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​This does not dispense with the need to consult the original Portuguese version published in the Official Gazette​

CMVM Regulation No. 2/2000 In force

CMVM Regulation No. 02/2000
Investor Compensation Scheme

In creating the Investor Compensation Scheme (hereinafter referred to as the Scheme), Decree-Law no. 222/99 of 22nd June empowered the Portuguese Securities Market Commission to regulate participation in or exclusion from the Scheme of investment companies and credit institutions based in other European Union Member States. The operating costs of the Scheme are borne and the terms of the constitution of guarantees provided by the participating bodies.

As stipulated in the aforementioned legislation, this regulation determines the contribution to be made by each participating body should the Scheme be activated, and the way and form in which that contribution is guaranteed. Thus, the guarantee is provided by means of a pledge of securities, the value of which, at the date of constitution, must not be less than 107.5% of the due guarantee. The value of the pledge must be updated on a half-yearly basis or whenever, due to fluctuations in market prices of the securities, it falls below 92.5% of the due guarantee. For the purposes of determining the size of the contribution and the guarantee, the necessary procedures have been defined for the collection of information on the funds and financial instruments that belong to the investors or are held, administered or managed by the participating body on behalf of the investors in connection with investment operations.

The present regulation fixes the annual amount to be contributed by each participating body to the Scheme's operating costs. The Scheme's Executive Commission may waive this annual contribution depending on the Scheme's revenue.

Finally, the present regulation defines the conditions and procedures for participation in and exclusion from the Scheme for investment companies and credit institutions with business headquarters in another European Union Member State, in relation to credits resulting from investment operations effected by their offices in Portugal, where the said companies or institutions show an interest in participating in the Scheme in addition to the compensation provided for in their country of origin.

Thus, pursuant to article 5(3), article 18 and article 23(3) of Decree-Law no. 222/99 of 22nd June, which established the Investor Compensation Scheme, and following consultation with Banco de Portugal, the Executive Commission of the Investor Compensation Scheme, the Association of Portuguese Banks and the Portuguese Association of Brokerage Companies and Broker-Dealer Companies, the Executive Board of the Portuguese Securities Market Commission (hereinafter referred to as the CMVM) has approved the following regulation:

Article 1
Scope

The present regulation shall apply to:

a) investment companies which have their registered offices in Portugal, particularly firms of brokers and, broker-dealers, asset management companies and firms of money or exchange market brokers;

b) credit institutions with their registered offices in Portugal that are licensed to provide any one of the investment services outlined in article 199-A(1) of the Portuguese Banking Law or the service outlined in section C, point 1 of the Annex to EEC Directive 93/22/ of 10th May;

c) investment companies and credit institutions with their registered offices in a country that is not a member of the European Union, in relation to credits resulting from investment operations effected by their offices in Portugal, unless the said credits are covered by a compensation system, the terms of which are equivalent to those provided by the Portuguese system;

d) investment companies and credit institutions licensed to undertake investment operations that have their registered offices in another European Union Member State and that wish to participate in the system as a supplement to the compensation provided in their country of origin in relation to credits resulting from investment operations effected by their branch offices in Portugal.

Article 2
Information to be Supplied to the Scheme

1 - Each participating body must inform the Scheme, in accordance with instructions issued by the latter, as to the value of:

a) All funds owed by it to the investors or which belong to the investors and are specifically allocated to investment operations, except funds excluded from cover pursuant to article 9 of Decree-Law no. 222/99 of 22nd June; and 

b) All financial instruments that are owned by the investor or are held, administered or managed by the participating body on their behalf in connection with investment operations, except financial instruments excluded in accordance with article 9 of Decree-Law no. 222/99 of 22nd June.


2 - For the purposes of the foregoing paragraph 1 a), funds allocated to investment operations are defined inter alia as:

a) funds received from clients by investment companies to be used in investment operations, even if deposited in bank accounts with an indication that they are clients' funds;

b) funds deposited in bank accounts in connection with an agreement for the special allocation of these funds to investment operations;

c) funds deposited in bank accounts in the amounts necessary for the settlement of the acquisition or subscription of securities or other legally comparable financial instruments, provided that the credit institution in which the funds are deposited has received instructions from the client to settle the operation, and the latter has given the order directly to another financial intermediary;

d) funds deposited in bank accounts in the amounts necessary for the settlement of the acquisition or subscription of securities or other legally comparable financial instruments, provided that the financial intermediary has notified the credit institution in which the funds are deposited that the operation has been implemented, where the latter has received the order from the client.


3 - For the purposes of the foregoing paragraph 1 b), financial instruments are defined as:
a) securities, including investment units in collective investment bodies;

b) money market instruments;

c) futures on financial instruments, including equivalent instruments that give rise to financial settlements;

d) forward rate agreements (FRAs);

e) interest rate swaps, currency swaps or equity swaps;

f) call or put options on any of the financial instruments specified in the preceding sub-paragraphs, including equivalent instruments that give rise to financial settlements, particularly currency and interest rate options.


4 - For the purpose of measuring the value of the funds and financial instruments referred to in the preceding paragraphs: 

a) funds are converted to euros using the exchange rate valid on the reference date for the information;

b) securities are valued on the basis of the market price established on the reference date for the information, whereby total amounts are to be converted to euros using the exchange rate valid on that day, or, if a market price is not given: 

i) variable-yield securities are valued according to their purchase price or, if this is not available, their par value;
ii) investment units in collective investment institutions are valued according to their asset value;
iii) all other securities are valued on the basis of their par value or theoretical value.

c) money market instruments are valued in accordance with the off-balance sheet valuation criteria in the Banking System Accounting Plan defined by Banco de Portugal, whereby total amounts are to be converted to euros using the exchange rate valid on the information reference date;

d) forward rate agreements (FRAs) and interest rate, currency or index-linked swaps shall be valued on the basis of the gain that the client would obtain if the contract was were settled on the information reference date, whereby the amounts are to be converted to euros using the exchange rate valid on the information reference date;

e) the financial instruments referred to in sub-paragraphs c) and f) of the preceding paragraph are valued on the basis of the margins per client constituted in the participating body and the balance of daily gains and losses, if any, on the information reference date.

Article 3 
Dates for Provision of Information

The information outlined in the preceding article shall be provided:

a) by the end of February and August of each year, for reported values for the end of the preceding December and June, respectively;

b) whenever the Scheme so requests.


Article 4
Current Cost Financing

1 - By 15 January of each year each body participating in the Scheme must contribute the sum of €2,500.00 towards the Scheme's operating costs.

2 -The Scheme's Executive Committee may decide to waive the payment by all the participating bodies of the sum referred to in the preceding paragraph for each year.

3 - Any bodies that leave the Scheme shall have no right to any form of reimbursement whatsoever of any amounts they may have contributed thereto.


Article 5
Liaison Officer(s) for Relations with the Scheme

1 - Each participating body shall inform the Scheme of the person or persons it has appointed to be responsible for liaison with the Scheme and the means of communication between the two parties. 

2 - Should the persons who perform the tasks referred to in the preceding paragraph not belong to the administrative bodies of the participating body, they must have all the necessary qualifications for representing the participating body in its relations with the Scheme, and for guaranteeing the provision of the information requested by the latter and the reliability of that information, as well as compliance with all other duties of the participating body.

3 - The provision of any item of information whatsoever to the Scheme by the participating body must be signed by at least one of the persons referred to in paragraph 1 of his article.

4 - Any alterations to the information provided pursuant to paragraph 1 of this article must be communicated to the Scheme within a period of 15 days beginning on the day this alteration takes place.


Article 6
Binding Agreement

1 - The participating bodies shall assume a binding obligation to deliver to the Scheme, if activated, the amounts necessary for payment of compensation owed to the investors.

2 - The binding obligation referred to in the preceding paragraph shall be formalised by means of a written declaration by the participating body addressed to the Scheme, in accordance with standard form of declaration to be approved by the latter, and must be accompanied by an appendix indicating the securities charged by way of guarantee for the said obligation.


Article 7
Potential Liability

Simultaneously with the provision of the information referred to in article 3, each participating body must enter the binding obligation, referred to in the preceding article, in its accounts, as a potential liability at an amount that corresponds to 1‰ of the value determined according to article 10.


Article 8
Pledge

1 - As a guarantee of the obligation referred to in article 6, each participating entity shall constitute a pledge to the Scheme of securities in a central depository system amounting to 0.5‰ of the value determined according to article 10. 

2 - The pledge shall be constituted by instructions given by the participating entity to the managing body of the central depository system.

3 - The pledge can only be redeemed on the initiative of the Scheme, which must inform the central depository system's managing body of the redemption thereof.

4 - The pledge constituted by each participating body must be updated in conformity with the information provided pursuant to article 3, whereupon the appropriate amendments must be made to the appendix referred to in article 6(2).

5 - The pledge referred to in the preceding paragraphs shall consist exclusively of securities listed in a stock exchange or in other regulated markets and issued or guaranteed by bodies that do not require the constitution by credit institutions and finance companies of reserves for specific credit risk and which have a depreciation period of more than 18 months on the date of the constitution of the pledge, provided that the legislation applicable to the constitution of the pledge allows for extra-judicial enforcement.

6 -Securities pledged and valued on the basis of the average closing or settlement prices over the last five stock exchange or regulated market trading sessions of the month prior to the date of constitution or alteration of the pledge, must amount to a sum equal to or in excess of 107.5% of that referred to in paragraph 1 of this article.

7 - Whenever pledged securities valued on the basis of the average closing or settlement price over the last five stock exchange or regulated market trading sessions represent less than 92.5% of the amount referred to in paragraph 1 of the present article, the participating body shall adjust the pledge so as to restore the percentage specified in the preceding paragraph.
8 - On the dates on which the securities are pledged each participating body must provide documented proof to the Scheme that the pledge is registered in the latter's favour, that it is the owner of the securities in question, that the said securities are not subject to any other obligations, charges, restrictions or encumbrances and, in the event that the legislation applicable to the constitution of the pledge is not Portuguese, that it allows for extra-judicial enforcement. 

9 -Securities charged by way of guarantee may be substituted - either on the initiative of the participating body and with the consent of the Scheme, or at the request of the latter -subject to the appropriate amendment to the appendix referred to in article 6(2).

10 -Any interest and other income from pledged securities shall belong to the holders of the said securities.


Article 9
Contributions in the Event of Activation of the Scheme

1 - In the event of activation of the Scheme, the contribution due from each participating body shall be a percentage of the total value of the compensation resulting from the ratio between the value of the funds and financial instruments referred to in article 2, covered by the Scheme and held, administered or managed by that body, and the value of the funds and financial instruments covered by the Scheme and held, administered or managed by the participating bodies as a whole, with the exception of the body that gave rise to the activation of the Scheme. 

2 - Without prejudice to the preceding paragraph 1, each participating body shall be obliged to pay, in each year, only such amount as corresponds to 2‰ of the value as determined according to the provisions of article 10 in the year of the activation of the Scheme.

3 - If the contribution owed by each participating body is less than the minimum limit defined in the preceding paragraph, the said participating body must keep registered in its accounts, until the end of the year in question, a potential liability equal to the difference between the value of that limit and that of the due contribution, with a maximum of 1‰ of the value as determined according to the provisions of article 10.


Article 10
Calculation Basis

1 - For the purpose of determining the values of the potential liability, the pledge and the contributions for each participating body in the event of activation of the Scheme, the average of the two most recent values contained in the information supplied to the Scheme, pursuant to article 3 herein, shall be used.

2 - In cases in which the participating body has provided the Scheme with information on one security only, the values referred to in the preceding paragraph shall be determined on the basis of the said security alone.

Article 11
Admission of New Participating Bodies

1 - Without prejudice to the provisions of the following article, bodies mentioned in paragraphs a) to c) of article 1 that are registered with the CMVM subsequent to the entry into force of the present regulations shall join the Scheme on the date of their respective registration. 

2 - Firms of money market and exchange market brokers shall join the Scheme on the date of their registration with Banco de Portugal.

3 -Admission shall be effected informally and the Scheme shall notify each participating entity of its admission and the date on which the same takes effect.

4 - Within 20 days of the date of the notification referred to in the preceding paragraph, each participating body must pay the contribution referred to in article 4, calculated on the basis of the number of twelfth parts corresponding to the number of months left in the year from the month in which it joined the Scheme onwards, and shall comply with the provisions of article 5.

5 - At the same time as the information stipulated in article 3 is forwarded, each participating body must comply with the provisions of articles 6, 7 and 8.

6 - This article shall apply to bodies created by merger and demerger and those for which the amendment of their objects results in a change in the type of institution.


Article 12
Exemption from Participation

1 -Bodies referred to in article 1 c) may be exempt from participation in the Scheme if the credits resulting from investment operations carried out by their branch offices in Portugal are covered by a compensation system operating on terms and conditions which the CMVM and Banco de Portugal recognise as being equivalent to those provided by the Scheme.

2 - Without prejudice to the bilateral agreements existing in this area, those bodies wishing to exercise the right of exemption referred to in the preceding paragraph must submit a document containing a detailed description of the investor compensation system in which they, the applicants, participate and which guarantees the protection of investors that are clients of the branch office. This document must be issued or certified by the said system or supervisory authority in the country of origin.


Article 13
Admission of Bodies with Registered Offices in 
Other European Union Member States 

1 -Bodies referred to in article 1 d) above must submit applications for admission to the Scheme.

2 - The applications referred to in the preceding paragraph shall consist of the following information:

a) a document containing a detailed description of the investor compensation system in which the applicant participates and which guarantees the protection of investors that are clients of the branch office; this document must be issued or certified by the said system or the supervisory authority in the country of origin;
b) an indication of the desired amount of additional cover;
c) the value of the funds and financial instruments to be covered by the Scheme, as referred to in article 2, as at the end of the months of June and December prior to the application.
3 - Within 30 days of the date of receipt of the application, or of any further information requested of the applicant or the compensation system or supervisory authority in the applicant's country of origin, the Scheme shall notify the body in question as to the decision reached and, in the case of a positive decision, the date of admission and granting of additional cover.

4 - Within 20 days of the date of the notification referred to in the preceding paragraph, each participating body must pay the contribution referred to in article 4, which shall be calculated on the basis of the number of twelfth parts corresponding to the number of months in the year from the month in which it joined the Scheme onwards, and shall comply with the provisions of articles 5, 6, 7 and 8.

5 -Following the notification referred to in paragraph 3 of this article, the Scheme shall come to an agreement with the compensation system in the country of origin as to the appropriate rules and procedures for the payment of compensation to investors that are clients of the branch office of the participating body in question.


Article 14
Non-Compliance

1 - Without prejudice to any disciplinary procedures that may arise, whenever one of the bodies referred to in article 1 d) above shall fail to comply with the obligations inherent in its participation in the Scheme, the latter shall notify the supervisory authority in that body's country of origin, which, in co-operation with the Scheme, shall take the necessary steps to ensure compliance with the said obligations.

2 - If, on the expiry of one month after the notification referred to in the preceding paragraph, the said situation of non-compliance shall not have been rectified, the Scheme shall give 12 months' notice to the investment company or the credit institution in question of its intention to exclude it from the Scheme. 

3 - If one of the bodies referred to in paragraph 1 above is barred from the Scheme, any credits resulting from investment operations effected by its branch offices prior to the date of exclusion shall continue to be guaranteed, in the case of funds, up to the date of financial settlement of the said investment operations or, in the case of financial instruments, for a maximum period of three months. 

4 - The Scheme and the body in question shall issue a public announcement of the latter's exclusion in the appropriate form.


Article 15
Transitional Provisions

1 -The admission to the Scheme of the bodies referred to in article 1 a) to c) which, on the date of entry into force of these regulations, are registered with the CMVM, shall be informally effected by the Scheme and take effect at the said date.

2 - For the purposes of the preceding paragraph, the CMVM shall notify the Scheme as to the bodies referred to in the said paragraph that are registered with the CMVM on the aforementioned date.

3 - Firms of money market or exchange market brokers that are registered with Banco de Portugal shall be admitted to the Scheme on the date of entry into force of these regulations.

4 - The Scheme shall notify each participating body of its admission and the date thereof.

5 - Within 20 days of the date of the notification referred to in the preceding paragraph, each participating body must pay €2,500.00 and must comply with the provisions of articles 5, 6, 7 and 8.

6 - Until the information relating to June 2000 is supplied, the amounts referred to in articles 7 and 8 shall be calculated on the basis of the value reported at the end of June 1999 as contained in the information forwarded to the CMVM.


Article 16
Entry into Force

These regulations shall enter into force on the day immediately following that of publication hereof in the Diário da República, the Portuguese official journal.

Lisbon, 20 January 2000 - The Chairman of the Executive Board, José Nunes Pereira