aimed at providing the organisation with more efficiency and powers of

intervention as a worldwide organisation in the securities field.

TEXTBOX 13 – IOSCO RESTRUCTURING

In 2008, IOSCO started a programme to reform its mission, operational objectives and priorities in order to

improve its performance as part of the international financial system in constant and growing progress (IOSCO

New Strategic Direction 2010-2015).

Its members have since then been discussing and approving a broad set of proposals concerning the governance

structure, increasing the IOSCO's role as regards the establishment of international standards relating to the

regulation of securities markets, focusing on implementing the goals and principles, both in emerging markets

and developed markets, improving cross-border cooperation on enforcement, identification and mitigation of

systemic risk so as to ensure that there is fair and efficient markets, and also on increasing cooperation with

other international organisations, including the G20 and the FSB.

The IOSCO principles were revised within this framework and a new methodological framework for assessing

these principles was adopted in 2011. Eight new principles for regulators were added and relate to the following:

(i) the function of monitoring, mitigating and managing systemic risks; (ii) the process of reviewing the

regulatory perimeter; and (iii) the management of conflicts of interest. The other new principles relate to

regulating hedge funds, credit rating agencies and the supervision of auditors, including their independence, and

other providers of information services.


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As regards stepping up international cooperation on enforcement, IOSCO has been pursuing the effective

implementation, between its members, of the IOSCO Multilateral Memorandum of Understanding on

consultation, cooperation and exchange of information by virtue of which the international regulators that are

parties to the agreement shall provide mutual assistance in order to ensure compliance with the Laws and

Regulations applicable to the securities market. Same is regarded as the international standard for cooperation

on enforcement.

Approval of the IOSCO Committees' restructuring will simplify the decision-making process, streamline the

framework according to its key assignments through the merger of the governance roles and implementation of

standards within a single Committee (IOSCO Board). This Board will be responsible for the management,

strategy and representation of IOSCO and also for monitoring the organisation's activities. The Regional

Committees within this context will have greater importance as regards contributions to the work being carried

out by IOSCO.

Further to the restructuring and following on from consultations held with organisation members, the

restructuring of the IOSCO working committees was approved and implemented in the merger of the 'policy'

and 'standard setting' areas. The joining of standing committees and working groups of the Emerging Markets

Committee (formerly independent committees) will cause new Committees to be formally established in 2012.

The Standing Committee on Risk and Research (SCRR) was established at the beginning of 2011. Said

Committee brings together the chief economists of nearly 25 securities commissions from several global

regions. This group's aim is to detect, prevent and mitigate systemic risk in securities, thereby contributing

towards the guidance of some of the work carried out by the Research area set up in IOSCO.

Finally, as regards the organisation's financing, a differentiated quota to be paid by members from 2012

onwards, in terms of objective criteria was approved.

The CMVM Chairman held the position of Chairman of the IOSCO European Regional Committee and also the

Executive Committee and the Technical Committee. With the restructuring being concluded in May 2008, he

was re-elected to the Chair of European Regional Committee and a member of the organisation's new Board.

Furthermore, the CMVM took an active part in IOSCO's work, via some of its many committees and working

groups. The CMVM Chairman was elected Chair of the newly established Standing Committee on Risk and

Research at the beginning of 2011. The work of the Standing Committee on Risk and Research covered inter


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alia the following: i) the identification and/or development of a set of useful indicators for monitoring the

systemic risk by regulatory and supervisory entities of securities markets; ii) the identification of market risks,

iii) the development of a guiding tool for the regulatory Impact Assessments by IOSCO and iv) co-operation

with the FSB in gathering the information and assessment of shadow banking. As regards the latter, a definition

of shadow banking for IOSCO was drafted so that the Regulators for securities markets have access to

appropriate information on entities which fit that definition within supervision and the inherent potential risks

may be adequately assessed.

The Implementation Task Force (ITF) is the IOSCO's working group that reflects and acts on this organisation's

principles and how same is assessed across the jurisdictions of its members. After undertaking a thorough

revision of the said principles, which cover areas such as cooperation and exchange of information between

supervisors, its independence, the supervision of issuers of collective investment undertakings, credit rating

companies and auditors or organisation of secondary markets, this group revised the assessment methodology of

said principles. The IOSCO principles are a key component in the assessment conducted by the IMF, concerning

the adequacy of supervising the securities markets and the functioning thereof under conditions of stability and

security for the investors. The CMVM formed part of the working group that drafted a proposal for the

assessment methodology of IOSCO's principles. These were subsequently approved by the institution's

decision-making bodies. Within the reorganisation, the ITF's tasks were incorporated into the newly established

"Assessment Committee".

The IOSCO MMoU Screening Group is responsible for drawing up and validating the applications from

national supervisory authorities to the IOSCO Multilateral Memorandum of Understanding (MMoU) for

subsequent decision-making by the Committee of Presidents. The CMVM continued to form part of one of the

seven verification teams that comprise the Screening Group which is responsible for the detailed assessment of

the legal compliance by the applicant with signing the MMoU.

There were six standing committees reporting to the former IOSCO Technical Committee. The CMVM took

part in two of these committees: one related to the exchange of information and supervision between

supervisory authorities, the Standing Committee 4 on Enforcement and Exchange of Information (SC4), and the

committee responsible for revising and updating the assessment principles of collective investment

undertakings, established under the Standing Committee 5 on Investment Management. With the reorganization

came into existence Seven committees concerning regulatory were set up with the reorganisation.

3.4.5.3 ESMA


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ESMA commenced its activity on 1 January 2011 as a European Supervisory Authority (European Securities

and Markets Authority) as set up by Regulation (EU) No. 1095/2010 of the European Parliament and of the

Council of 24 November 2010, taking over from the former Committee of European Securities Regulators

(CESR). The new institution operates based on its own human resources and thematic working groups that pool

the expertise from the competent national authorities for the supervision and regulation of securities and

respective markets. ESMA takes on the exclusive role of supervising the credit rating agencies. As the

regulatory authority, it plays a key role in drawing up regulatory technical standards and implementing technical

standards (Technical Standards) that are linked to EU Directives and Regulations. These rules that determine the

functioning of European securities markets aim at creating a unified body of technical standards (Single Rule

Book) that fosters a genuine single European Securities Market. The Board of Supervisors is the strategic

decision-making body of ESMA. It consists of the Chairmen of the 27 national supervisory authorities. The

representatives of the European Commission, the European supervisory authority for Banking and Insurance

sector, the European Systemic Risk Board (ESRB) and the securities markets supervisory authorities of

Norway, Iceland and Liechtenstein also attend these meetings as observers. During 2011, the ESMA Board of

Supervisors held eight face-to-face meetings, and, in accordance with the provisions of Article 43 of Regulation

No. 1095/2010 of the European Parliament and of the Council guided ESMA's activity of ESMA and its several

working groups and approved all opinions, recommendations and decisions issued by ESMA in said year. The

CMVM Chairman was the last Chairman of CESR and was elected Vice-Chairman of ESMA in January 2011

and as such ensured the ESMA's Chair pending the election and taking of office of the first Chair in April 2011.

Furthermore, the Chair of the Committee on Economic and Market Analysis (CEMA) continued to be carried

out by Carlos Alves, a member of the CMVM Executive Board.

The CMVM also took part in many committees and working groups (for experts and directors) in the most

diverse areas of regulation and supervision of markets in financial instruments. The ESMA Committees and

Working Groups consist of representatives from competent national authorities of the EU Member States and

occasionally other European States and have a pivotal role in the convergence of regulation and supervision of

the capital markets in Europe. On its own initiative or the European Commission mandate, such groups provide

expert advisory services to the European Commission on the drafting of regulatory technical standards and

implementing technical standards concerning the markets and market players.

Set up in 2011 by ESMA Regulation,61

the task of the Financial Innovation Standing Committee is to advise the

ESMA Board of Supervisors on identifying emerging financial activities in the EU financial system that require

61 Article 9 of Regulation (EU) No. 1095/2010 of European Parliament and of the Council of 24 November 2010, that establishes a

European Supervisory Authority (European Securities and Markets Authority)


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a joint response on possible changes to European regulations or on ways of mitigating risks that may be linked

with the effects of financial innovation. A survey of operating procedures and performance of regulatory

authorities of the markets in financial instruments as regards financial innovation in the respective domestic

markets, especially, regarding the powers of supervision and intervention in the marketing of products targeted

at the retail investors.

The Committee on Economic and Market Analysis continued periodically to deliver a report analysing the

trends, risks and vulnerabilities in financial markets, developed analysis in the fields of CDS, short-selling,

securitisation, transactions based on algorithms, including high frequency, stress testing the financial markets

and the marketing of complex financial products to retail investors. Furthermore, the development of a risk

dashboard on a regular basis was commenced in order to enable the constant monitoring of the financial

markets' risks.

The Corporate Finance Standing Committee mostly paid close attention to the drafting of an opinion requested

by the European Commission from ESMA on Level 2 measures to be implemented by the Commission pursuant

to the Prospectus Directive, as revised by Directive 2010/73/EU amending Directive 2003/71/EC on the

prospectus to be published when securities are offered to the public or admitted to trading, and Directive

2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose

securities are admitted to trading on a regulated market. The European Commission mandate included issues

relating to the Final Terms, Summary and rules on proportional information for certain issuers, issues relating to

retail cascades and revision of certain rules of the Prospectus Regulation (which was subject to public

consultation at the end of 2011 for submission to the European Commission in the first quarter of 2012) and

issues on convertible bonds and liability systems of the prospectus within the European Union (which will be

addressed in 2012). The committee updated the FAQs on the implementation of the Prospectus Directive,

analysed and answered questions from the industry on the implementation of the Prospectus Directive to certain

Mineral Companies. As regards corporate governance, a document on proxy advisors was drafted, a call for

evidence on empty voting was launched and revision of the Transparency Directive was monitored.

The key task of the Post Trading Standing Committee included drawing up the regulatory and implementation

technical standards envisaged in the proposed EMIR Regulation. Notwithstanding there being no final

legislative text, provisional technical standards were drawn up in light of the scheduled date of 30 June 2012 for

ESMA to submit the proposals to the European Commission. Rules were proposed to be included in future

European legislation on settlement failures.


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The ESMA-Pol deals with market abuse, supervision of markets and promotes technical and operational

cooperation between regulators. The ESMA-Pol promotes the exchange of information on cases investigated by

supervisors and mutual support in said investigations, an aspect that was thoroughly examined in 2011.

A subgroup was established in November to draw up expert opinion from ESMA to be submitted to the

European Commission by April 2012. Said opinion concerns the implementation of technical standards

envisaged in the draft Regulation on short selling and certain aspects of CDS. The Committee debated the

proposed EU laws on the revision of the Market Abuse Directive and MiFID. A task by another subgroup on

foreign exchange markets was concluded and ended with a warning notice being released to investors in

December. The Joint Sub-Group's task on the Transaction Reporting Exchange Mechanism (TREM) continued.

The CMVM took part in all the above mentioned groups.

The ESMA Secondary Markets Standing Committee provided assistance to the European Commission within

the MiFID review. A working group to study high frequency trading (HFT) and others relating to trading in

automated environments was set up. As a result of this study that involved CEMA's co-operation, guidelines on

systems and controls for trading platforms, investment firms and competent authorities in an automated trading

environment was implemented. The Protocol on suspension of trading pursuant to Article 41 of MiFID was

amended and an alternative model for compliance with the duties pursuant to this Article was outlined and

approved. Exemptions from the pre-trade transparency were closely examined, which consisted of the

following: i) the continuation of assessing and analysing new applications, ii) the drafting of an internal

procedure for dealing with these assessments or analyses and iii) gathering and analysing all exemptions to pre-

trade transparency in force and preceding the establishment of a uniform procedure for assessment and analysis.

The Investor Protection and Intermediaries Standing Committee addresses issues related to the provision of

investment services and activities by investment firms and credit institutions, paying special attention to investor

protection including the conduct of business rules for financial intermediaries, the marketing of financial

products and investment advice. The CMVM co-operated in drafting FAQs concerning MiFID on issues relating

to the protection of investors and financial intermediaries. This was released in April and aims to foster the

convergence of regulatory and supervisory practices in implementing the MiFID and respective implementation

rules and guides the activity of said entities. Also took part in drawing up two consultation papers, one

concerning the requirements of the compliance duty and the other on compliance with the capital adequacy

requirements as envisaged in MiFID.

The Investment Management Standing Committee and respective Operational Working Group's core task is to

provide support to the European Commission by drafting implementing and regulatory technical standards that


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implement the EU Directives on investment funds, inter alia. A set of recommendations and understandings was

drawn up under the management of collective investment undertakings regarding the management and

measurement of risk, the money market funds, ETFs and structured UCITS and mechanisms for liquidity

management. Procedures for dealing with the late transposition of the UCITS IV Directive by certain Member

States were debated and implemented. The Group began the compilation of the implementing measures

envisaged in the AIFM (Alternative Investment Fund Managers) Directive in respect of depositaries, the

calculation of the exposure to the leverage factor, transparency requirements and mechanisms for supervisory

cooperation to be established with third countries. The process for transposing the UCITS IV Directive into the

domestic legal system is subject to a detailed analysis in this report (Textbox 13).

The Review Panel analyses the convergence of regulations and supervisory practices of the EU securities

markets. It is through this group, where the CMVM has been actively represented, that ESMA makes a survey

of how the Directives and regulations of financial services are implemented by the Member States, either by

transposition or by the corresponding supervisory practices. The Review Panel mainly focused on three topics:

implementation of the Prospectus Directive and resources and supervisory methods used in the implementation

thereof; implementation of the Transparency Directive; and the actual use of administrative and criminal

sanctions in the case of market abuse, which goes beyond the activity of national supervisors, including also the

courts' activity and the degree of cooperation between same and national supervisors of securities. The decision

determining the establishment and scope of the Review Panel's activity was revised, and also the methodologies

used in the Working Group so as to adapt same to the European System of Financial Supervisors.

The supervision of credit rating agencies is currently a field of exclusive competence for the EU and is carried

out by ESMA. Thus complying with the mandate assigned to it by Regulation (EU) No. 1060/2009 of the

European Parliament and of the Council (in force since December 2009), ESMA also plays a pivotal role in

drafting regulatory policy relating to credit rating agencies within the European Union. ESMA benefitted from

the cooperation between the national competent authorities, including the CMVM, which operates via the

ESMA Credit Rating Agencies Standing Committee. Jointly, the Committee and ESMA registered credit rating

agencies operating in the EU, issued guidelines and recommendations concerning the supervision and

registration, established and put into operation the central database on the performance of credit rating agencies

relating to the credit ratings assigned.

The CMVM took part in the Corporate Reporting Standing Committee which is responsible for financial

reporting, audit and enforcement of IFRS implementation in the financial statements of the issuers of securities

admitted to trading on a regulated market. The revision of International Financial Reporting Standards linked to

the convergence project between the International Accounting Standards Board (IASB) and Financial


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Accounting Standards Board (FASB) was successfully completed and the debate launched by the IASB on the

review of its corporate governance structure was monitored. Three public statements drawn up by the Group

were issued. One expounded upon the requirement for appropriate disclosure of the issuers' exposure to

sovereign debt. Another pointed out the accounting treatment for impairment with reference to the need to

recognize the impairment on Greek sovereign debt by the end of the year. The third concerned the retrospective

implementation of the adjustments resulting from error detection and the document on materiality in financial

reporting open to public debate.

Furthermore, the CMVM attended eight meetings of the ESMA European Enforcement Coordination Sessions

(EECS), an international cooperation group on the supervision of financial statements published by issuers with

securities traded on a regulated market, drawn up in accordance with International Financial Reporting

Standards (IFRS). The key task of this group is to promote harmonisation and consistency in decisions taken by

its members by analysing and discussing the decisions taken by different regulators concerning financial

reporting, and also by identifying areas not covered by IAS/IFRS or where enforceability thereof can lead to

different interpretations. The EECS is also a preferred channel for debates with the IFRIC (IFRS Interpretation

Committee). Since 2006, this Group is chaired by the CMVM (Mário Freire).

3.4.6 Other International Cooperation

A number of securities market supervisors on both sides of the Mediterranean were brought together in the

Mediterranean Partnership - France, Spain, Greece, Italy and Portugal on the North side and Morocco, Algeria,

Tunisia and Egypt on the South side. In addition to facilitating cooperation among its members, this group's

primary task is to promote the convergence of regulations governing the securities markets of southern

Mediterranean to the EU regulatory framework. The activity of this supervisors' association increased through

the exchange of information on the respective regulatory frameworks and markets, by two seminars held in

Paris and Marrakech and a Chairmen meeting. The exchange of information was particularly active as regards

issues relating to collective investment undertakings, practices of supervising market abuse and equivalence

mechanisms relating to prospectuses. The CMVM presented papers at the two seminars held and took part in the

Chairmen meeting.

The Ibero-American Institute of Securities Markets (Instituto Ibero-Americano de Mercados de Valores - IIMV)

continued with the disclosure and professional training activities. This year's Annual Meeting of Chairmen, held

in Uruguay, paid particular attention to stock exchanges specialising in small and medium companies and issues

related to supervising the OTC derivatives markets. The new European regulatory framework for credit rating

agencies was the subject of an exhibition held by a member of the CMVM Executive Board.


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The Company Law Expert Group is an EU advisory group on Company Law. In 2011 the group closely

examined the initiative launched by the European Commission "European Company Law: the way forward" and

monitored two other initiatives, one related to the disclosure of non-financial information by companies and the

other on the establishment of the legal concept of a European Foundation.

3.5 FUTURE DEVELOPMENTS

In supervision activities, the CMVM will continue to mobilise resources for monitoring, risk detection and

mitigation (systematic or otherwise) tasks. Thus, the analysis and timely detection of risks likely to undermine

the smooth functioning of markets will continue and also coordination with the European and international fora

wherein the CMVM takes part (e.g. IOSCO Standing Committee on Risk and Research, ESMA Committee on

Economic and Market Analysis and the ESRB).

Ensuring the integrity, credibility and protection of the markets in financial instruments will also continue to be

one of the key aims of the CMVM. This implies more investment in the SIVAM. This system, generating

warning alerts and the subsequent analysis, enables the detection and selection of potentially anomalous

situations of financial instruments trading. The analysis thereof has proved to be a vital source for the detection

of irregularities in the field of crimes against the market. New features will be introduced in the system that is

aimed at widening the generation of warning alerts based on the analysis of the orders entered by traders in the

Euronext trading system.

Improving supervisory practices and perfecting the supervision system for public and private debt implies a

more intense examination of the possibility of price manipulation as regards the supervision of sovereign debt,

and in analysing transactions, focus more on the monitoring of potential inter-market manipulation and perfect

the analysis and generation of warning alerts models for debt instruments. Under the monitoring of Euronext

Lisbon regulated markets, a plan for supervising the markets due to High Frequency Trading (HFT) (IOSCO

and ESMA Recommendations) will be designed and implemented. There will be more frequent and detailed on-

site supervision and aim at reducing the time for analysing the supervisory reviews.

The options relating to investor protection will be directed at the requirement, among the market players, for

providing enough and comprehensible information on investment in financial instruments; the continued use of

the CIF as a centralising and coordinating tool in the intervention by the CMVM on matters related to financial


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innovation and attention to the issue of lack of funding and the positive role of savings. Among other steps to be

undertaken in 2012, the following is included: i) regulating the marketing and information to be provided

concerning complex financial products and respective advertising; ii) the performance so as to attain a speedier

sanctioning case relating to breach of duty on the marketing of financial instrument; iii) increase the close

examination of best execution policies relating to orders; iv) improving the procedures for handling complaints

of investors including developing a platform for complaint management with access via the CMVM's website;

v) prepare periodic disclosure of information on complaints; vi) establish a voluntary Arbitration Centre aimed

at retail investors; and vii) undertaking several studies on market operation, especially on trading platforms,

trading, clearing and settlement, investment funds and financial intermediation.

The reformulation of authorisation/registration procedures and improvement of CMVM administrative practices

will continue with the following: i) create the possibility of recording activities records remotely via the

CMVM's website on the internet that will enable a complete management of the registration dossier; ii) setting

levels of most demanding service capable of shortening the duration of registration procedures with the

establishment of time limits and the adoption of the tacit approval principle if said limit is exceeded; iii) set up a

"Consumer Helpline" (Green line) to support the registration process; iv) implement a determined annual

internal audit; (v) set up a "Consumer Helpline" (Green line) for complaints and reports on the performance of

the CMVM and its staff; and vi) finalise the Strategic Plan for Information Systems for the next three to five

years.

Particularly salient in the regulatory plan is the continuing transposition of UCITS IV Directive and respective

implementation Directives and also the transposition of the Omnibus Directive in the section relating to UCITS.

The transposition of the UCITS IV Directive will lead to an almost total revision of the legal framework on

collective investment undertakings and all the CMVM regulations linked thereto.

The implementation of the CMVM Regulation on Complex Financial Products is envisaged. The revision of

several CMVM Regulations is also envisaged, including those concerning asset valuation and real estate

appraisers, auditors, the marketing of open-end pension funds with individual membership and unit-linked

insurance plans and accounting practices of collective investment undertakings.

The CMVM will take part in several international regulation and supervision fora, focusing especially on

European System of Financial Supervisors through the ESMA and the ESRB. The CMVM will continue to play

an essential role in certain fora and be represented in several international working groups on matters relating to

its task.


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In light of debates and proposals for legislative and regulatory measures and developing actions that will

facilitate the access of small and medium sized enterprises (SMEs) to the capital markets and other sources of

financing alternatives to bank loans, the CMVM will promote the establishment of a CMVM/SMEs forum for

capital markets. Actions being developed by this forum include: identifying factors blocking the access of SMEs

to financial markets and examine ways of removing same; promoting extensive disclosure of financing tools

available and accessibility thereof to SMEs; raising awareness of the SMEs to the importance of adopting

structures and appropriate funding arrangements to its characteristics and different economic situations; and

raising awareness of the financial intermediaries to the need for ensuring structured financial support to SMEs

over its entire timespan.

The CMVM will continue to contribute with its expertise to the Portuguese delegations engaged in negotiating

the proposed EU laws presented by the European Commission. The European Union's regulatory agenda for

2012 in the field of financial services market includes finalising the EMIR Regulation and negotiating the

revision of several Directives and Regulations (e.g. MiFID, Market Abuse Directive, ICS Directive, start

revising the UCITS Directive, Transparency Directive, Accounting Directive and Audit Directive). Negotiating

proposals for regulations pertaining to venture capital funds and social enterprise funds is also envisaged and a

legislative proposal on central securities depositories is to be presented by the CMVM.

Moving the CMVM headquarters to new premises is scheduled for the last quarter of 2012. This will enable a

substantial reduction in operating costs to be made notwithstanding the operation and performance of the

CMVM tasks.


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ANNEXES


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ANNEX 1

KEY LEGISLATION PUBLISHED IN 2011 CONCERNING THE SECURITIES MARKET

National

Laws

Law No. 22/2011, of 30 May – Amendment to the Budget Framework Law No. 91/2001, of 20 August.

Law No. 48/2011, of 26 August 2011 – Amendment to Law on the State Budget for 2011 No. 55-A/2010, of 31

December.

Law No. 50/2011, of 13 September 2011 – Amendment to the Framework Law on Privatisation, approved by

Law No. 11/90, of 5 April.

Law No. 52/2011, of 13 October 2011 - Amends the Budget Framework Law, approved by Law No. 91/2001, of

20 August.

Law No. 56/2011 of 15 November 2011 – Transposes the following EU Directives into national law: Directive

No. 2008/99/EC of the European Parliament and of the Council, of 19 November, Directive No. 2009/123/EC,

the European Parliament and of the Council, 21 October, introducing amendments to the Criminal Code.

Law No. 64-A/2011 of 30 December – Approve the Major Plan Options for 2012-2015.

Law No. 64-B/2011, of 30 December – State Budget for 2012.

Law No. 64-C/2011, of 30 December 2011 (Supplement) - Approves the strategy and procedures to be

introduced within the Budgetary Framework Law (Lei de Enquadramento Orçamental - LEO), approved by

Law No. 91/2001, of 20 August, and timing schedule for the respective implementation thereof until 2015.


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Decree-Laws

Decree-Law No. 29-A/2011, of 1 March 2011 (Supplement): – Establishes Rules for implementation of the

State Budget for 2011, approved by Law No. 55-A/2010, of 31 December.

Decree-Law No. 33/2011, of 7 March 3011 – Amends the Commercial Companies Code, the Framework for the

Instant incorporation of Commercial and Civil companies, approved by Decree-Law No. 111/2005, of 8 July,

and Framework for Online Incorporation of Companies, approved by Decree-Law No. 124/2006, of 29 June.

Decree-Law No. 52/2011, of 13 April 2011 – Amends Regulation on Legal Fees and Civil Procedure Code, in

order to improve certain rules so as to ensure access to justice for persons with lesser means, regulate aspects

related to remuneration of incidental players, update the amounts of fines and encourage recourse to electronic

means.

Decree-Law No. 53/2011, of 13 April 2011 - Transposes into national law Directive No. 2009/109/EC of the

European Parliament and of the Council, of 16 September, on requirements for reporting and documentation in

the event of mergers and divisions. Amends the Commercial Companies Code.

Rectification No. 12/2011, of 29 April 2011 – Rectifies Decree-Law No. 29-A/2011, of 1 March, of Ministry of

Finance and Public Administration, setting out the rules for implementing the State Budget for 2011.

Decree-Law No. 65-A/2011, of 17 May (Supplement) – Formulates and enhances the duties of financial

reporting, envisaged in Decree-Law No. 29-A/2011, of 1 March that approved the rules for implementing State

Budget for 2011, so as to increase the monitoring of budget implementation.

Decree-Law No. 85/2011, of 29 June 2011 – Streamlines settlement system in the payment and securities

systems and includes credit claims in the assets that may be subject to financial collateral arrangements by the

transposition of Directive No. 2009/44/EC of the European Parliament and of the Council, of 6 May, to 1st

Amendment of Decree-Law No. 221/2000, of 9 September, to 15th amendment of the Securities Code, approved

by Decree-Law No. 486/99, of 13 November, and 1st amendment of Decree-Law No. 105/2004, of 8 May

Decree-Law No. 117/2011, of 15 December - Approves the Organic Law of the Ministry of Finance.


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Ministerial Orders

Series I

Ministerial Order No. 111-A/2011, of 18 March 2011 (Supplement), the Ministry of Finance and

Public Administration - Ascertains the legal certification of accounts by the auditor, pursuant to Article

52/11 of the Corporate Income Tax Code, with regard to the deduction of tax losses, for companies

where the accounts are not subject to legal certification in accordance with the applicable law. It also

establishes that said certification is excluded from commercial companies that are classified as micro-

entities in accordance with the concept envisaged in Article 2 of Law No. 35/2010 of 2 September and

where the deducted tax losses over the last two financial years amounts to less than €150,000.00.

Ministerial Order No. 179/2011 of 2 May, the Ministry of Finance and Public Administration, Ministry

of Justice - Provides new wording for Article 44 of Ministerial Order No. 419-A/2009, 17 April, which

governs the means for drafting, accounting, settlement, payment, processing and allocation of litigation

costs, fines and other penalties, so as to maintain the system of paying the legal fees in two

instalments, that was established in 2009 as a transitional system.

Ministerial Order No. 200/2011 of 20 May 2011, Ministry of Finance and Public Administration,

Ministry of Justice - Indicates the commercial companies to which Tables I-C and II-B of the

Regulation on Legal Costs applies, approved by Decree-Law No. 34/2008 of 26 February and governs

the automated verification of the reverse charge for legal costs. Provides new wording for Article 7

and repeals Article 14 of the Ministerial Order No. 419-A/2009 of 17 April, which approved the

framework for the processing and payment of Legal Costs. Approves a transitional system aimed at

ascertaining the implementation of this Ministerial Order to proceedings instituted after the 30th day

following the publication of this Ministerial Order until 16 February 2012, notwithstanding the

adaptations envisaged therein.


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CMVM Regulations (II Series – Section E)

CMVM Regulation No. 1/2011, of 30 March - Notification of qualifying holdings and appointment of

the Members of Boards of Directors and Supervisory Boards for Investment Advisory Companies and

Management Entities of Markets, Systems and Services.

CMVM Regulation No. 2/2011, of 30 March - Duty to report OTC transactions pertaining to

Derivative Financial Instruments, when the respective underlying asset is found to be admitted to

trading on a regulated market.

CMVM Instructions

Instruction No. 2/2011 - Statistics on Registration and Deposit of Financial Instruments.

Instruction No. 3/2011 - Statistics on Financial Intermediary.

Instruction No. 4/2011 - Statistics on Portfolio Management on behalf of others.

Instruction No. 5/2011 - Statistics on Reception of Orders on behalf of others.

Instruction No. 6/2011 - Statistics on Executing Orders on behalf of others.

Instruction No. 7/2011 - Statistics on Trading for Own Account.

Instruction No. 8/2011 - Statistics on Day-Trading Transactions.

Instruction No. 9/2011 - Price-Lists for Retail Investors.

Instruction No. 10/2011 - Information on Credit Lending for Transactions in Financial Instruments.

Instruction No. 11/2011 - Statistical Information on Managing Entities for Markets, Systems and

Services.


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Instruction No. 12/2011 - Information on Financial Instruments and Transactions in Financial

Instruments admitted to Trading on a Regulated Market or when the Underlying Asset is admitted to

Trading on a Regulated Market (Repeals Instruction No. 2/2007).

Other Documents

Notice No. 2284/2011, of 3 January 2011, Official Government Gazette (Series II) of 21 Jan 2011 -

Ministry of Finance and Public Administration - Directorate General of Treasury and Finance -

Establishing the supplementary rate for interest on arrears at 8% relating to loans that are held by

commercial companies, individuals or legal persons, that comes into force in the 1st Half 2011,

pursuant to Article 102/3 of the Commercial Code.

Notice No. 14190/2011, of 4 July, Official Government Gazette (Series II) of 14 July - Ministry of

Finance and Public Administration - Directorate General of Treasury and Finance - Establishing the

supplementary rate for interest on arrears at 8.25% relating to loans that are held by commercial

companies, individuals or legal persons, that comes into force in the 2nd Half 2011, pursuant to Article

102/3 of the Commercial Code.

Notice of Banco de Portugal No. 10/2011 of 29 December 2011, Official Government Gazette (Series

II) of 9 January – Regulating the principles and rules which should govern the remuneration policy of

credit institutions, investment firms and branches set up in Portugal of credit institutions and

investment firms based outside the European Union. Further establishes the disclosure requirements as

regards the remuneration policy of the members of the Management and Supervisory Boards of the

institutions and also that of the respective employees' (although said employees are not Members of

said Boards) compliance with certain criteria. Repeals: a) Notice of Banco de Portugal No. 1/2010, of

26 January, Official Government Gazette (Series II) of 9 February; b) Circular Letter No. 2/2010/DSB,

published in the Official Bulletin of the Banco de Portugal No. 3/2010.


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EU

EU Directives

Directive 2011/35/EU of the European Parliament and of the Council of 5 April 2011, Official Journal

L 110 of 24 April 2011 - concerning mergers of public limited companies

Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011, Official

Journal L 304 of 22 November 2011 on consumer rights, amending Council Directive 93/13/EEC and

Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive

85/577/EEC and Directive 97/7/EC of the European Parliament and the Council.

Directive 2011/89/EU of the European Parliament and of the Council of 16 November 2011, Official

Journal L 326, 8 December 2011 - amending Directives 98/78/EC, 2002/87/EC, 2006/48/EC and

2009/138/EC as regards the supplementary supervision of financial entities in a financial

conglomerate.

EU Regulations

Commission Regulation (EU) No. 149/2011 of 18 February 2011 [Official Journal L 46 of 19 February

2011] - that amends Regulation (EU) No. 1126/2008 adopting certain international accounting

standards in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the

Council regarding Improvements to International Financial Reporting Standards (IFRS).

Regulation (EU) No. 513/2011 of the European Parliament and of the Council on 11 May 2011,

Official Journal L 145 of 31 May 2011 - that amends Regulation (EC) No 1060/2009 on Credit Rating

Agencies.


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Decisions

Decision by the European Central Bank on 27 December 2010 concerning the transmission of

confidential data under the common framework for business registers utilised for statistical purposes

(ECB/2010/33) Official Journal L 6 - 11 January 2011.

Commission Decision 2011/30/EU of 19 January 2011 on the equivalence of certain third country

public oversight, quality assurance, investigation and penalty systems for auditors and audit entities

and a transitional period for audit activities of certain third country auditors and audit entities in the

European Union [notified under document C (2011) 117] Official Journal L 15 of 20 January 2011.

Decision by the European Systemic Risk Board on 21 September 2011 concerning the provision and

collection of information for the macro-prudential oversight of the financial system in the Union -

(ESRB/2011/6) Official Journal C 302 of 13 October 2011.

Other Documents

List of credit rating agencies registered in accordance with Regulation (EC) No. 1060/2009 of the

European Parliament and of the Council of 16 September 2009 on Credit Rating Agencies (CRA

Regulation) – 06-06-2011 http://ec.europa.eu/internal_market/securities/docs/agencies/list_pt.pdf

http://ec.europa.eu/internal_market/securities/docs/agencies/list_pt.pdf


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ANNEX 2 - PUBLICATIONS

Periodic Publications

The 2010 CMVM Annual Report was published electronically in Portuguese and English and in book form

with a print run of 500 copies only in Portuguese.

The 2010 CMVM Management Financial Statements were published electronically.

The 2010 Annual Report on Investor Compensation Scheme 2010 was published electronically in

Portuguese and English.

Securities Market Review, Volumes 36 and 37 were published in electronic format.

All editions of the CMVM Bulletin were published electronically.

The CMVM Annual Report on the Corporate Governance of Listed Companies in Portugal was published

electronically.

Annual Report on Supervision of Financial Analysis was published electronically.

Venture Capital Annual Report was published electronically.

Non-Periodic Publications

Research Report “Value-at-Risk: Uma Aplicação ao Principal índice de Ações do Mercado Português” -

electronic format.

Working Paper “Information, Overconfidence and Trading: Do the Sources of Information Matter?” -

electronic format.

“Política da CMVM em Matéria de Produtos Financeiros Complexos” - electronic format.

“Recomendações aos Investidores em Instrumentos Financeiros” - electronic format.

“Recomendações aos Investidores em Produtos Financeiros Complexos” - electronic format.

“Guia sobre Produtos Financeiros Complexos” - electronic format.

“Glossário de Termos relativos a Instrumentos Financeiros” - electronic format.

“Recomendações da CMVM em face do Novo Regime da Participação nas Assembleias Gerais das

Sociedades com Ações Admitidas ao Mercado Regulamentado”, was published electronically.


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ANNEX 3: KEY DOCUMENTS RELEASED BY INTERNATIONAL ORGANISATIONS

ESMA

Group Key Documents

1. Review Panel 2011/26 Summary Report on the mapping of contingency

measures, January

2011/194 Report - Mapping of the Transparency

Directive, July

2. CEMA This Group did not prepare any final document.

3. Corporate Reporting SC /

Enforcement Mechanism

2011/373 Consultation paper - Considerations of

materiality in financial reporting, November

4. Corporate Finance SC Only letters were drawn up reviewing proposals from the

IASB and EFRAG

4.1

.

Task-Force Prospectus 2011/81 Recommendations - ESMA update of the CESR

recommendations on the consistent implementation of

Commission Regulation (EC) No 809/2004 implementing

the Prospectus Directive, March

2011/22 Report - ESMA Data on Prospectuses Approved

and Passported - July 2010 to December 2010, March

2011/85 Q&A Frequently asked questions regarding

Prospectuses: common positions agreed by ESMA

Members 13th updated version, June

2011/141 Consultation paper - ESMA’s technical advice

on possible delegated acts concerning the Prospectus

Directive as amended by the Directive 2010/73/EU, June

2011/323 Final report - ESMA's technical advice on

possible delegated acts concerning the Prospectus

Directive as amended by the Directive 2010/73/EU,

October

2011/444 Consultation paper - ESMA’s technical advice

on possible delegated acts concerning the Prospectus

Directive as amended by the Directive 2010/73/EU,

December

4.2

.

Transparency Sub-Group 2011/288 Call for evidence - Empty voting, September


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5.

CRA Technical Committee

2011/97 Consultation paper - ESMA Guidelines on the

application of the endorsement regime under Article 4 (3)

of the Credit Rating Regulation1060/2009, March

2011/114 Consultation paper - ESMA´s Technical Advice

to the Commission on Fees for CRA Supervision, April

2011/139 Final report - Guidelines on the application of

the endorsement regime under Article 4 (3) of the Credit

Rating Agencies Regulation No 1060/2009, May

2011/302 Consultation paper - Regulatory technical

standards on the information to be provided to ESMA by

a credit rating agency in its application for registration and

certification and for the assessment of its systemic

importance, September

2011/303 Consultation paper - Regulatory technical

standards on the assessment of compliance of credit rating

methodologies with the requirements set out in Article

8(3) of Regulation (EC) No 1060/2009, September

2011/304 Consultation paper - ESMA’s draft Regulatory

Technical Standards on the presentation of the

information that credit rating agencies shall disclose in

accordance with Article 11(2) and point 1 of Part II of

Section E of Annex I to Regulation (EC) No 1060/2,

September

2011/305 Consultation paper - ESMA’s Draft Regulatory

Technical Standards on the content and format of ratings

data periodic reporting to be submitted from credit rating

agencies, September

2011/463 Final report - Regulatory technical standards on

the information for registration and certification of credit

rating agencies, December

2011/464 Final report - Draft RTS on the content and

format of ratings data periodic reporting to be requested

from credit ratings agencies for the purpose of on-going

supervision by ESMA, December


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6. ESMA-Pol 10-292 Consultation paper - CESR technical advice in the

context of the MiFID review –Transaction Reporting,

April

10-349 Commission's response to CESR's letter regarding

the MiFID review, April

10-809 Consultation paper - Transaction Reporting on

OTC Derivatives and Extension of the Scope of

Transaction Reporting Obligations, July

10-808 Final report - CESR Technical Advice to the

European Commission in the context of the MiFID

Review – Transaction Reporting, July

6.1 Task-Force Forex 2011/412 Investor warning – Trading in foreign Exchange

(forex), December

7. Investment Management /

Operational WG

2011/112 Guidelines to competent authorities and UCITS

management companies on risk measurement and the

calculation of global exposure for certain types of

structured UCITS, April

2011/121 Discussion paper - ESMA’s policy orientations

on possible implementing measures under Article 3 of the

Alternative Investment Fund Managers Directive, April

2011/209 Consultation paper - ESMA's draft technical

advice to the European Commission on possible

implementing measures of the Alternative Investment

Fund Managers Directive, July

2011/220 Discussion paper - ESMA’s policy orientations

on guidelines for UCITS Exchange-Traded Funds and

Structured UCITS, July

2011/270 Consultation paper - ESMA's draft technical

advice to the European Commission on possible

implementing measures of the Alternative Investment

Fund Managers Directive in relation to supervision and

third countries, August

2011/273 Q&A - A Common Definition of European

Money Market Funds, August

2011/342 Opinion - Practical arrangements for the late

transposition of the UCITS IV Directive, October

2011/379 Final report - ESMA's technical advice to the

European Commission on possible implementing

measures of the Alternative Investment Fund Managers

Directive, November

8. Post Trading 2011/94 Report ESMA response to the European

Commission consultation on CSDs and securities

settlement, March


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9. Secondary Markets 2011/224 Consultation paper - Guidelines on systems and

controls in a highly automated trading environment for

trading platforms, investment firms and competent

authorities, July

2011/241 Opinion Waivers from Pre-trade Transparency:

CESR positions and ESMA opinions - updated December

2011, December

2011/456 Guidelines and Recommendations, Final report

- Guidelines on systems and controls in an automated

trading environment for trading platforms, investment

firms and competent authorities, December

10. Financial Innovation This newly created group has still not prepared any final

documents.

11. Investor Protection 2011/119 Q&A MiFID Q&A in the area of investor

protection and intermediaries, April

2011/445 Consultation paper on guidelines on certain

aspects of the MiFID suitability requirements, December

2011/446 Consultation paper on guidelines on certain

aspects of the MiFID compliance function requirements,

December

IOSCO

FR01/11 Principles on Point of Sale Disclosure, Report of the Technical Committee of

IOSCO, February

FR02/11 Intermediary Internal Controls associated with Price Verification of Structured

Finance Products and Regulatory Approaches to Liquidity Risk Management, Report of

the Technical Committee of IOSCO, February

FR03/11 Report on Trading of OTC Derivatives, Report of the Technical Committee of

IOSCO, February

FR04/11 Regulatory Implementation of the Statement of Principles Regarding the

Activities of Credit Rating Agencies, Report of the Technical Committee of IOSCO,

February

OR01/11 Mitigating Systemic Risk - A Role for Securities Regulators, Report of the

Technical Committee of IOSCO, February

FR04/11 Task Force on Unregulated Financial Markets and Products, Report of the

Technical Committee of IOSCO, March

CR01/11 Principles on Suspensions of Redemptions in Collective Investment Schemes,

Report of the Technical Committee of IOSCO, March

Principles for Financial Market Infrastructures, Report of the Committee on Payment

and Settlement Systems and the Technical Committee of IOSCO, March

FR05/11 Survey of Regimes for the Protection, Distribution and/or Transfer of Client

Assets, Report of the Technical Committee of IOSCO, March


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OR01/11 Task Force on Commodity Futures Markets - Report to the Financial Stability

Board, Report of the Technical Committee of IOSCO, April

FR06/11 Principles for Dark Liquidity, Report of the Technical Committee of IOSCO,

May

CR02/11 Regulatory Issues Raised by the Impact of Technological Changes on Market

Integrity and Efficiency, Report of the Technical Committee of IOSCO, July

Report On Asset Securitisation Incentives, Joint Forum (IOSCO, BCBS and IAIS), July

Report On OTC Derivatives Data Reporting and Aggregation Requirements, Report of

the Committee on Payment and Settlement Systems and the Technical Committee of

IOSCO, August

IOSCO-CPSS Public Comments Received to Consultation on Financial Market

Infrastructures Principles, Report of the Committee on Payment and Settlement Systems

and the Technical Committee of IOSCO, September

FR07/11 Principles for the Regulation and Supervision of Commodity Derivatives

Markets, Report of the Technical Committee of IOSCO, September

FR08/11 Methodology for Assessing Implementation of the IOSCO Objectives and

Principles of Securities Regulation, IOSCO Report (Replaces the February 2008

version), October

FR09/11 Regulatory Issues Raised by the Impact of Technological Changes on Market

Integrity and Efficiency, Report of the Technical Committee of IOSCO, October

FR11/11 Regulation of Nominee Accounts in Emerging Markets, Report of the

Emerging Markets Committee of IOSCO, October

OR05/11 Public Comments Received by the Technical Committee of the International

Organization of Securities Commissions and the Committee on Payment and Settlement

Systems to the Consultation Report - OTC Derivatives Data Reporting and Aggregation

Requirements, Report of the Committee on Payment and Settlement Systems and the

Technical Committee of IOSCO, October

Oil Price Reporting Agencies, Report by IEA, IEF, OPEC and IOSCO to G20 Finance

Ministers, November

FR10/11 Development of Corporate Bond Markets in the Emerging Markets, Report of

the Emerging Markets Committee of IOSCO In Collaboration with the World Bank

Group, November

Principles for the Supervision of Financial Conglomerates, Joint Forum (IOSCO, BCBS

and IAIS), December

ESRB

.

20/01/2011

Decision of the ESRB General Board on the selection, appointment and

replacement of ASC members


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20/01/2011

Mandate of the Advisory Scientific Committee

20/01/2011

ESRB Rules of Procedure

25/03/2011

ESRB Code of Conduct

03/06/2011

Decision of the European Systemic Risk Board on public access to ESRB

documents

21/09/2011

Decision of the European Systemic Risk Board on the collection of information

for macroprudential oversight

21/09/2011

ESRB response to the ESMA Discussion paper on "Policy orientations and

guidelines for UCITS exchange-traded funds and structured UCITS"

21/09/2011

ESRB response to the ESMA Consultation paper on "Guidelines on systems and

controls in a highly automated trading environment for trading platforms,

investment firms and competent authorities"

22/11/2011

Recommendation of the ESRB of 21 September 2011 on lending in foreign

currencies (ESRB/2011/1), OJ C 342

25/11/2011

Agreement between the EBA, the EIOPA, the ESMA and the ESRB on the

establishment of the ESRB Secretariat of specific confidentiality procedures in

order to safeguard information regarding individual financial institutions and

information from which individual financial institutions can be identified

09/12/2011

Views of the ESRB on the Envisaged Scoreboard Indicators relevant for

financial market stability

UNIDROIT

. INSTITUCIONAL DOCUMENTS

Governing Council: 90th session (Rome, 9-11 May 2011)

UNIDROIT 2011 - C.D. (90) 2, Annual Report - 2010

http://www.unidroit.org/english/documents/2011/cd90-02-e.pdf


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General Assembly, 68th session (Rome, 22 June 2011)

UNIDROIT 2011 - A.G. (68) 2 rev. 1, Summary Report

General Assembly, 69th session (Rome, 1 December 2011)

UNIDROIT 2011 - A.G. (69) Misc. 1, Summary Conclusions

CURRENT WORK ON ITEMS ON THE UNIDROIT WORK PROGRAMME

Study LXV – Programme of Legal Co-operation

UNIDROIT 2011 - Study LXV – Scholarships; Impl. 22 rev, Research Scholarships

Programme: Implementation Report for the Financial Year 2010

Study LXXVIII B – Emerging markets issues, follow-up and implementation established

by the diplomatic Conference to Adopt a Convention on Substantive Rules regarding

Intermediated

Committee on emerging markets issues, follow-up and implementation established by

the diplomatic Conference to Adopt a Convention on Substantive Rules regarding

Intermediated (Second meeting, Rio de Janeiro, 27 and 28 March 2012)

UNIDROIT 2011 – S78B/CEM/2/Doc.1, Annotated provisional agenda

UNIDROIT 2011 – S78B/CEM/2/Doc.2, Information for Contracting States in respect of

the Convention's references to sources of law outside the Convention

Study LXXVIII C – Principles and rules on the netting of financial instruments

UNIDROIT 2011 – Study LXXVIII C - Doc. 1, UNIDROIT Study Group on principles

and rules on the netting of financial instruments. First meeting, Rome, 18 - 21 April

2011. Preliminary draft agenda - March 2011



2011. Preliminary draft Report on the need for an international instrument on the

enforceability of close-out netting in general and in the context of bank resolution,

prepared by Philipp Paech, London School of Economics and Political Science - March

2011



2011. A first tentative structure for Principles regarding the enforceability of netting

agreements (prepared by Philipp Paech, London School of Economics) - April 2011



2011. Report (prepared by the UNIDROIT Secretariat) - July 2011


and rules on the netting of financial instruments. Second meeting, Rome, 13-15

http://www.unidroit.org/english/documents/2011/ag68-02rev1-e.pdf

http://www.unidroit.org/english/documents/2011/ag69-conclusions-e.pdf

http://www.unidroit.org/english/documents/2011/study65/s-65-22rev-e.pdf

http://www.unidroit.org/english/documents/2011/study78b/s-78b-cem02-01-e.pdf

http://www.unidroit.org/english/documents/2011/study78b/s-78b-cem02-01-e.pdf

http://www.unidroit.org/english/documents/2011/study78c/s-78c-01-e.pdf






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September 2011. Annotated draft agenda - July 2011


and rules on the netting of financial instruments. Second meeting, Rome, 13-15

September 2011. Revised Preliminary Draft of Principles regarding the enforceability of

Close-out Netting Agreements - August 2011


and rules on the netting of financial instruments. Second meeting, Rome, 13 - 15

September 2011. Overview payment, clearing and settlement systems (prepared by the

UNIDROIT Secretariat) - September 2011

UNIDROIT 2011 – Study LXXVIII C - Doc. 9, UNIDROIT Study Group on Draft

Principles and rules on the netting of financial instruments. Second Meeting, Rome, 13 -

15 September 2011. Report (prepared by the UNIDROIT Secretariat) - December 2011

UNIDROIT Convention on Substantive Rules for Intermediated Securities ("Geneva

Securities Convention")

UNIDROIT 2011 - DC11/DEP – Doc. 1, The System of Declarations under the

UNIDROIT Convention on Substantive Rules for Intermediated Securities (“Geneva

Securities Convention”). An Explanatory Memorandum for the Assistance of States and

Regional Economic Integration Organisations

IMF

Enhancing International Monetary Stability—A Role for the SDR?, January

Macroprudential Policy: An Organizing Framework, March

Statement by the Managing Director to the International Monetary and Financial

Committee on the Fund’s Policy Agenda, April

Managing Sovereign Debt and Debt Markets through a Crisis—Practical Insights and

Policy Lessons, April

Analytics of Systemic Crises and the Role of Global Financial Safety Nets, May

Mapping Cross-Border Financial Linkages: A Supporting Case for Global Financial

Safety Nets, June

Key Trends in Implementation of the Fund’s Transparency Policy, July

TSR External Study—An Evaluation of IMF Surveillance of the Euro Area, July

TSR External Commentary—A Short Note on Surveillance and How Reforms in

Surveillance Can Help the IMF to Promote Global Financial Stability, July

Managing Director’s Action Plan IMFC, September




http://www.unidroit.org/english/documents/2011/depositary/dc11-dep-01-e.pdf


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Consolidated Multilateral Surveillance Report, September

Managing Global Growth Risks and Commodity Price Shocks—Vulnerabilities and

Policy Challenges for Low-Income Countries, September

Managing Volatility in Low-Income Countries: The Role and Potential for Contingent

Financial Instruments, October

The Fund’s Financing Role: Reform Proposals on Liquidity and Emergency Assistance,

October

The Multilateral Aspects of Policies Affecting Capital Flows—Background Paper,

October

Cross-Cutting Themes in Advanced Economies with Emerging Market Banking Links,

November

FSB

Progress in the Implementation of the G20 recommendations for strengthening Financial

Stability, February

Macroprudential policy tools and frameworks - Update to G20 Finance Ministers and

Central Bank Governors, March

Thematic Peer Review of Mortgage Underwriting and Origination Practices, March

Thematic Peer Review of Risk on Risk Disclosure Practices, March

Shadow Banking: Scoping the Issues, April

OTC Derivatives Market Reforms, April

Progress in the Implementation of the G20 Recommendations, April

Promoting global adherence to regulatory and supervisory standards on international

cooperation and information exchange, April

Implementation Progress Report on "The Financial Crisis and Information Gaps"

prepared by IMF staff and the FSB Secretariat, July


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FSB Consultative Document: Effective Resolution of Systemically Important Financial

Institutions, July

Common Data Template for Global Systemically Important Banks, October

OTC Derivatives market reforms, October

Assessment of the macroeconomic impact of higher loss absorbency for global

systemically important banks, October

Framework for monitoring and reporting on the implementation of G20 financial

reforms, October

Financial Stability Issues in Emerging Market and Developing Economies, October

FSB Consultation Document on Principles for Sound Residential Mortgage

Underwriting Principles, October

FSB Report on Consumer Finance Protection with particular focus on credit, October

Progress report from the FSB, IMF and BIS on macroprudential policy tools and

frameworks, October

FSB report with recommendations to strengthen oversight and regulation of shadow

banking, October

Global adherence to regulatory and supervisory standards on international cooperation

and information exchange, October

FSB G20 Overview progress report 4Nov11, November

FSB Letter to G20 Leaders on Progress of Financial Regulatory Reforms, November

SIE progress report - Fatal Flaw Plenary Review, November

FSB Key Attributes – Overview/Effective Resolution of Systemically Important

Financial Institutions/ Overview of responses to the public consultation, November


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FSB Key Attributes - Key Attributes of Effective Resolution Regimes for Financial

Institutions, November

FSB G-SIFIs, November

FSB Report on the Overview of Progress in the Implementation of the G20

Recommendations for Strengthening Financial Stability, November

European Corporate Governance Institute

Additions and changes to the codes database, since 1 September 2011

Guernsey

- GFSC Finance Sector Code of Corporate Governance, 30 September 2011

Ireland

- Corporate Governance Code for Collective Investment Schemes and Management

Companies, 14 December 2011

Italy

- Codice di Autodisciplina, December 2011

http://www.ecgi.org/codes/code.php?code_id=349





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ANNEX 4

STATISTICS

Annexed Table 1 – Details of the Analysed Auditors Reports per Type of Financial Intermediary

Annexed Table 2 – Distribution per Type of Financial Intermediary on the Opinion Issued by Auditors in the

Report Certifying the Safekeeping of Clients Assets

Annexed Table 3 – The Distribution of Auditors that Issued Report Certifying the Safekeeping of Clients Assets


270

CMVM

Annexed Table 4 – Issuers Required to Provide Annual Information

Annexed Table 5 – Entities providing Quarterly & Half-Yearly Financial Statements

Annexed Table 6 – Share Issuance per Public Company per Type of Share


271

CMVM

Annexed Table 7 – Share Issuance per Public Company and per Type of Offer


272

CMVM

Annexed Table 8 – Primary Bond Market, per Type of Offer

Annexed Table 9 – Share Indices


273

CMVM

Annexed Table 10 – Share Sector Indices


274

CMVM

Annexed Table 11 – Trading Volume on Euronext Lisbon per Type of Security


275

CMVM

Annexed Table 12 – Distribution per Sector of Trading and Market Capitalisation of Shares


276

CMVM

Annexed Table 13 – Trading Volume on European Union Stock Exchanges (Shares)


277

CMVM

Annexed Table 14 – Trading Volume on European Union Stock Exchanges (Bonds)


278

CMVM

Annexed Table 15 – Securities Admitted to Trading on Euronext Lisbon

Annexed Table 16 - Securities De-Listed from Euronext Lisbon


279

CMVM

Annexed Table 17 - Securities Suspended from Trading


280

CMVM


281

CMVM

Annexed Table 18 - Trading in Futures Contracts


282

CMVM

Annexed Table 19 - Securities Deposited with the Central Securities Depository


283

CMVM

Annexed Table 20 - Settlement via the Central Securities Depository


284

CMVM

Annexed Table 21 - Futures Trading on OMIP - Futures Contracts

Annexed Table 22 - Volume of Orders Received per Reception Channel


285

CMVM

Annexed Table 23 - Order Turnover on the Spot Market on behalf of Third Parties, per Asset Type

Annexed Table 24 - Online Brokerage Turnover


286

CMVM

Annexed Table 25 - Share Trading Turnover

Annexed Table 26 - Futures Trading – Market Share


287

CMVM

Annexed Table 27 - Day-Trading Weight on Euronext Lisbon


288

CMVM

Annexed Table 28 - Custodians of Securities


289

CMVM

Annexed Table 29 - Value of UCITS and SIF Assets Managed per Management Entity

Annexed Table 30 – UCITS and SIF: Weighting per Type of Asset in the Respective Capitalisation of Euronext

Lisbon


290

CMVM

Annexed Table 31 – Products in the Banking and Insurance Sector

Annexed Table 32 – Marketing of Foreign UCITS in Portugal

Annexed Table 33 - Value of Foreign UCITS per Entity in Portugal


291

CMVM

Annexed Table 34 - Value of Assets Managed per Real Estate Investment Fund Management Entity


292

CMVM

Annexed Table 35 – Aggregate Benchmarks of Securitisation Funds


293

CMVM

Annexed Table 36 – Management Entities of Venture Capital Funds and Venture Capital Companies


294

CMVM

Annexed Table 37 – Value Managed per Management Entity of Venture Capital Funds and Venture Capital

Companies


295

CMVM

Annexed Table 38 – Investment by Venture Capital Companies per Economic Activity Classification

Annexed Table 39 – Investment by Venture Capital Funds per Economic Activity Classification


296

CMVM

Annexed Table 40 – Financial Intermediaries Registered with the CMVM

Annexed Table 41 – Active Portfolio Management Companies Acting on Behalf of

Third Parties


297

CMVM


298

CMVM

Annexed Table 42 – Financial Intermediation Activities registered at the CMVM


299

CMVM

Annexed Table 43 – Administrative Procedures for Investment Funds in 2011

Annexed Table 44 – On-Line Reception of Orders


300

CMVM

Annexed Table 45 – On-Line Marketing of Investment Funds

Annexed Table 46 – Investment Recommendations per Financial Intermediary


301

CMVM


302

CMVM

Annexed Table 47 – Five Major Issuers Subject to Investment Recommendations

Annexed Table 48 – Number of Communications carried out via the CMVM Website per Issuer – 20 Largest


303

CMVM

Annexed Table 49 – Number of Communications carried out via the CMVM Website per Investment Fund

Management Company – 20 Largest


304

CMVM

Annexed Table 50 – Consultation Papers

Annexed Table 51 – Summary of Major Issues covered in Complaint Proceedings


305

CMVM

Annexed Table 52 – Target of Complaints

Annexed Table 53 – Auditors’ Reports on the 2010 Annual Financial Statements