• What is the MiFID?

    The Markets in Financial Instruments Directive is the EU Directive (Directive 2004/39/EC), that came into force on 1 November 2007. The main objectives of this regulation are to:

    • Ensure greater protection to clients of investment services and activities;
    • Harmonise the legislation related to Markets in Financial Instruments;
    • Boost the trading venues;
    • Regulate trading activities, in particular with regard to transparency and conflicts of interest.

    The MiFID covers the member states of the European Union plus Iceland, Norway and Liechtenstein.

    In the Diário da República (supplement) of 31 October, several laws that operate the transposition of the MiFID into Portuguese law were published. To be pointed out is Decree-Law no. 357-A/2007of 31 October that greatly amends and republishes the Portuguese Securities Code.

    The laws transposing the MiFID were published on the website of the online Diário da República on 01/11/ 2007, integrating the 2nd Supplement of the DR, no. 210 of 31 October 2007.

  • What new obligations do financial intermediaries have after this legislation came into force?

    Financial intermediaries are now required to meet a new set of obligations towards their Clients, in particular:

    • Rate the Client, in accordance with the established legal types as well as obtain information about the Client in order to verify the adequacy or inadequacy of each financial instrument to their profile.
    • Provide additional and supplementary information about the financial intermediary and the services it provides, on the characteristics and risks of the services and transactions in financial instruments and on the protection of clients’ assets that the Bank offers in its document Information.
    • Inform its clients about the Execution Policy and Transmission of Orders.
    • Inform clients about the inducements that the financial intermediary receives. In order to operationalise this requirement, it is necessary that the client sends a request to the bank by e-mail or letter. This request will be channelled to Compliance for reply within 10 working days.

  • What are the classifications attributed to investors?

    There are three categories of investors: Eligible Counterparties, qualified Investors and non-qualified Investors, under article 317 of the Portuguese Securities Code. Each category is based on an assumption about the knowledge and experience necessary for decision-making on investments in financial instruments, in particular the implicit risks. For this reason the law determines the degree of protection for each type of investor, especially with regard to the information provided and the analysis of the adequacy of the operations or services in relation to the investor. Non-qualified investors enjoy a higher degree of protection and eligible counterparties have a lesser degree of protection.

    Eligible Counterparties – This category includes:

    • Credit institutions;
    • Investment firms;
    • Insurance undertakings;
    • Collective investment schemes and management companies of such schemes;
    • Pension funds and management companies of such funds;
    • Other authorised or regulated financial institutions, namely credit securitisation funds, the management companies of such funds and other financial Companies under the law, credit securitisation companies, venture capital companies, venture capital funds and the management companies of such funds;
    • Financial institutions of countries which are not members of the European Union engaged in activities similar to those mentioned in the preceding paragraphs;
    • Entities that trade in financial instruments on commodities
    • National governments, central banks and public bodies that manage the public debt, international and supranational institutions such as the European Central Bank, the European Investment Bank, the International Monetary Fund and the World Bank.

    Qualified Investors – By default, under this category are:

    • Regional governments;
    • Legal persons whose size, according to their last annual accounts, meets two of the following criteria:

      a) Net worth EUR 2 million;
      b) Total assets EUR 20 million;
      c) Net turnover EUR 40 million.

    • For the purpose of intermediation activity, the people who provide investment services or carry out investment activities consisting exclusively of dealing on own account in the futures or spot markets, in this case for the sole purpose of hedging positions in the derivatives markets, or negotiating or participating in the setting of prices on account of other members of those markets, and which are guaranteed by a clearing member in those markets, when the responsibility for the execution of the contracts is assumed by one those members.

    Non-qualified investors – Includes all investors who do not meet the criteria defined for the other categories.

  • Is it possible to obtain a degree of protection/treatment other than what has been attributed?

    Yes. You can always ask for increased protection.

    Moreover, non-qualified investors may request treatment as qualified investors if they meet two of the following requirements:

    • To have carried out transactions, of significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
    • To have a financial instruments portfolio, also including cash deposits, that exceeds EUR 500 000;
    • To work or have worked in the financial sector for at least one year in a professional position that requires knowledge of the transactions or services in question.

    The legal persons that may request treatment as an eligible counterparty are those whose size, according to their last annual accounts, meet two of the following criteria:

    • o Net worth EUR 2 million;
    • o Total assets EUR 20 million;
    • o Net turnover EUR 40 million.

    The request for change of treatment can refer to all of the client’s relationship with the financial intermediary, to only one type of transaction/service or to a specific transaction/service.

    The reduction in protection is always subject to review by the Bank, which is reported to the client. After receiving the approval of the request by the Bank the client must state in writing, in a separate document, that he is aware of the consequences of his choice.

    The change in classification only enters into force after confirmation from the Bank.

  • What is the adequacy test?

    For transactions or services on financial markets Instruments the Bank analyses their adequacy to the client profile.

    In the activity of receiving and transmission or execution of orders the Bank analyses the knowledge and experience for complex financial instruments on which the client is classified as a non-qualified investor.

    In the activities of portfolio management on account or investment consultancy, the Bank analyses, besides the knowledge and experience of the services or financial instruments covered, the information on the financial situation and investment objectives.

    In cases where the Bank cannot guarantee the adequacy, the client can accept to continue with the transaction or service under its sole and full responsibility by stating this in writing.

  • Which are the complex and non-complex financial instruments?

    According to the Portuguese Securities Code, non-complex financial instruments are:

    • Shares;
    • Bonds, excluding those that incorporate derivatives;
    • Shares in collective investment schemes in harmonised securities.

    As long as:

    • There are frequent opportunities to dispose of, redeem, carry out prices which are public and which are available to market participants, corresponding to market prices or prices made available by independent assessment systems of the issuer;
    • It does not imply the assumption of responsibility by the client that would exceed the cost of acquisition of the financial instrument;
    • Adequate information about their characteristics is publicly available, that would allow an average non-qualified investor to assess, in an informed manner, the opportunity to perform an operation on that financial instrument;
    • Also considered are the money market instruments, with the exception of payment methods and insurance contracts linked to investment funds (standardised Unit - Linked ).

    Complex instruments are the financial instruments that are not considered non-complex, including:

    • Equity securities;
    • Autonomous warrants and assigned rights;
    • Derivative instruments for the transfer of credit risk;
    • Contracts for Difference- CFDs;
    • Options, Futures, Swaps or Forward Contracts;
    • Structured Certificates.

  • What is the difference in protection and treatment between qualified and non-qualified investors?

    The differences in protection are defined in the articles listed below of the Portuguese Securities Code, which may be consulted at Portuguese Securities Code:

    1.  Class Action – article 31
    2. Mediation of conflicts – article 33
    3. Constitution of sinking funds (specific for investors, such as the Investor Compensation Scheme) – article 35
    4. Prospectus requirements (public offers) – article 134
    5. Language (admission prospectus to trading) – article 237-A
    6. Execution of orders and change in the quoted price (systematic internaliser) – article 257
    7. Investor complaints - article 305-E
    8. Safeguarding of client assets – article 306-A and article 306-B
    9. Outsourcing of portfolio management services in companies located in third countries - article 308-C
    10. Information to investors – article 312, article 312-A, article 312-B, article 312-C, article 312 -D, article 312-E, article 312 -F, article 312-G
    11. Assessment of suitability of the operation - article 314-A, article 314-B, article 314-D
    12. Intermediation contracts - article 321, article 321-A, article 322
    13. Reporting duties - article 323, article 323-A, article 323-B, article 323-C
    14. Handling of Client orders - article 328
    15. Best execution criteria - article 331
    16. Execution policy information - article 332
    17. Acting as counterparty to the client (trading for own account) - article 346

    Banco Carregosa provides similar treatment to all types of investors offering, as far as possible, the greatest degree of protection. Exceptions are the situations in which the Bank considers that a greater degree of protection reduces the operability of the client, or those in which the client so requests.

    It has to be pointed out that the Bank has unique systems regarding the abovementioned points 6, 7, 8, 9, 10, 12, 13, 14, 15 and16.

    Due to the qualified investors’ implicit nature, the Bank uses, by default, the protection reductions provided for in the abovementioned points 11 and17.

    Thus, whenever permissible under the law, there will be no assessment of the adequacy of operations by the Bank for the accounts, instruments/services for which the classification as non-qualified investor has been put aside. Similarly, no specific authorisation is required for each operation in which the Bank acts as counterparty to the client.

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