Introduction

The growth in the use of the Internet by intermediaries and other financial agents, issuing bodies and the securities markets in general has given rise to intense reflection by supervisory authorities and international organisations. In effect, the use of the Internet permits fast, flexible and interactive access to financial services in a manner which was never dreamed of before. For this reason, the Comissão do Mercado de Valores Mobiliários (CMVM) welcomes the development of this process, and has equipped itself with the means necessary to respond to the challenge posed by the Internet for the field of supervision. Among these challenges, the most notable are the promotion of a regulatory and supervisory framework which does not prejudice the use of the Internet and the protection of investors, keeping in mind that the aforementioned traits of the Internet may also be used to damage their interests.

Therefore, not wishing to interfere with this developing trend, the CMVM considers that the time has come to issue a statement of opinion on several questions which have been raised with regard to this subject, and, simultaneously, to make certain recommendations as to the use of the Internet in accordance with the principals which should guide the activities of institutions involved in the securities markets, namely the defence of investors, quality of information and the efficient and regular functioning of these markets. 

Given the legally established set of principals and rules which are applicable regardless of the communication medium used, the CMVM wishes to contribute towards the safe utilisation of these means of communication, in particular when cross boarder operations are in question. So as not to make the procedures involved inflexible, or to inhibit the development and debate in progress, the CMVM chose to present its opinions and recommendations in this manner, rather than establishing regulatory rules in all spheres.

As regards the terminology used in this document, it is important to be precise: therefore references to the internet include other means of electronic communication, particularly email, and entities which are agents for investment units. The services they offer are included in references to financial intermediaries and the activities carried out by them. 

The opinions and recommendations issued herein are part of a broader stance taken by the CMVM, which includes regulations and instructions, such as CMVM Instruction Nº 2, of 2 September 1999 (on the reception of orders for the subscription of securities or operations carried out on them via Internet) and CMVM Regulation Nº 24/99 (marketing of securities investment funds). The CMVM remains alert to the regulatory and supervisory requisites of the development of the use of the Internet, and will, when the opportunity arises, consider approving appropriate rules.

In issuing this statement of opinion and approving the regulations referred to herein, the CMVM has taken into account the legislation which establishes rules on the matter in question, in particular Law Nº 67/98, of 26 October (Law for the Protection of Personal Data), Council of Ministers Decision Nº 94/99, of 29 July (Guidelines for the National Initiative on Electronic Commerce), Decree-Law Nº 290-D/99 of 2 August (Legal regime applicable to electronic documents), Decree-Law Nº 323/99, of 13 August (Amendment to the Legal regime governing securities investment funds), Decree-Law Nº 375/99, of 18 September (Legal regime governing electronic invoices), Decree-Law Nº 486/99, of 13 November (Portuguese Securities Code).


I. Understandings Related to the Principles of Neutrality and Equality 

1. The CMVM holds that the use of the Internet as a medium of communication and for transactions involving securities does not imply any alteration to the principles underlying activities of financial intermediation, public offerings of securities, duties to submit information or regulatory and supervisory activities related to the securities markets and persons acting therein. 

The aforementioned understanding is based on the principal of impartiality, which holds that the rules established are applicable regardless of the means of carrying out activities related to securities. This implies the following:

1.1.

• Information disclosed by means of the Internet must be complete, true, up-to-date, clear, objective and licit; 
• Entities disclosing information via Internet are responsible for the contents of the information in question; 
• Procedures related to the storing in archives of documents and registries are also applicable to operations carried out through the Internet, and relevant information transmitted should be stored and registered; 

1.2.

• The circulation of documents on the Internet which are related to a particular public offering or any type of marketing is forbidden unless previously approved by the CMVM; 
• The collection of intentions to invest via Internet is subject to the respective legal and regulatory regime, particularly as regards registration with the CMVM, approval of preliminary prospectuses and the regime of civil responsibility; 

1.3.

• Financial intermediaries which offer any type of intermediation services via Internet must inform their clients of the following:
  • Movements of the respective accounts, highlighting the corresponding total;
  • Acceptance or rejection of stock exchange orders;
  • The carrying out of business and settlement of the respective transaction, with reference to elements related to the characteristics of the transaction, particularly in terms of price and quantity.

1.4.

• Collective investment firms domiciled in Portugal may only permit the initial subscription of investment units if the investor was given prior notice of the simplified prospectus; 
• Collective investment firms which are not domiciled in Portugal may only carry out the subscription of investment units following receipt by the investor of the complementary informative note accompanied by the respective mandatory informative documents, as stipulated by the law of the country in question;
  

2. The CMVM holds that the use of electronic documents must ensure levels of intelligibility, durability authenticity and integrity equivalent to those required for documents transmitted on paper.

The opinion referred to above stems from the principal of equivalence of documentary media and the means of identification used. This principal is provided for by law, particularly as regards the use of electronic media and a digital signature, as opposed to paper media and autographic signature. The equivalence of media may only be verified when the law stipulates that certain types of medium are mandatory (e.g. quotation bulletin or wide-circulation newspaper). In these cases, the Internet plays a secondary role to communication media which are mandatory. 

The said principal presupposes the following:


2.1. 

• That the organisation of computer archives:
  • Guarantees the inviolability and impossibility of altering their contents;
  • Permits access to files by supervisory bodies.

2.2.
that the place where documents are published on paper in accordance with the law is referred to in the Internet site where the electronic version is disclosed.

II. Opinions and Recommendations regarding Information to be Disclosed Via Internet

Recommendations

In light of the CMVM's opinions, as stated above, it hereby recommends the following: 

a) an email address through which the body issuing information may be contacted should be made available on each web site;

b) with special regard to the information disclosed in the context of public offerings of securities through the Internet: 

• The investor must be made aware of the importance of consulting the prospectus of such an offering; 
• The date and registration number with the CMVM must be mentioned, as well as the form and place where copies of documents relating to the offering may be obtained.
  

III. Opinion and recommendations as regards financial intermediation via Internet 

6. The CMVM holds that financial intermediaries who wish to carry out thier activity over the Internet must comply with the rules governing this activity in Portugal, including that which requires them to request a declaration by the CMVM of their competence. They are also obliged to obey the rules of conduct related to the financial intermediation activity in question.  

This opinion implies the following: 

6.1. 

• That financial intermediaries must use all the tools at their disposal in order to act in accordance with the profile of the investor, provided he/she is not a client of the financial intermediary;

6.2. 

• The web site through which financial intermediation contracts may be entered into must be organised in such a way as to ensure that all stages of the negotiation are presented in detail, ensuring that the instructions given by the investor do not fall foul of typing errors; 
• The financial intermediary must make clear the terms under which a non-professional investor, may express his/her change of mind, under the terms of Article 322 of the Portuguese Securities Code, having given orders to carry out transactions or to conclude a portfolio management agreement without the investor having requested this or where no client relationship exists.

6.3.

• The financial intermediary may not be excused from the duty to submit mandatory information by other means, whenever the submission of such information by Internet is not permitted.

Recommendations


The CMVM recommends the following steps to be taken by financial intermediaries: 

a) reference should be made on the web site to the supervisory authorities to whom they are answerable. In the case of Portugal, investors may consult the CMVM's web site in order to verify the existence of the financial intermediary in question, and the activities it is authorised to carry out; 

b) the improvement of means of protecting the confidentiality of data concerning clients which is transmitted by computer, paying particular attention to the rules governing the credentialisation of databases; 

c) in cases where web sites are shared with other entities, the distinction between the services offered by each of the entities in question should be made clear; 

d) when the submission of information is mandatory, procedures for confirming receipt by the client should be established;

e) deontological codes should be published relating to the development of a financial intermediary's activities on the Internet; 

f) procedural manuals published on paper should be available to financial intermediaries, with a view to ensuring the proper use of the Internet by their employees, especially as concerns the receipt and sending of information;

g) financial intermediaries should have other means of communication at their disposal (e.g. telephone, fax), and these means of contact should be included on the web site. 


The CMVM recommends that investors, when seeking the services of a financial intermediary via the Internet: 

a) make sure that the financial intermediary in question is registered to carry out the services in question. This information can be found on the CMVM's web site;

b) ensure that they have taken all necessary steps to protect the security of the transactions to be carried out, particularly those related to means of proving that the transaction has been carried out; 

c) demand all relevant information from the financial intermediary, particularly that which relates to securities and the issuing company in question; 

d) take on board all recommendations made by the CMVM to investors in securities.

IV. Opinion on the existence of a relevant connection with the Portuguese legal system 


The trans-national nature of access to the Internet raises the important question of how to determine which laws apply to these cases. Portuguese law (in accordance with Article 3 and 108 of the Portuguese Securities Code) is applicable when a connection exists with the Portuguese territory, as in the following examples:

- orders are given to members of markets which are registered with the CMVM for operations to be carried out on these markets; 
- the activities are carried out in Portugal; 
- information relating to activities or events regulated by Portuguese law is accessible in Portugal;
- a public offering of securities is directed specifically at persons residing or having their place of business in Portugal. 

Thus, the CMVM draws attention to the fact that financial intermediaries operating on a trans-national basis are supervised by the CMVM whenever these activities are connected with securities, transactions or markets which are subject to Portuguese law.

The classification of an offering as public or private or of a particular activity as one of financial intermediation also depends upon the criteria mentioned above. 


However, the law is limited to enumerating certain cases connected with Portuguese law. For this reason, as a security measure, certain indicators have been identified which help to verify cases which are connected with the Portuguese legal system.