2.  2006-2010 ACTION PLAN - FRAMEWORK

2.1 Recent Progress of the Portuguese Securities Market  

During the last decade, the Portuguese capital market has undergone two distinct periods.  The first, during the second half of the nineties, related to the positive performance of the shares market.  The second, during the first years of this millennium, experienced a decline and a certain amount of slow-down. Market capitalisation represented 16% of the GDP in 1995 and reached 39% by 2005 (excluding shares issued by non-resident companies), a fraction akin to that of 1997.  The behavioural difference between the two periods is equally visible for traded volumes which reflects that the liquidity increase experienced at the end of the 90’s was followed by a steep drop and a further standstill.  The trading volume increased steeply during 1995 and 2000 (circa 80% per year), but decreased significantly since then (circa -12% per year).  Finally, in 2005 the number of companies admitted to trading on the main Portuguese Exchange market (51) was significantly lower than during the second half of the 90’s (between 74 and 81).  Furthermore, the private bonds market listed on the exchange had practically disappeared during this period.

Performance of the Portuguese Shares Market

The expansion phase registered during the 90’s was fuelled by the privatisation policy, the consolidation of the technological progress, the supervision and regulation of the securities market and Portugal’s accession to the EMU and its financial integration.  The intense privatisation schemes during the second half of the 90’s introduced new companies in the market and increased the number of listed shares concerning companies admitted to trading.  Companies sought national and foreign investors.  Unique investment opportunities within a context of steep drop in the interest rates and the expansion of share indices attracted the interest of these investors. 

The current decade has been strongly affected by investor de-mobilisation following the price drop which occurred in March 2000. The subsequent international recession, the current political instability, the financial scandals due to bad corporate governance practices in some of the more developed countries, also contributed toward the decline in the securities markets’ dynamism.

Enterprise consolidation (merger and acquisition operations followed at times by capital closing operations) also contributed toward the progress registered during these last years. In effect, during 2001 to 2005, 59 market exit operations and 12 new admissions took place.  Fifteen public offers for sale took place – 5 reserved for employees and 8 resulting from privatisations.  In conclusion, and due to the drop in corporate investment during this period, the primary share market was not an alternative for self-financing or for bank-loan financing.

As regards financial investment, recent progress is far from being similar to the movement of the national retail investors experienced during the 90’s.  In actual fact, a slight drop in the weight of ‘shares and other investments’, was registered in the total financial investment by private individuals (from 25.0% in 1999 to 22.6% in 2004).

In other market sectors, the difference in the registered progress between the end of the 90’s and the following years is not that noticeable.  Concerning asset management, the global net asset value managed by UCITS (Undertakings for Collective Investment in Transferable Securities) and SIF (Special Investment Funds) moved up from €10 639 million in 1995 to €21 558 million in 2000 and a further €28 290 million in 2005 – representing a annual average growth rate of 15.2% during the first period and 5.6% in the second, and a slight augment in the total weight of the financial investment by families from 8.7% to 8.9% between 2000 and 2004, respectively.

The number of financial intermediaries registered at the CMVM decreased mainly due to mergers (from 164 in 1995, 142 in 2000 and 115 in 2005).  However, the number of European investment companies under the freedom to provide services regime, increased from 626, in 2000 to 998 in 2005.

The increase in the amounts managed by UCITS and SIF mentioned beforehand concurs with the out-channelling of a significant amount of investment.  In 1995, investment in foreign securities showed a mere 11% of the total portfolio of national securities investment funds.  Ten years past and investment weight on foreign listed securities represents 93% of the total investment in listed securities and circa 70% of the total amount managed by national securities investment funds.  This progress is a result of the re-allocation of fund investment which was not only brought on by the EMU as well as the introduction of free capital movement internationally.  The increasing practice and security of capitals movement due to technology and communication advance only engorged this process.  Concurrently, the marketing of foreign securities investment funds in Portugal expanded steadily, reflecting the tendency of the current products and financial services global markets.

In summary, after an enormous expanding and emergent stage, the Portuguese market experienced a near on stand still.  One can assuredly say, at least for the primary market, that same is not applicable to the national economic growth leverage.  Likewise, collective investment instruments have experienced an import spurt which is in line with the important increase of qualified investors in the more developed countries.  Also, it is evident that a global positioning reasoning has been established by financial intermediaries which subjects national economic agents to additional competition albeit providing them with access to broader markets and allowing them to structure investment products based on other assets besides shares listed on the national market.

2.2. Progress Factors of the Portuguese Securities Market    

The future of the Portuguese capitals market must be weighed against an ever-growing internalisation of financial flows, the increase of the global capital flows as well as the internationalisation of securities issuance. In contrast, the growth model of the 90’s will have no recurrence and consequently, it is important to forecast development factors for a re-launching stimulus in all market fronts.

It is clear that there is room for a significant amount of growth of the Portuguese market when compared to other EU markets.  In terms of GDP market capitalisation, Portugal has the highest development index rate.  Albeit, if one were to exclude the value of the admission to listing of foreign shares (the main exchange market is also foreign), the Portuguese market ranks as the lowest benchmark among the Euro zone markets.  Also, as regards transactions, the Portuguese market is one of the less liquid markets. This means that when several aspects are considered, the Portuguese exchange market has yet to achieve it maximum potential.  There is still room for growth and development, either due to market enlargement (via the collection of new issues) or transaction increase.
 

Comparative Size of the European Exchange Markets

MC – Market Capitalisation 
TV – Traded Volume
AW – Average Weight

As to market institutionalisation, measured by the weight of the total net value managed by CIU’s in the GDP, despite the fact that Portugal surpasses countries like The Netherlands and Greece, comparison with the averages of the EU (25), EU (15) and the Euro Zone, shows that collective savings investment is undoubtedly below the average European levels.

Thus, in order for the Portuguese securities market to grow, immediate efforts and targets must be made by agents that market funds and by the State, both of which have an important role to play in the overall amendment to the corporate financing strategies.  In actual fact, once national capitals market can no longer rely on privatisations similarly to what happened during the mid 90’s, its progress relies mainly on other initiatives.

The State will create incentives for using own-capital and will combat dissimilarities, lack of information and endorse adequate regulation on goods and public services, in addition to warding off informality levels that are still present in the national economic activity and the development of a legal and institutional framework that encourages financial innovation.

Exchange management entities as the fundamental pillar in the offering of securities, must endeavour to disclose listed companies both nationally and internationally, create and disclose those markets that are in line with the companies’ characteristics, particularly regarding small and medium sized companies, in addition to the adequate regulatory framework.

The financial sector after a quite positive progressive period in certain activities, namely the management of CIUs, securitisation and venture capital, should now assist small and medium sized companies in increasing their accessibility to own-capital via the market.

The joint efforts of the financial sector, market management entities and the State will be crucial for the progress of the national capitals market for moving new companies into the markets and the in the interest of the investors who issue securities.

At the outset, a positive factor is that similar events to that recorded in other markets and that were likely to shake the investors’ confidence were not recorded in our markets. The real increase in supervision of the markets’ transparency and integrity has produced results that have contributed towards consolidating confidence in the Portuguese market. A recent trend in the performance indicators, such as Share Indices and turnover, denotes some indication of recovery. Nevertheless, this needs structural measures in order for it to be tenable.

In a Framework as competitive as the current one, the Portuguese market trend and the lure of new companies to the market shall go through the boosting of the different debt market sectors and the development of the asset management activity. Within this context, the role of an institution such as the CMVM is primarily to ensure that the regulatory framework that does not stifle innovation, guarantee a supervision which reaches the appropriate transparency levels and investor protection, promote and stimulate sound corporate governance practices and pro-actively contribute towards the transformation of the legal and regulatory framework that expedites the access and maintenance of companies on the capital markets.

2.3. Outlook and Trends    

In what concerns regulation and supervision, the years to follow will tend towards harmonisation and convergence among the EU countries which aims to create a sole market for financial services.  In this sense, one can foresee an increase in cooperation and information-sharing among national and foreign supervisory authorities.  Financial market integrity and transparency and adequate investor protection will require additional efforts from institutional cooperation at a national and international level.

After a demutualisation period at the end of the 90’s, the processes for consolidating or establishing partnerships at the Stock Exchange management entities’ level, on the one hand, and the securities settlement and clearing systems, on the other, shall need to redouble efforts at the regulation  level, particularly, in terms of cooperation between the different national regulatory entities. These processes are necessarily explained by the strong business technology and the existence of substantial scale economies, by the size that it is a critical factor for success within this context. Furthermore in the field of management entities, the small to medium size should include the competition originating from the stock markets of the new EU Member States. Said fact shall constitute one more incentive to the establishment of partnerships between management entities within the European Union.

As for the settlement and clearing systems, certain inefficiencies (poor competition, reduced interconnections between systems, need to resort to local agents) poses significant implications for the high costs of the transactions carried out therein. Recent estimates  indicated that the costs of liquidating and clearing a European transaction is nine times higher than a North-American transaction, with this number rising to 46 for cross-border transactions.

Consequently, by establishing or increasing restrictions to competition, it has to be ensured that the concentration movements at the infrastructure systems’ level of securities markets – systems for trading, settlement and safekeeping -  does not constitute real obstacles to the securities markets’ development.

Furthermore, the crossborder mergers and acquisitions by the non-financial corporate sector shall have a significant impact on the financial markets. In addition, the smaller EU stock markets shall be riskier, as they are dependant on a smaller number of companies. As from the very instant of internalising the orders, the concentration process shall denote increased competition to the traditional stock markets in the banking sector.

Considering that the demographic structure and the productivity problems that the EMU are discussing, economic policy shall inevitably be reformed, particularly with regard to social security matters. This shall imply the emergence of new financial instruments that allow individual citizens to tackle new risks with increasing importance, such as longevity, inflation and the markets, in considering their income after working life. Furthermore, said reform shall attract less educated investors to the financial markets. Although it will not be necessary to convert each said new investor into financial experts, it shall be essential to increase the investor’s level of financial literacy and also be stricter with the quality of information that is provided to said investors. Then again, said savings for a higher retirement pension shall be aimed towards the capital markets by means of institutional investors, primarily, investment funds, insurance companies and pension funds. Thereby, contributing a higher importance to the collective asset management activity. This plays a key role, both for the European model of social sustainability and as a potent factor in developing the capital market, which is positively reflected in the financing of productive investment.

Finally, resorting to the use of information and communication technologies shall continue to be a factor in the  development and innovation of the securities markets, simultaneously placing new challenges to the regulating entities, and requiring, in particular, to be more agile in acting. The increasing use of said technologies will be acutely felt when creating and marketing the financial products and in the relationships among the various operators on the one hand, and the investors and regulators on the other.   

3. CMVM TARGETS FROM 2006 TO 2010    

The CMVM envisages three main targets for the period commencing in 2006 through to 2010.  Accomplishment of these targets aim to ensure investor protection, uphold the efficiency, equity, safety and transparency of the securities market and to further contribute toward the modernisation and sustained progress of the national economy.

• Target I: Ensure Integrity, Credibility and Safety of the Securities Market

The securities markets are imperative for financing modern economies and consequently for economic growth.  The companies and the state resort to the primary securities market for capital-raising, whilst savers invest in the secondary market.  A liquid secondary market is thus an essential requirement so that the primary market may be a steadfast financing source. A flourishing economy relies wholeheartedly on an efficient and credible securities market.

The commonweal of both the primary and secondary securities markets must therefore be upheld.  The securities market’s worth is based on its ability to perform steadily and is pillared by integrity, credibility and safety.   As a result, the CMVM aims to ensure market transparency and that the incidence of fraud is kept to a minimum and that cases involving fraud are handled speedily and whenever possible taking into account the means that allow for the interests of the injured party. The CMVM’s also aims to ensure that the market runs smoothly and that systemic risk in the trading, settlement and clearing mechanisms is kept to a minimum.  Ultimately, the CMVM will endeavour to ensure that economic agents are made aware of the importance of market integrity, that trusting and relying on the market will thus encourage market efficiency and effectiveness.

• Target II: Spur Competitiveness and Dynamism of the Portuguese Financial Market            

The ever-growing interaction of European markets at a global scale has increased competitiveness among the securities markets.  Once regulatory and supervisory activities keep converging and cross-border activity and international competition is on-going, ensuring that our market is competitive is a vital standpoint or even so, a matter of survival for the Portuguese securities market.

The CMVM is likewise aware that the competitiveness and dynamism of the Portuguese market relies on several aspects and on many economic agents and is not a question of wishful thinking on its part, albeit is certain that it will assist this target.

Market competitiveness and dynamism require transparent and spirited regulators.  The CMVM will undertake to provide the national economic agents, with regulatory frameworks that will enable them to fairly compete with economic agents from other markets without hampering the market’s integrity, trust and protection.

A small-sized market should avoid potential discrimination when it adopts regulatory and supervisory standards that do not follow international best practices. Those practices and rules in small-sized markets that differ from those that are mainly practiced internationally, are likely to result in off-put biasing albeit effective from the interested parties’ viewpoint.

The best way to protect national practices and rules which are no less effective for protecting the essential values of the market and of the investors’ interests is to ensure that they are internationally recognised to be equivalent to the most rigorous regulation and supervision standards.  For the latter’s accomplishment, the CMVM must be present internationally when the regulatory and supervisory standards are set and must be involved in the setting up of these standards, taking into account the interests of the Portuguese market.  It is thus the CMVM’s target for 2006 to 2010, to strengthen its international prestige and thereby having a say in the documents under preparation at the different international levels, particularly, by ensuring that solutions adopted in the European directives safeguard national interests.

The CMVM will continue to uphold its stance as an effective and efficient body and that this is mirrored in its regulatory policy.  Adopting new rules and practices by national economic agents always implies conversion and adapting costs that should not be ignored.  Without prejudice to the vital values that capital markets regulation should ensure, the current regulatory framework should avoid that unnecessary or excessive costs be imposed on the supervised entities.  The CMVM will echo such concerns in its activity and will reassess its practices and legal and regulatory framework, with a view to increasing the Portuguese financial market’s competitiveness and dynamism.

Competitive national markets are a must for the Portuguese capital markets to move forward.  These national markets are managed by entities that take into account the specifics and needs of the issuers located in the country and in the local financial community.  It is therefore essential that transnational concentration phenomena of management entities and markets ensure the gist and uniqueness of local markets.

Another important aspect for the Portuguese market competitiveness is the quest for boosting efficiency at a post-trade level wherein management entities usually act as sole suppliers in order to reduce direct and indirect costs of their users and to further maintain or improve the services supplied.
The progress on the governance structures of the management entities of clearing and settlement system will also merit the CMVM’s full attention via the use of the available regulatory instruments.

• Target III: Protect the Investor as a Saver and Consumer of Financial Services

A myriad of private economic agents revolve around the securities market and all with respectable interests. The management entities for securities markets and centralised securities depositary and securities settlement systems, issuing entities, financial intermediaries, (including various facets), numerous professional categories, institutional and individual investors are included herein.

Nonetheless, the position differs considerably from one economic agent to another with regard to protecting own interests. The investors, and particularly, individual investors, have less knowledge and skills in interpreting said information than the issuing entities, financial intermediaries, and the majority of agents. Therefore, the CMVM should focus on investor protection seeing that said investors are more subject to asymmetric information and have less means before the potential abuses that fuel said asymmetries.

Investor protection should be two-fold: as holders of property rights and investment rights, or as clients of financial intermediaries or other financial service providers. It is for said purpose that CMVM ensures that the retail investors are not discriminated from the rest and that all the investors are not affected by market abuse or fraud, as consumers of financial products and services.

Thus, it is essential to create the right conditions so that the investors, particularly the retail investors, are well informed and as a result, more responsible in making decisions. On the one hand, the existence of more and better information quality (by the issuers and financial intermediaries, and in addition, the CMVM) should be promoted. This is vital for the investors to base their decision on a financial asset, issuer, or financial intermediary. On the other hand, investor training should not be overlooked. A good training session for retail investors will allow said investors to process the available information better and, accordingly, comprehend the functioning of the markets, financial instruments and its agents better.   

Within this context, the CMVM purports to produce activities aimed at educating/training the investors, in order to maximize the investor’s participation in debates concerning capital market options.

4. GUIDELINES 

4.1 Target I: Ensure the Integrity, Credibility and Safety of Securities Markets       

In pursuing said objective the CMVM expects to continue maximising and intensifying the sound practices on internal organisation, regulation and supervision. The objectives are strengthening the efficiency and effectiveness in the battle against market abuse crimes, transparency protection, appropriate conduct of financial intermediaries, and first-rate financial intermediation. The key elements for market credibility and investor protection are the promotion of sound corporate governance practices and the transparency of shareholders positions. 

Envisaged Outcome  I.1:  The improvement of the level of compliance with the rules, good practices and standards, principles and applicable recommendations 

• From the management entities for markets and systems, require compliance with the organisational and structural conditions which confer assurances of quality and contemporaneousness in the provision of services, the  compliance with the high standards of transparency, and also the compliance with the supervisory responsibilities and market surveillance to which said entities are subject;
• From the financial intermediaries and other agents participating in the markets, require  compliance with the organisational and structural conditions which confer assurances of quality and contemporaneousness in the provision of services, and in addition, compliance with the sound standards of transparency;
• Prevent irregularities in the pursuit of financial intermediation activities and appropriately monitor the rectification of said identified irregularities;
  o Monitor the transactions carried out on national markets in order to insure that same are functioning in accordance with the rules and mechanisms which allow for the efficient and equal participation by investors so that the prices may be properly formed;
• Encourage the introduction of technical and technological processes that promote an increased efficiency and safety in the systems for trading, settlement, clearing and central securities depositary, which are used in the Portuguese market;
• Evolve the existing risk-assessment models and create new assessment models in conjunction with the Portuguese Central Bank (Banco de Portugal- BdP), so that the risks arising from financial intermediation activities may be identified and managed as quickly as possible;
• Supervise the regulated entities on-site, namely, the marketing of financial instruments based on risk-assessment models;
• As a complement to on-site supervision, diversify the supervisory approach that continually monitors the financial intermediaries’ activity;
• Establish routine contacts and exchange of information with counterparts.

Envisaged Outcome  I.2: Detect and punish in a timely manner non-compliance with the legal rules and regulations

• Identify, investigate and decide swiftly, imposing the appropriate sanctions or reporting the facts to the competent legal authorities, the proceedings on fraudulent activates carried out, so as to ensure that the market is not subjected to fraud, insider dealing, abuse or other unfair practices;
• Strengthen the role of the National Council for Financial Supervisors and coordinate with other supervisory authorities in the fight against financial fraud;
• Cooperate with the judicial and criminal investigation entities in the search for  the basic truth, so that there is punishment for the criminal and fraudulent practices carried out against the Portuguese investors’ interests both in domestic markets and markets outside the CMVM’s jurisdiction;
• Encourage knowledge of the legal-economic realities of the securities markets by the judicial operators;
• Examine and promote the adoption of mechanisms, which enables the CMVM and the other national authorities to promptly impose sanctions in the case of fraud;
• Improve the compensation mechanisms for the victims of unfair practices by financial intermediaries and other market players;
• Regularly publish the infractions detected and the sanctions imposed;
• Establish mechanisms for the coordination and cooperation with the foreign securities commissions in order to a) combat the fraudulent practices on the national markets by non-resident agents in Portugal or foreign markets by economic agents subject to the CMVM’s jurisdiction; b) investigate and penalize the frauds committed against the interests of the Portuguese investors in foreign markets, or in national territory by non-resident financial intermediaries;
• Promote common and consistent practices for decision-making and the compliance with EU rules;
• Encourage the creation of alternative mechanisms for the resolution of conflicts, whereby the investors and consumers of financial products may speedily resolve their disputes with other market players in an economical viable manner.

      
4.2 Target II: Spur Competitiveness and Dynamism of the Portuguese Financial Market

The desired result for initiatives in this area is the pursuance towards efficient regulatory policies and aligned with the best international standards, wherein introducing the weighting principle in the costs and benefits is featured not only when new regulations are approved  but also when the existing regulation is analysed. In particular, these also aimed at redressing the balance in the current supervision model in order to lessen the ex ante mechanisms and acts (registrations, authorisations, etc.) and strengthen the continuing supervision without affecting the system’s global regulation.

Envisaged Outcome II.1: Ensure that the laws and regulations promote competitiveness, are clear and flexible and do not incur unnecessary costs.

     a) CMVM's organisation, internal procedures and market relations

• Improve the internal coordination of the regulatory process, centralising  the coordination and increase the cooperation among the departments in the process of drawing up the rules, analysing the information and disclose the information;
• Review the regulations and instructions so as to reduce and remove the requirement for reports to be in paper format, by using the current benefits from technological development  and electronically circulating the documents;
• State the reasons for all the regulatory initiatives by taking into account the cost-effective ratio of the new regulations and assessment of the risk being prevented;
• Conclude the availability on the CMVM’s website of  information organised in charts and check-lists supporting the presentation of processes and the submission of communications, in order to provide the market players with an easy, quick and economical access to information on all the necessary details to be presented with applications or compliance with duties;
• In accordance with the indicated guidelines, review  the a priori monitoring mechanisms and acts (registrations, subsequent registrations, authorisations, exemptions, etc.), aiming towards its replacement, as far as possible, by prior communications or equivalent together with the development and/or introduction of new  continuing and ex post supervision formats;
• Increase the effectiveness and efficiency of the CMVM, namely,  by means of rationalising the supervision practices, instituting the practices and the mechanisms aimed at dismantling the bureaucracy in the institution;
• Audit the functioning of the CMVM, with the aim of identifying   bureaucratic factors, and proposing appropriate solutions in the internal processes, regulations and information required;
• Seek greater appropriateness between supervision fees and costs;
• Speed up the legal acts that should be carried out by the companies  in its business;
• Enable, as far as possible, the compliance with the formalities of the CMVM by electronic means;
• Establish recommendations on ‘Corporate Governance’ differentiated according to the company’s size;
• Rationalise the supervision with monitoring functions by means of greater responsibility for the private entities;
• Have regular hearings for market players by taking the interests and concerns into account;
• Coordinate with other national supervisory authorities in order to remove any overlapping of tasks which leads to inefficiency and excessive resource consumption.

     b) Proposed amendments to the legislative framework

- Inter alia, adopt the following initiatives:

• Propose legislative amendments to the Government that would be appropriate to reducing costs inherent in the company going public, so as to encourage the flotation and discourage capital outflow;
• Propose the simplification of the Legal Framework for Asset Securitisation to the Government, particularly, through reducing the process for establishing and registering the assigning entities and restricting the auditing requirements to a single act;
• Propose the adoption of incentives that foster investment in shares admitted to listing as a result of initial public offerings in small and medium-sized firms;
• Propose an amendment to the rules on the organisation and requirements for market making in order to stimulate the emergence of competitive alternatives to the regulated markets;
• Propose the differentiation of requirements resulting from the type of public company based on the size of the company;
• Contribute to removing the tax and legal barriers  in the implementation of the IAS/IFRS International Accounting Standards to individual accounts, thereby averting the requirement for double accounting;
• Redefine the model for the  liability, supervision and sanctioning in contravention of  providing financial information, involving a greater intervention in the public companies that opt for not admitting the securities issuance to trading on regulated markets;
• Propose appropriate legislative amendments for reducing the number of supervisory authorisations and registrations, in the cases where the interests of the market and the investors are well looked after by continuing or a posteriori supervision.

     c) Proposals for adjustments to the Tax Framework

 - Inter alia, adopt the following initiatives:

• Propose the development of incentives to the share offer by small and medium-sized companies, particularly, in ensuring an attractive  Tax Framework for carrying out Initial Public Offers and same being kept on the market;
• Propose the creation of incentives for securities issued by small and medium-sized companies sought by the institutional and individual investors;
• Examine and propose measures that contribute towards the non-breakdown of equities;
• Propose the necessary adjustments to the Tax framework for securitization instruments to the Government, for the purpose of said instruments becoming more competitive before the market competitors and thus contribute to the retention in Portugal of the bondholder sector which is normally associated thereto.

     d) Assess the Internal and International Legislative Framework

• Subsequent review, in addition to the preliminary assessment of costs and benefits of the legislation being drawn up, the regulation and legislation of the capital markets from the perspective of efficiency criteria, contemplating inherent costs and benefits;
• Assess the transposition impact of the Community Directives on the competitivity of the Portuguese market, contributing towards the Community consideration for its revision when such is proved to be valid.

Envisaged Outcome II.2: Laws and Regulations in line with the best International standards

- Inter alia, adopt the following initiatives:

• Propose the necessary legislation to the Government and approve the regulations posterior to the transposition of the Markets in Financial Instruments Directive, in conjunction with the BdP and the National Council for Financial Supervisors (CNSF), introducing the new concepts on regulated markets, multilateral trading facilities, systematic internalisation, the new transparency duties, the new conditions for order execution, outsourcing and the management of markets and systems into the national legal system;
• Propose the necessary legislation to the Government and approve the regulations posterior to the transposition of the Transposition Directive introducing the new rules on the provision of financial information, qualifying holdings reporting and the disclosure and storage of information into the national legal system;
• Propose the necessary legislation to the Government and approve the regulations posterior to the transposition of the Audit Directive, in conjunction with the other supervisory entities of the financial system, the CNSF and the Portuguese institute of Chartered Accountants; introducing the new rules on the Chartered Accountants/Auditors’ duties, on the auditing of economic groups, on independence and the supervision of the profession into the national legal system;
• Take part in CESR’s Working Groups, so as to contribute towards defining the standards for regulation and supervision in the EU, and defend the national interests;
• Take part in IOSCO’s Working Groups and other International forums so as to contribute towards defining the standards for international regulation and supervision, aiming towards ensuring that the Portuguese market accompanies and influences the state of art regulation;
• At all times provide information on the participation of the CMVM in international forums;
• Analyse and propose the legislative and recommendatory measures for the governance of  market players;
• Magnify the transparency of the interpretative decisions by the CMVM, by increasing the approval of legal opinions on the rules that require clarification;
• Propose the necessary legislation for transposing the amendments to the Fourth and Seventh Community Directives on Corporate Governance to the Government.
    
        

4.3 Target III: Protect the Investor as a Saver and Consumer of Financial Services

Investors with access to more and better information and with expertise that will enable said investors to ask the right questions, make well-informed and responsible decisions. Furthermore, said investors are also capable of protecting themselves better against fraud and impetuous decisions. The CMVM shall develop measures that aim at promoting the quality of financial information, based on monitoring the information reported and the audit and risk control systems. This is carried out so that confidence is strengthened and the market is brought closer to the companies and the investors. A training programme, which is directed at all the market players, particularly the retail investors, shall also be defined and developed.

Envisaged Outcome III.1: Making well-informed and responsible decisions

• Reformulate the statistics area of the CMVM, by making it a more effective information and support tool for the market;
• Require the timely provision of quality information by issuing entities in an equitable manner for all investors;
• Ensure a consistent application and strictly check the financial information drawn up and disclosed in accordance with the International Accounting Standards IAS/ IFRS;
• Demand the timely availability of material information sources by the main shareholders of listed companies in an equitable manner for all investors;
• Institutionalise independent mechanisms for supervising the quality of work by accountants and auditors, that comply with  the IOSCO’s Recommendations and that improve the quality of the work by accountants and auditors;
• Support and promote the quality of information and the means used in financial intermediation, so as to enhance the confidence and bring the capital markets closer to the citizens;
• Ensure the transparency and promote the competitivity of fees for the safekeeping and transaction of securities, namely, by means of the mandatory publication on the CMVM’s website of all the fees charged by the financial intermediaries and the availability of a mechanism for calculating the actual costs borne by the investors;
• Ensure the transparency of the fees charged by investment funds by making a Simulator for the actual yield of the funds available on the website of the  CMVM and a historical record of the fees actually charged;
• Propose to the Government, whether within the context of transposing the above Directives, or in other legislative contexts, the introduction of rules which are necessary to ensure the protection of the legal interests of the financial products’ consumers, and in particular, the retail investors that direct their savings to the securities market;
• Sustain and develop mechanisms for hearing complaints by investors, and new  models for protection aimed at compensation for the damage suffered;
• Contribute so that the investors are ensured of advantages deriving from the competition between market players, in particular, preventing improper barriers against the admission of new members to be formed; not allowing non-suitable trading practices that favour some market users and not others to be carried out; and rejecting market practices that do not ensure a fair treatment of the orders and reliability in the price formation.

Envisaged Outcome III.2: Provide the investors with additional financial training

• Commence actions that contribute towards training, educating and informing the investors, particularly the retail investors;
• Continually make information on the markets’ functions and uses available and said information shall be in a modern format and accessible to financial products’ consumers;
• Improve the CMVM’s webpage in order to facilitate access to the information, expand the use of technology that will enable the investors to obtain prompt responses to their questions, queries and complaints;
• Encourage debate and training in the new capital market areas and  products, particularly those that are directed at retirement savings;
• Have closer links with professional bodies and other entities representing economic sectors aimed at promoting investor protection and training mechanisms;  
• Regularly analyse the data on investors’ complaints so as to identify trends and sustain the investors’ training programme.

Envisaged Outcome III.3: A more effective and visible supervision

• Based on the defined risk evaluation models, increase the supervision of conduct and expedite the conclusion of the respective processes, as a precautionary measure for the interests of the consumers for financial products and services;
• Direct the course of supervision towards preventing the risk that may endanger the interests of the investors and the security of the savings and also the confidence of the investors in the market and its institutions.

5. INTERNAL ORGANISATION AND RESOURCES  

The pursuance of defined targets and development of listed guidelines presupposes an institution that is prepared. The defined quantitative and qualitative aims shall be attained in line with the manner whereby the institution organizes and manages the resources at its disposal.

5.1 Organisational Structure   

The current departmental structure of the CMVM was established in 2000 and partially reorganized in 2004. An increase in the demand for performance is, therefore, a concern and obligation for the CMVM in that the institution’s organisational structure should be continuously suitable to said objective. Thus, the necessary reorganisation shall be made to the current structure in the 2006-2010 period by optimising the use of available resources and introducing new provisions, which is imposed by the implementation of the current action plan or that results from the new powers of the CMVVM.

The need to strengthen the internal coordination between the departments is required by the need for orchestrating and harmonising the proceedings, building on cooperative interaction and avoiding overlaps. This will enable the processes to be simplified without any loss of consideration as to its treatment.

The aim is for the recently established Internal Audit Office (GAUDI) to have a pertinent role in reducing bureaucracy and promoting the simplification of proceedings.

  
5.2 Human and Financial Resources   

The policy’s objective in this area is to have qualified and motivated employees.

With reference to qualifications, this is the case for increasing the continuing education policy, either by specializing in the fields related with the CMVM’s activity, or on an organisational basis. The increase in qualifications should also be continued with the multi-tasking of the CMVM staff, which allows for an appropriate and normal internal mobility of employees and executives without any loss of the required organizational effectiveness and efficiency. Thus, a high degree of technicality, professional ethics, in developing an organisational culture shall be required.

Furthermore, the sharing of experiences with other counterpart institutions constitutes an important component in the training programme.
Staff motivation shall be based on the ever more demanding performance appraisal, connected to an appropriate incentive scheme. The performance appraisal shall envisage all employees, executives and departments. As a starting point, a survey on the institution’s current reality shall be undertaken in order for careers to be restructured and incentive schemes redefined.

Recruitment shall comply with the high degree of requirements and transparency criteria.

In accordance with the strict principles in the management of financial resources available to the CMVM, control mechanisms for budgetary implementation with cost attribution per activity centre shall be advocated. All the necessary inferences pursuant to the cost/benefit assessment shall be drawn.

On the other hand, the periodical analysis of the supervision fees’ structure and its appropriateness to the costs of the CMVM’s activity shall be maintained.

5.3 Information Systems   

An advantageous trend consists in maximising the efficiency of the internal information circulation, a task wherein the availability of tools for analysing, data searching and generating reports assumes particular importance. Particularly salient within this context, is the Intranet acting at the structural level of knowledge-sharing, seeking to streamline access to internal information; and the Extranet, where there is concern as to improving the information transfer interfaces between the market players and the CMVM. This entire data and interface communications network requires continuous maintenance, namely, at management level, the survey of new solutions and security aspects. New developments in the electronic circulation of internally produced documents and the trend to do away with information on paper are envisaged.

Based thereon, is the target of the CMVM to continue with the establishment of an information system integrated in all the support areas (back office) of the CMVM, including administrative and financial management, analytical accounting and project management.

Briefly, the CMVM shall more than accompany the technological evolution of the information systems; it shall further stimulate its use by all the securities market players.

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