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					                       2009 Annual Report on the Activity of the CMVM and the Securities Markets



In 2009, the lawmaker's main objective was to mitigate the effects from the financial
crisis and to step up investor protection, while the government implemented some
measures to this end. Thus, transparency was increased with regard to the approval
and disclosure of the remuneration of corporate boards of entities classified as being
of public interest; a review of the sanction framework for the financial sector in
criminal and administrative infractions in the sense of the seriousness; and the
Investor Compensation Scheme framework was adapted, particularly in clarifying that
the contract guarantees by financial intermediaries are also included under the
coverage of said Scheme.

Within its competence, the CMVM took some measures that aimed to redouble the
protection of investors and the dynamism and competitiveness of the domestic
market. Particularly salient is the issue of regulations on designated complex financial
products,   particularly   concerning    the   reporting     duties    to   investors    and       the
requirements that must be complied with regarding the advertising for said products.

On a different level, the CMVM took part in the transposition of EU directives and
cooperated with other regulatory and supervisory authorities of the domestic and
international financial system. CMVM's contribution to the Committee of European
Securities Regulators (CESR) was particularly relevant, since the Chairman of the
CMVM is both Vice-Chairman of CESR, CESR's Review Panel Chair and as from the
second half of the year became Chairman of the group of economic analysis of CESR
(ECONET). After the reorganization of CESR's groups the latter was renamed the
Committee for Economic and Markets Analysis (CEMA).

The CMVM also took part in the NYSE Euronext College of Regulators.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


3.2.1      Completed Law Reform and Main Implications

Sanction Framework

Law No. 28/2009 introduced two new aspects: (i) reviewed the sanctions framework
for the financial sector in criminal and administrative infractions; and (ii) laid down
rules on the content, subject to shareholder approval and disclosure of remuneration
policy for members of the Board of Directors and Supervisory Board of public interest
entities as defined in the legislation establishing the CNSA.

With regard to penalties, particularly salient is the blanket reinforcement of sanctions,
stepping up of supervisory and regulatory powers and even the prohibition on lending
by credit institutions to entities registered in offshore jurisdictions considered as
uncooperative or where the ultimate beneficiary is unknown, and the imposition of
special duties to register transactions operations. It is incumbent on the Portuguese
Central Bank to define, by notice, the offshore jurisdictions considered to be

Law No. 28/2009 of 19 June made changes and additions to the Legal Framework of
Credit Institutions and Financial Companies, the Securities Code and Decree-Law No.
94-B/98 of 17 April, which regulates access to and conduct of insurance business.

Changes common to all of the abovementioned legislation consist of (i) substantial
increase in the abstract framework of sentences and fines, (ii) penalties for breaching
disclosure requirements to the respective regulatory authorities, as a rule, at the level
of more serious administrative infractions, and (iii) in anticipation of an increase in the
fine, when the value of the economic benefit surpasses the maximum fine applicable,
thus amounting to that value.

In terms of amendments to the Securities Code, inter alia, the penalties relating to the
practice of insider trading and market abuse were drastically increased. The
framework of the maximum term of imprisonment applicable herein was increased
from three to five years.
                        2009 Annual Report on the Activity of the CMVM and the Securities Markets


Likewise, the maximum fines applicable to less serious, severe and very severe
administrative infractions were increased to twice the respective value (EUR 500,000,
EUR 2.5 million and EUR 5 million, respectively). In addition, the lack of establishing
the required guarantee funds (previously only serious) and failure to make a
contribution to same has become punishable as a very serious administrative
infraction. The failure to report or disclose shareholdings by public companies in a
company based in a State or jurisdiction other than the EU is also punishable as a very
serious administrative infraction.

Corporate Governance and Information

With regard to remuneration, the rules established in Law No. 28/2009 of 19 June,
seek to compel the Board or Remuneration Committee, if any, of public interest
entities, listed in Decree-Law No 225/2008 of 20 November, to annually submit a
remuneration policy statement of the members of the administrative and supervisory
boards for approval at the General Meeting. The following are covered by this
requirement: (i) the issuers of securities admitted to trading on a regulated market,
(ii) credit institutions that are subject to statutory audit, (iii) the securities investment
funds envisaged in the Legal Framework for Collective Investment Schemes, (iv) real
estate investment funds envisaged in the Legal Framework for Real Estate Investment
Funds, (v) venture capital companies and venture capital funds, (vi) securitization
firms and securitisation funds; (vii) the insurance and reinsurance companies, (viii)
holding companies when the shares held directly or indirectly confer a majority of
voting rights in the abovementioned credit institutions, (ix) the insurance holding
companies and mixed-activity insurance holding companies, (x) pension funds, (xi)
public companies that have a turnover exceeding EUR 50 million for two consecutive
years, (xii) financial companies, and (xiii) the management entities of venture capital
funds and pension funds.

The remuneration policy statement should comply with the reporting requirements
contained in Law No. 28/2009 and in particular, include information on the
mechanisms that enable the alignment of interests of members of the board with the
company's interests; the plans allotting shares or options to purchase shares by
members of the board and supervisory board; still applying specific rules for variable
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


Besides approving the remuneration policy as set out above, Law No. 28/2009 also
requires the disclosure of said policy in the annual financial statements and the annual
amount of remuneration received by members of said Boards, together or individually.
Prior to the adoption of this binding rule, the disclosure of remuneration received by
the members of the board of listed companies was just part of a Recommendation
expressed in the CMVM Corporate Governance Code.

Decree-Law No. 185/2009 transposed Directive No. 2006/46/EC. Said law took steps
to simplify and eliminate acts relating to a merger or division, compelled the disclosure
of transactions involving, inter alia, the main company directors, spouses of directors,
minority shareholders and other related parties, whenever relevant and that take
place outside normal market conditions. However, companies, which disclose
information about transactions with related parties in its financial statements in
accordance with international accounting standards adopted by the European Union,
are not required to provide additional information by virtue of this amendment since
the information provided in accordance with the international accounting standards
already includes information on this issue.

Extending this transparency to the field of off-balance sheet transactions, the
Companies Code now requires disclosure of the nature of the business purpose and
financial impact on the company of the transactions undertaken and which is
accounted as an off-balance sheet item.

For the first time in legislation, Decree-Law No 185/2009 established the ‘comply or
explain’ principle with regard to which Corporate Governance Code that the company
is subject. Prior to this rule, it was only included in the CMVM Regulation. This
amendment to the Securities Code also requires that companies with debt securities
admitted to trading on a regulated market should include information on corporate
governance measures in the annual reports.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


Concerning the annual report on corporate governance, Article 245-A now also
requires the following in addition to that previously established: (i) references to the
key elements of the systems of internal control and risk management implemented in
the company for financial reporting, (ii) statement on the Corporate Governance Code
to which the issuer is subject pursuant to law or regulation, specifying any sections of
this Code that differs therefrom and the reasons for the divergence; (iii) statement on
the Corporate Governance Code to which the issuer is voluntarily subject, specifying
any sections of this Code that differs therefrom and the reasons for the divergence,
(iv) the place where the wording of the Corporate Governance Codes, to which the
issuer is subject, are publicly available, and (v) composition and description of the
functioning of the issuer's corporate boards and committees that are established

Advertising of Complex Financial Products

With measures to combat the crisis, Decree-Law No. 211-A/2008 of 3 November
established a specific reporting system for complex financial products in order to
'enable the public to be notified of its characteristics and risks'. The same law requires
disclosure to the public as a 'complex financial product' those financial instruments
that, although assuming the legal form of an existing instrument, have characteristics
that are not directly identifiable with that instrument, as a result of being linked to
other instruments that wholly or partially depends on its profitability. Pursuant to
Article 2/8 of said legislation, while the issuance and marketing of complex financial
products are not governed by special laws, the authorities responsible for supervising
these   products   regulate   the    duties    of   disclosure    and    transparency       of     the
advertisements and information prospectuses relating to said instruments and the
model of supervising said duties.

The only CMVM Regulation issued in 2009 related to complex financial products
subject to supervision by the CMVM. In addition to the applicable legal rules,
interpretation of the document, entitled 'Joint Understanding by the BdP and CMVM as
to the Demarcation of Powers pertinent to Complex Financial Products' on 12 March
2009 was considered in order to define such a context.
                         2009 Annual Report on the Activity of the CMVM and the Securities Markets


CMVM Regulation No. 1/2009 has increased investor protection with two key
measures: the requirement to provide an information memorandum to investors
concerning the products (in addition to, or contained in, the offer prospectus); and the
duty to fulfill the requirements for the advertising of complex financial products, the
compliance of which should take the contents of advertising and advertising medium
utilised into account.

Investor Compensation Scheme (SII)

The Investor Compensation Scheme system was clarified. Decree-Law No. 162/2009
of 20 July explained and expanded the scope of exclusions in the System's coverage.
It includes herein all the cases in clear conflict of interests and transactions carried out
by entities related to the participating entity or benefitted entities, in complete
alignment with the grounds for exclusion of refund as envisaged for the Deposit
Guarantee Fund.

The Decree-Law also provides for the establishment of a ceiling on contributions by
participants in the event of a Claim being lodged against the Scheme, based on their
own funds. This was subsequently laid down by CMVM Regulation No. 2/2000.

Also, similar to that envisaged for the Deposit Guarantee Fund, a mechanism was
introduced for suspending the SII's compensation in case of reasonable doubt as to
the right to compensation or pending court action or administrative infraction
proceedings against the person. Said mechanism also redoubled the disclosure
requirements of investment firms and credit institutions to the public, investors and
supervisory authority.

Together with these amendments, the interpretation of the scope of the SII's coverage
was clarified by way of considering the contractual guarantees provided by
participating entities to be covered by same. The principle of reversing the
transactions in illicit benefit to certain investors or detriment to the participating entity
was established and the SII was mandated to propose the necessary legal actions.

Also in the case wherein the judicial decision rendered fails to recognise the right to
compensation by the SII, the respective payment accrues to the SII.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


Furthermore, solidarity mechanisms between public systems for the protection of
savings were introduced. This enables the Deposit Guarantee Fund to provide financial
support for the SII, in the form of loans and guarantees.

Finally, the Ministerial Ordinance No. 1266/2001, of 6 November, was amended
through Ministerial Ordinance No. 1426-A/2009 of 18 December, which approved the
amendments to the SII Regulation required to align with the provisions of Decree-Law
No. 162/2009 of 20 July. The latter legislation amended Legal Framework of the SII
and is summarised above.

Nominal Value of Shares in Public Limited Liability Companies

Extraordinary mechanisms to decrease the nominal value of shares in public limited
liability companies were set up through Decree-Law 64/2009, of 20 March.

The financial crisis begun in 2007 led to a significant part of the listed shares being
traded at prices situated below their nominal value. This resulted in a hindrance to the
financing of these companies: on the one hand, the corporate system (Articles 25 And
Article 298 of the Companies Code) prevented the issuance of shares below the par
value, but on the other hand, in light of the stock market slump, the issue of shares
above par value was not a viable option in practice.

Depending on the Framework outlined above, the legislation has two extraordinary
mechanisms involving flexibility of the General Framework of the Companies Code,
aimed at facilitating the subsequent carrying out of capital increase transactions: (i)
reducing the nominal value through accounting reclassification and (ii) reducing the
nominal value of listed shares without reducing the share capital. As reflected, the
legislature has opted for the enshrinement of the possibility of issuing shares with no
par value, which is already in use in other jurisdictions.

With particular regard to companies with shares admitted to trading on regulated
markets, the possibility of said companies decreasing the nominal value of shares
without a capital reduction has presented itself. Reducing the nominal value of listed
shares without capital reduction is subject to two requirements.
                         2009 Annual Report on the Activity of the CMVM and the Securities Markets


Firstly, the nominal value before the decrease should be at or below the book value of
shares as reported in the Balance Sheet that was audited by the company's auditor
and refers to a date less than six months from the date of the resolution relating to
the   lower   nominal    value.   Secondly,      the   capital   increase     through     new    cash
contributions in cash, wholly or partially, without restricting the pre-emption right and
leaving the decision to reduce the nominal value subject to the capital increase being
carried out, should be both decided at the same time, or should be prior to or
simultaneously authorised. In addition, the amount of said decrease in the nominal
value of shares should be established by taking the corporate interests and suitability
to carry out the capital increase in accordance with market circumstances into
account. In order to monitor compliance with these assumptions, intervention by the
CMVM is envisaged in the form of non-opposition that depends on the filing of the
registration application for reducing and increasing the share capital in the Companies

Unlike the mechanism for reducing the nominal value by means of accounting
reclassification that is applicable to all public limited liability companies, including
those listed on a regulated market, is to allow the public limited liability companies to
create a special reserve. This reserve should be an amount equal to the capital
reduction and subject to the share capital framework in relation to the guarantees vis-
à-vis the creditors, with the consequence of Article 95/1 & /3 of the CSC not being
applicable needlessly.

In light of these exceptional circumstances, the provisions of this Decree-Law were
applicable only to transactions carried out until the end of 2009.

Undertakings for Collective Investment in Transferable Securities

Amendments to the Legal Framework of Undertakings for Collective Investment in
Transferable Securities were introduced by Decree-Law No. 148/2009. Under certain
circumstances, the UCITS were specifically recognised as investment in closed-end
UCITS, securitisation vehicles, credit derivatives and financial indices on non-eligible
assets, including derivatives on commodities and hedge funds.
                        2009 Annual Report on the Activity of the CMVM and the Securities Markets


Moreover, the boundaries of some of the concepts mentioned were likewise laid down
even though occasional and for eligibility of investment by UCITS, eliminating the
range of eligible assets certain instruments which, in theory, could endanger the
viability or the results of the UCITS.

Commodity derivatives were no longer being considered as net assets for this
purpose. The corporate purpose of the management companies of securities
investment funds were expanded so as to enable said companies to provide the
service   for   the   registration   and    deposit     of   the   UCITS'     investment       units,
notwithstanding clearly safeguarding that the management entity may not perform the
duties as a depository of the UCITS' assets it manages. Thus, the UCITS' assets should
be entrusted to a depository, and the repository function may not be carried out by
the management company.

Legislative and Regulatory Developments in Progress

In 2009 a series of government-initiated draft legislation was underway wherein the
CMVM was requested to provide its expertise.

• Revise the Framework for Asset Management with the creation of securities and
real estate investment companies - This Decree-Law was approved on 4 March 2010.

• Completion of drafts creating investment firms and management companies of
poly-functional assets - Proposals drawn up by the National Council of Financial
Supervisors and submitted to the Ministry of Finance and Public Administration.

• Derivatives - Draft Decree Law was submitted to public consultation in 2008 and
the results thereof has been presented to the Government.

• Supervision fees that revert to the CMVM - The Activities Programme envisaged
that there would be an overall reduction of supervision fees in 2009. Said fees are a
source of revenue for the CMVM and for reasons of expediency, this Ministerial
Ordinance has not yet been approved.
                        2009 Annual Report on the Activity of the CMVM and the Securities Markets


• Amendment to the Legal Framework of PPR/PPE/PPRE - The CMVM drew up an
Opinion on a draft Decree-Law amending the Legal Framework of PPR/PPE/PPRE so as
to increase the transparency and comparability of the products concerned in the phase
following its marketing, including avoiding the risk of hidden charges on every product
category and clarify the framework of the deposit commission.

Domestic Legislative and Regulatory Developments dealt by the CMVM

• Marketing of complex financial products to non-qualified investors - regulated by
the publication of CMVM Regulation No. 1/2009 of 30 June. This Regulation steps up
requirements on the practices of marketing and reporting to investors, concerning the
information and advertising aspects.

• Amendment       to   Regulation    No.    2/2007     that   envisages      the   imposition       on
independent financial analysts of the duties of conduct and professional qualification
and operating principles towards investor protection and market efficiency - Submitted
to public consultation from 22 July to 15 September 2008. Subsequently, submitted
to a new public consultation from 17 July to 4 September 2009 due to the first
proposal being extended to include investment advisers and the certification of their
professional qualification and of financial analysts.

• Regulation on qualified investors under the Prospectus Directive - Draft Regulation
submitted to public consultation from 19 January to 10 February 2009. However, the
relevant provision of the Prospectus Directive will be repealed in order to align the
system with MiFID, and as a result thereof this draft was cancelled.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


                        VOTING RIGHTS

Amending Regulation No. 5/2008, which is currently underway, is of paramount
importance. This amendment introduces a duty of transparency, although without
automatic consequences in terms of allocation of voting rights, on entering into
agreements or holding financial instruments which have an economic effect similar to
that of shares.

In recent years, there have been several cases of large shareholdings disclosed
without 'prior notice' and based on derivative financial instruments with financial
settlement (e.g. contract differentials and equity swaps). These contracts are not
specifically covered by the current Directive 2004/109/EC (the Transparency Directive)
or the current rules of the Securities Code, except when falls under the clause of
detention in their name but on behalf of others.

Nevertheless, these are financial instruments that create an economic effect similar to
the holding of shares and although not enabling direct access to voting rights, are
suitable for acquisition and/or exercise of potential influence over a company.

Susceptibility to influence by the holder of such instruments results from its
counterpart performing the coverage of its position. This is often through the
acquisition of the shares of the underlying instrument. Consequently, the holder of the
long position has the possibility of influencing the voting rights formally held by the
counterparty, which typically seeks to ensure the maintenance of a stable and lasting
business relationship. The potential use of these instruments in the acquisition or
exercise of influence in listed companies do not hide, of course, the fact that in other
circumstances, its use is not related to the exercise of influence, but only with making
economic exposure to an issuer, revealing in this context as an important source of
liquidity to the market.
                          2009 Annual Report on the Activity of the CMVM and the Securities Markets


The problems associated with lack of transparency in financial instruments with similar
economic effect to shareholdings are various. On the one hand, the issue of 'hidden
ownership' should be pointed out. Such instruments can, in material terms, separate
economic rights from social rights attaching to the shares, transferring those to the
holder of a long position, while social rights, namely the right to vote are kept in the
legal sphere of the security holder. To this end, the transparency framework on the
acquisition and disposal of qualifying holdings is deceptive, which results in potential
market failures, for example, at the following levels: (i) the mechanisms of price
formation for quote, (ii) the detection of conflicts of interest, (iii) the calculation of free
float and (v) the system of mandatory takeover bids.

Furthermore, the holder of a long position not known by the market benefits from a
double data asymmetry. Firstly, relating to the free-float, in that it is allowed to
assume that shares acquired by the counterparty to hedge their position, are not
available to other market players. Secondly, concerning the time and conditions under
which such shares will be expected on the market.

Legislative and Regulatory Developments resulting from the Transposition of
Community Law

• Credit Rating Agencies - Following the European Commission's proposal for a
Regulation on credit rating agencies towards the end of 2008, the CMVM has
contributed towards the negotiation of an EU Regulation with the European
institutions. This was achieved by a CMVM's expert taking part in the delegation that
represented Portugal in that negotiation. The joint adoption of the legislative proposal
by the European Parliament and Council was envisaged for June 2009 and it was
implemented early in April. This Regulation 46 (EC) No. 1060/2009 of 16 September
established the procedure for the registration and supervision of agencies that operate
in Europe with the aim of promoting the issuance of quality ratings by preventing and
mitigating    potential   and    real   conflicts   of   interest.   Thereby      ensuring     greater
transparency of this activity in the market and before the supervisory authorities.

   Regulation (EC) No. 1060/2009 of the European Parliament and of the Council of 16 September 2009 on
Credit Rating Agencies, published in OJ, L 302/1 of 17/11/2009.
                           2009 Annual Report on the Activity of the CMVM and the Securities Markets


• The proposal presented by the EU Commission in September 2009 establishing the
European Securities and Markets Authority                    (ESMA), which is currently under
negotiation in the EU institutions, envisages the future ESMA supervising the rating
agencies. Accordingly, in June 2010 the European Commission already submitted a
proposal47 to revise the Regulation on credit rating agencies that specifically aims to
adapt it to the powers of ESMA on the regulation and supervision of rating agencies.

• Directive 2007/36/EC on the exercise of certain rights of shareholders in listed
companies - Following the CMVM Consultation Paper No. 10/2008, which ended on 15
November 2008, the CMVM drew up an analysis of the results of the public
consultation and the proposed final draft for the implementation of this Directive.

• Directive 2007/44/EC on the prudential assessment of acquisitions and increase of
holdings in the financial sector - The CMVM took part in the Working Group of the
National Council of Financial Supervisors (CNSF), which was responsible for drafting
the proposed draft legislation transposing this Directive.

3.2.2       Consultation Papers

The CMVM promoted five public consultations on policy proposals during the course of
2009. Four of said consultations were on its initiative and one was issued by the CNSF.
The latter involved the preliminary proposal for transposition of Directive 2007/44/EC
of the European Parliament and the Council of 5 September 2007 into Portuguese law.
This Directive amends Council Directive 92/49/EEC and Directives 2002/83/EC,
2004/39/EC, 2005/68/EC and 2006/48/EC as regards procedural rules and criteria for
the prudential assessment of acquisitions and increase of holdings in the financial
sector within the context of the work carried out by the CNSF.

  Proposal for a Regulation of the European Parliament and of the Council on amending Regulation (EC) No.
1060/2009 on Credit Rating Agencies, {SEC(2010) 678} {SEC(2010) 679} COM(2010) 289/3, 2010/xxxx
(COD) is available at
                        2009 Annual Report on the Activity of the CMVM and the Securities Markets


Among the public consultations conducted by the CMVM concerning the participation of
market players, particularly salient was Consultation Paper No. 2/2009 on Corporate
Governance and No. 3/2009 on the Certification of Professional Qualification of
Financial Intermediaries in areas relating to investment advisors and financial
analysts, for attracting the most responses, 37 and 15 respectively.

The following graph reflects the trend of public consultations organized by the CMVM
between 2004 and 2009. During this period 97 public consultations were held at an
annual average of 12 consultation papers. A reduction in the number of public
consultations held in 2009 is justified by the consolidation of regulatory changes made
in previous years and the fact that the CMVM has concentrated its activity on market
supervision and international cooperation in response to the financial crisis.

                    Chart 55 – Number of Consultation Papers

                 2004        2005         2006         2007         2008         2009

                Source: CMVM.

3.2.3      Interaction of National Supervision

National Council of Financial Supervisors

Under the powers of the National Council of Financial Supervisors (CNSF), several
issues relating to regulation and supervision of the financial sector and coordination
among the national supervisory authorities that comprise the CNSF were handled
during the course of the year.
                        2009 Annual Report on the Activity of the CMVM and the Securities Markets


In terms of draft legislation being drawn up, particularly salient is the draft concerning
the creation of legal forms of 'asset management company' and 'universal investment
firm'. Also of importance was the transposition of Directive 2007/44/EC on mergers
and acquisitions in the financial sector concerning the procedures and criteria for the
prudential assessment of acquisitions and increase of holdings in the financial sector.

Coordination by means of the issuance of recommendations on remuneration policies
in the financial sector and the governance of entities in the banking and insurance
sector was developed further. This was carried out in accordance with international
principles and recommendations adopted following the financial crisis. The model to be
implemented in the regulation of the Business Continuity Management in the financial
sector was also approved.

The CNSF followed the developments at European level on the reform of financial
supervision, particularly the procedure for creating the future European Supervisory
Authorities and the European Systemic Risk Board (ESRB), by coordinating the
positions within the Portuguese participation in the negotiations. Also worth noting in
this regard is the exchange of information carried out under the CNSF concerning the
progress of negotiations at EU level of various proposed EU legislative initiatives for
the financial sector.

In examining the lessons from the financial crisis, the CNSF developed several
initiatives aimed at strengthening the mechanisms for management and crisis
response, with particular focus on regulatory and legal mechanisms available to
national supervisory authorities and operational mechanisms of cooperation between
said authorities.

In the various meetings held throughout the year, the CNSF examined the domestic
financial system and the development of stable trends, including important specific
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


National Council for Audit Supervision

It is well known that the CNSA is responsible for the organization in Portugal, of a
system of independent and public supervision over all statutory auditors and audit
firms, following the transposition into Portuguese law of Directive 2006/43/EC of the
European Parliament and the Council of 17 May 2006 on statutory audits of annual
and consolidated accounts.

The period from November 2008 to December 2009 was the first stage for the CNSA’s
activities. Thus, action in three key areas was priority during this period: the bringing
into operation of the CNSA, the state of play and recognition of the current situation in
the areas of audit supervision and institutional cooperation of the CNSA.

As for the functioning of the CNSA, it was provided with human and material resources
including a suitable organisation for the performance of CNSA's duties and to that end
it took part in the establishment of working groups, which consisted of professionals
from one or more entities represented in the CNSA. As to the material resources and
the definition of required procedures, the following was implemented in the period
under review (i) the definition of facilities and equipment necessary for operating the
CNSA, (ii) the creation of the Internet website of the CNSA, (iii) the drafting of Rules
and Regulations, (iv) the definition of administrative and supervisory procedures.

As to supervising the pursuit of the profession in Portugal, a survey and analysis of the
status quo was undertaken in the various materials which are under the jurisdiction of
the CNSA, in close cooperation with OROC and its direct intervention in circumstances
that required it. Among the activities in this area particularly salient was the
monitoring of Quality Control carried out by OROC,             the inspections of three audit
forms and the disclosure on its website of information on matters deemed relevant to
the profession.

At the level of institutional cooperation, contacts and exchange information with
counterpart authorities in other countries has been established, particularly through
the representation of Portugal in the Audit Regulatory Committee (AuRC) and the
CNSA's participation in the European Group of Auditors' Oversight Bodies (EGAOB).
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


As a member of CNSA, besides the above mentioned participation in inspections
conducted by CNSA in 2009, the CMVM took part in various activities related to the
supervision of auditors. The most relevant activities undertaken during the year were
as follows:

       Participation in the Working Group to draw up the inspection manual;
       Participation in the Working Group established to review the translation of the
       new version of the ISAs issued by the International Federation of Accountants
       Draft guidelines on topics of interest to the profession, such as a document that
       answers questions about the contents of the Transparency Report and
       guidelines on procedures for circularization;
       Participation in several international technical meetings, inter alia, particularly
       salient was the European Group of Auditors' Oversight Bodies (EGAOB) and
       herein, the subgroup of inspections.

National Council of Financial Stability

The National Council for Financial Stability (CNEF) was established in July 2007 via a
Memorandum of Understanding entered into between the Ministry of Finance and
Public Administration, Portuguese Central Bank, the Portuguese Securities Commission
and the Portuguese Insurance Institute, at that time in the form of a committee, and
is an institution aimed at improving cooperation and exchanging                       experiences
associated with the financial stability and management of possible crises.

The CNEF aims primarily to promote the Portuguese financial system's stability
through mechanisms of cooperation between the participating entities, enabling the
decision-making to be more efficient and effective not only in the prevention of
systemic problems but also the management of possible systemic impact scenarios,
capable of affecting financial institutions or groups. During the course of the year, the
CNEF continued to pursue its goal of promoting cooperation mechanisms in order to
step up financial stability and intensify the mechanisms for cooperation and
management of financial crises.
                            2009 Annual Report on the Activity of the CMVM and the Securities Markets


3.2.4        International Activity

The G20 meeting in September 2009 showed the purpose of the international financial
community in tackling a global crisis with coordinated responses among its members.
Among these responses, particularly salient were the regulatory changes in the
financial system, such as for example, more stringent capital requirements, more
suitable clearing systems for investors with investment risk, the greater suitability of
means for management and risk assessment, new incentives for clearing of
derivatives capable of standardization through central counterparties and stepping up
the supervisory architecture of the international financial system.

Following Larosière's Report, the European Commission took further steps in
establishing a new supervisory framework for the European financial sector. The
creation of a new structure called the European Systemic Risk Board (ESRB) was
proposed in the area of macro prudential supervision. The establishment of three
European Supervisory Agencies was proposed for micro-prudential, namely the
ESMA 48 , EBA (European Banking Agency) and EIOPA (European Insurance and
Occupational Pensions Authority). These authorities will replace the current Level 3
committees presently involved in the Community legislative process which is
applicable to financial markets. These committees are CESR (wherein CMVM is
represented), CEBS and CEOIPS, respectively. The three new European agencies shall
be in a network which is part of the so-called European System of Financial
Supervisors (ESFS), which includes the said central authorities and national
supervisory authorities. With the reform of the European supervisory architecture, the
goal is to create: an increase in the quality of supervision, which is still predominantly
carried out locally, and increasing consistency of regulation, focusing on the new
authorities; a more effective supervision of cross-border financial groups by colleges
of supervisors and the establishment of a single rule book applicable to all EU financial
institutions. The ongoing reform has also demonstrated the need for Community
institutions to start reviewing all financial services' rights in order to accommodate the
existence of the ESMA and the other authorities and their powers. In October 2009,
the European Commission submitted a proposal for a directive to this end - the
Omnibus Directive.49

   The text of the Directive is still in negotiation with the EU institutions but the proposed compromise text
currently      being      discussed        in     the      European       Parliament     is    available   at:
   Proposal for a Directive of the European Parliament and of the Council Amending Directives 1998/26/EC,
2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC,
2006/49/EC, and 2009/65/EC in respect of the powers of the European Banking Authority, the European
Insurance and Occupational Pensions Authority and the European Securities and Markets Authority,
                        2009 Annual Report on the Activity of the CMVM and the Securities Markets


The new European Supervisory Authorities shall pay special attention to mechanisms
for the resolution of financial crises with potential systemic implications and adopt
mechanisms in order to maintain discipline in the markets.

The CMVM actively followed and took part in this debate within the organisations
whereof it is a member (CESR and IOSCO, inter alia). Its activity in international fora
has assumed great importance. Carlos Tavares, Chairman of the CMVM is, since
February 2007, the Vice-Chairman of CESR, and as such is responsible for
coordinating the Review Panel, through which peer pressure mechanisms aiming at
the convergence of supervisory rules and practices between members of CESR are
exerted. With the recent restructuring of the CESR Expert Groups, the Chairman of the
CMVM has taken on the role of Chairman of CEMA, which aims to identify risk and
trends in European securities markets, perform economic and financial studies, and
also conduct impact assessments of regulatory measures within the CESR framework
(and future ESMA). Carlos Alves, a Board Member of CMVM, also took up the position
of Vice-Chairman of the CEMA.

National participation in IOSCO was also recently redoubled, with the election of the
CMVM's    Chairman as the Chairman of the IOSCO European Regional Committee. This
position also involves his participation in the Executive and Technical Committee of
IOSCO. This development is particularly important in light of the decisive moment that
IOSCO is undergoing in terms of redefining its structure, mission and objectives,
seeking to make the organization more effective in the regulation framework of the
global capital markets.

The enforcement of rules relating to financial information and corporate governance
are the other areas wherein the CMVM has featured prominently internationally. In the
former, the CMVM coordinates the 'European Enforcement Sessions' and in the latter
integrating the 'Steering Committee ' of OECD.

The CMVM also took part in carefully selected international working groups, including

COM(2009) 576 final, 2009/0161 (COD) of 26.10.2009 (‘Omnibus’ Directive). Draft is available at:
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets



CESR-Pol brings together all those responsible for surveillance, research and exchange
of information relating to the enforcement of relevant legislation, with particular focus
on the Market Abuse Directive. In 2009, the third set of guidelines on the Market
Abuse Directive and respective Level 2 legislation (directives and regulations) was
completed. This includes Understandings on stabilization, buyback programmes
(matter addressed in EC Regulation No. 2273/2003, of the Commission of 22
December 2003) and within the context of the issuers' disclosure duties relating to
rumours. CESR-Pol has also monitored preparations for the revision of the Market
Abuse Directives and submitted          their contributions in the public consultation on
assessment of the need for revision of the said Directives to the European

In 2009, CESR-Pol took part in the work of the Task Force formed to examine the
extension of reporting derivatives transactions outside the market (OTC Task Force).
A set of recommendations for a Pan-European model of transparency concerning
short-selling was also submitted for public consultation and a public presentation of
said recommendations was organised in September.

Finally, in order to address the consequences of the international crisis, cooperation
between regulators was stepped up by establishing contact groups geared to
exchanging information and monitoring exceptional situations like the Madoff case.


The operational group of CESR working on issues related to financial reporting has
focused on the following three key areas in 2009: enforcement, IFRS and auditing
                      2009 Annual Report on the Activity of the CMVM and the Securities Markets


With regard to enforcement, a group that comprises of all the European regulators
responsible for supervising the implementation of the IFRS has been established. This
group, chaired by Mário Freire, member of management staff of the CMVM, met
several times during the course of 2009 and discussed enforcement decisions taken by
the European regulators and emerging cases (discussed prior to the Regulator taking a
final decision).

Three excerpts containing the most relevant decisions selected by the group were
posted on the CESR's website in 2009. The aspects relating to financial instruments
and impairment were particularly emphasised in these excerpts.

CESR-Fin also issued a statement on the application of disclosures relating to financial
instruments, based on a selection of around a hundred reports and financial
statements published on the market. This revealed a couple of weak points in the data
that was provided by the companies.

Within the context of amendments to the IFRS and its adoption in the European Union,
CESR-Fin issued both to the IASB and the EFRAG a series of comment letters on
various consultation projects conducted.

As for auditing, CESR-Fin continued to monitor developments in Europe relating to the
adoption of international auditing standards, and took part in the public discussion
conducted by the European Commission on the same matter.

Two meetings were also held with SEC under the protocol on cooperation in the
supervision of accounts. Among other regulatory issues, the convergence of
IFRS/GAAP rules was examined.

Review Panel

CESR established the Review Panel aimed at creating peer pressure among its
members in order to promote a consistent and timely implementation of European
legislation, including standards, guidelines and recommendations by CESR. In
addition, the Review Panel promotes the identification of best practices in financial
                         2009 Annual Report on the Activity of the CMVM and the Securities Markets


One of the main exercises is a self-assessment by the member country with regard to
the application of a particular source of regulation, followed by an assessment made
by another member, and the results made public at the end of the process, thereby
creating pressure for a faster convergence of supervisory practices. In 2009, the
Review Panel focused on the implementation of MiFID, the Prospectus Directive and
the   Directive   of   Market   Abuse,     besides    continuing     with    the   review     of     the
implementation of CESR's Standards 1 and 2 on Financial Reporting that began in
2008. This group is led by the Chairman of the CMVM.


The structure of CESR's Working Groups underwent a fundamental change in 2009
with a view to increasing technical expertise.

Within the anticipation deemed appropriate, CESR's restructuring aimed to prepare the
transition to the new European Securities and Market Authority (ESMA). ESMA's
mandate is to include, as a key element, the drawing up of binding technical standards
to be applied throughout the European Union.

Thus a structure comprising of more than 70 working groups organized according to
the most relevant legislation for financial markets and with no decision-making powers
became a substantially simpler structure organized around:

- a 'Review Panel', chaired by Vice-Chairman of the CESR (which in 2009 was the
Chairman of the CMVM), which retains the fundamental mission to make the diagnosis
of the implementation of EU legislation in several Member States and to define the
'best practices' of supervision;
- eight 'Standing Committees' on a continuing basis, organized by topics that are
relevant to the securities markets, capable of decision-making and establishing
working groups with terms of differing time-frames and are disbanded as soon as
mandate has been fulfilled;
- two technical groups engaged in IT issues, economic analysis and markets. The
latter shall be of crucial importance in conducting studies assessing the impact of
measures proposed by the Standing Committees;
- several operational contact networks so that communication and cooperation
between local supervisors may be facilitated.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


In 2009, the main structure of the working groups and Chairmen in 2009 was as

1. Review Panel (Carlos Tavares, Vice-Chairman of CESR)

2. Standing Committees:
       - Corporate Reporting / CESR-Fin (Fernando Restoy, CNMV)
       - Corporate Finance (Hans Hoogervorst, AFM)
       - Credit Rating Agencies (Karl-Burkhard Caspari, BaFin)
       - CESR-Pol (Anastassios Gabrielides, HCMC)
       - Secondary Markets (Sally Dewar, FSA)
       - Post-Trading (Jean-Pierre Jouyet, AMF)
       - Investor Protection and Intermediaries (Jean-Paul Servais, CBFA)
       - Investment Management (Lamberto Cardia, CONSOB)

3. Technical Committees:
       - Economic and Markets Analysis (Carlos Tavares, CMVM)
       - IT Management and Governance (Arja Voipio, FIN-FSA)

Hand in hand with the changing structure of the Working Groups, CESR undertook
major changes in the way and the fora in which decisions are prepared and made.
Thus, each Standing Committee:
- has a mandate which defines its scope. This mandate is approved by the plenary
session of CESR;
- is chaired by a member of CESR that, the coordination of the Standing Committee
may be delegated, is fully responsible for it;
- is comprised of top level experts representing local supervisors. These experts
should have the necessary seniority and flexibility to make decisions and make
commitments within each Standing Committee. Thus, it is possible for the technical
decisions to be taken (by consensus) within the Standing Committees, and thereby
enabling the plenary session of the CESR to reflect on strategic issues;
- may establish Working Groups to address specific issues and to consult with market
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


- is assisted by experts from CESR whose task is to ensure the consistency of the
projects carried out by the various Standing Committees;
- follows an annual activity programme approved by the Plenary Session, and the
Chairman should regularly inform the plenary session of the implementation thereof.

The aim is for CESR (and eventually the new EU Supervisory Agency) to streamline
their workflow further, whereby the technical groups would benefit from greater
decision-making powers and the Plenary Session, as the highest body of the CESR,
would be reserved eminently for strategic decisions such as the institution's position
towards new issues essential to the market, technical issues for which it was not
possible to reach a consensus in the Standing Committees or approval of key
documents of the institution (e.g. budgets and activity programmes).

Committee for Economic and Market Analysis (CEMA)
The CEMA (previously ECONET) is a group of economists from CESR's members and
aims to: (i) monitor risks and trends in the financial markets so as to foster financial
stability, (ii) support discussions on the topic in European institutions, (iii) evaluate ex
ante and ex post the impact of financial regulation in CESR's member states, and (iv)
contribute towards the decision-making of the CESR with technical and academic
argument in the various groups. As from July, this group is now chaired by the
Chairman of the CMVM and Carlos Alves, a CMVM Board member, is the Vice-
Chairman. In addition to analyzing recurring risks and emerging trends in financial
markets, the group issued a report on the impact of short selling measures taken by
member states during the recent financial crisis in 2009. The CEMA working groups
were redefined at the end of the year so that topics such as securitization and short
selling (applicable to all financial instruments) were included. It was decided to set up
a Group of Economic Advisors, comprised of academic experts and from the financial
sector in order to stimulate debate within the CEMA.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


Prospectus Contact Group

The Prospectus Directive establishes the legal framework of Level 1 on the reporting
requirements under the prospectus to be published when securities are offered to the
public or admitted to trading on a regulated market. The revision of the Prospectus
Directive has already reached agreement in the Council. This Directive is currently
being discussed in the European Parliament. The revised text of the Prospectus
Directive is expected to be published in 2010. 2009 was marked by several initiatives
in this context, most notably the following:

- The issue of comments on the proposed amendments to the Prospectus Directive;
- Updates of the 'CESR's Q & A on Prospectuses' (with analysis of issues such as public
offers, valuations and expert statements, the prospectus supplement and forecasts
and estimates);
- Based on the European Commission's mandate, the institutionalisation of a
mechanism for compiling and publishing statistics on the number of approved
prospectuses with passport under the Directive's framework;
- Monitoring the questionnaire that is being drawn up by the Review Panel concerning
the implementation and performance by the competent authority under the Prospectus
Directive implemented in each legal system;
- Analysis of the equivalence of prospectuses from jurisdictions outside the European
Economic Area, including Israel and the U.S.A.

Due to the recent restructuring of CESR's Working Groups, the scope of this Group's
activity will be integrated into a standing committee with broader functions.


Monitoring the IRDS project (reference database of financial instruments) which was
implemented in June 2009, was the most significant project undertaken by this group.

New projects were commenced during the course of 2009 such as the TREM 3.0 and
the database on the analyses carried out by credit rating agencies (CRA/CEREP). The
plan to incorporate the reporting of transactions in OTC derivatives and a set of
recommendations to improve the quality of information exchanged are particularly
salient in TREM 3.0.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


It was also decided herein to include a set of reference data to support TREM (codes
for MIC, BIC and currency) which will be available from a central database.

Transparency Expert Group (TEG)

The Transparency Directive establishes the Level 1 Legal Framework on the reporting
requirements of issuers of securities admitted to trading on a regulated market, and
also contains relevant rules on the disclosure of qualifying holdings in companies of
listed shares and on the disclosure and storage of regulated information within the
European Union. Directive 2007/14/EC lays down implementing measures for Level 2
of the Transparency Directive.

During the course of 2009, CESR-TEG updated the 'Frequently Asked Questions',
wherein common positions by CESR members are expressed on matters relating to the
Community framework of transparency. It also organised a public consultation on the
use of a standard format (e.g. XBRL) in financial reporting by issuers of securities
admitted to trading on a regulated market. Furthermore, CESR-TEG drafted a
consultation paper on extending the transparency framework to financial instruments
with similar economic effect to shares.

(MiFID Level 3 Expert Group)

Within the context of Directive 2004/39/EC of the European Parliament and the
Council of 21 April 2004 on Markets in Financial Instruments, particularly salient is the
beginning of a wide range of preparatory projects for said Directive's review
concerning, inter alia, transparency in secondary markets (shareholders and non-
shareholders) and reporting of transactions on the one hand, and tied agents, unlawful
benefits (inducements), execution of orders in the best conditions (best execution),
duties of disclosure to clients and use of clients' assets, on the other hand.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


The emphasis on convergence in the implementation of the law (Level 3 of Lamfalussy
model) and in monitoring economic developments emerging from the implementation
of MiFID and the financial crisis was pursued. Particularly salient were the exceptions
to the duties of pre-trade transparency in the secondary equity markets and
transparency in non-equity secondary markets, and also the impact of the Lehman
Brothers' bankruptcy and the classification of complex financial instruments.

Following the internal restructuring of the CESR that was approved in late 2009, the
work of this expert group will continue in the Secondary Markets Standing Committee
and the Intermediaries and Investor Protection Standing Committee.

Investment Management Expert Group (IMEG)

In 2009, IMEG worked hard in order to respond to the technical opinion requested by
the European Commission concerning the implementing measures of Level 2 in
Directive 2009/65/EC. This opinion had three major areas: (i) the creation of a
passport for the asset management company, (ii) the content and format of
information to be made available to investors in the marketing of investment funds,
and (iii) the cross-border merger of investment funds, master-feeder structures and
procedures for notification of cross-border investment funds.

In addition, the group worked within the context of the functions and duties of
depositaries and the clarification of a definition for Money Market Funds which is
expected to be common to all member states.

After two years, the sub-group created specifically for drafting the Key Investor
Document (KID) submitted an opinion to the Commission on the content and format of
the harmonised disclosure document in December. This document will replace current
simplified prospectuses of UCITS. The main novelties are the use of a synthetic
indicator of risk and calculating the rate of global costs for all UCITS.

One pillar of the latest amendment to the UCITS Directive (UCITS IV) focused on
providing information to participants and is particularly relevant to drafting an
informative document that aims to replace the present format of the simplified
prospectus introduced by UCITS III.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


Thus, the European Commission considered that the simplified prospectus was not
proving to be effective in providing information to investors: This was due to it not
being a reference document used by operators in the distribution of UCITS among
retail investors, the document was too long and with language that was inadequate to
a proper understanding by these investors and was thus not effective in conveying the
risk linked to the investment.

This finding contrasts however with the actual reality in our country, to the extent that
the simplified prospectus, introduced in 1999, was from the outset limited to a
maximum of two pages, incorporating information on the associated risk, both from a
narrative form and through a synthetic indicator.

Following the Opinion from CESR on the Key Investor Document in February 2008, a
working subgroup was set up to deal with specific areas of risk, particularly in the
formulation of a synthetic risk indicator, performance and cost of the UCITS. This was
conducted in 2008 and 2009. The final opinion submitted to the European Commission
in December 2009 called for the use of a synthetic risk indicator based on the volatility
of returns of the value of investment units (such as in Portugal) and for so-called
structured funds, subtract this volatility from the value-at-risk of the underlying assets
in which it invests. The sub-group came to an end with the submission of the opinion.

In the various areas of analysis related to the activity of investment funds, particularly
salient were the analysis of the consequences caused by the                 Madoff case in the
investment funds' industry, the management of liquidity in investment funds, including
harmonized when there are redemptions in amounts that jeopardize the ability of the
fund to continue meeting these applications, the definition of investment fund of the
money market and the valuation of derivatives and their effect on compliance with the
prudential limits imposed by the UCITS Directive.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


CESR Expert Group on Credit Rating Agencies (CRA EG)

The CESR Expert Group on Credit Rating Agencies (CESR CRA EG) formally replaced
the previous CESR CRA Task Force in late 2008. It was established to cooperate with
the European Commission in drafting a legislative proposal on credit rating agencies.
The mandate of the group purports to continue the work previously started on
coordinating with international organizations and the competent authorities of non-EU
member states on the regulation and supervision of credit rating agencies. Moreover,
attempts to establish coordination between competent authorities of the EU Member
States to monitor the adoption of community legislation on credit rating agencies and
prepare the implementation at European level of European Council Regulation and the
European Parliament No. 1060/2009 published on 16 September 2009.

This group worked very hard during 2009 and this was due to the CESR assuming a
greater and very specific role in the European system of regulation and supervision of
credit rating agencies, as against the national competent authorities of Member

The group promoted a couple of public consultations in order to move forward with the
rules for interpreting EU regulation, particularly in matters relating to the database
with information on the analysis produced by credit rating agencies (CRA/CEREP) and
registration procedures of credit rating agencies, operation of colleges of supervisors,
protocols of conflict mediation and recognition of framework for regulation and
supervision of non-EU countries (certification and monitoring of systemic importance
of credit rating agencies).

The CMVM also actively took part in the in-depth analysis of the degree of compliance
by the credit rating agencies present in the Community, with the Code of Conduct
published by IOSCO in 2008. Finally, consideration was given to the review of
Regulation 2009/1060/EC in order for the changes to the architecture of the European
supervision of financial markets to be accommodated, including the formation of a
new European authority to supervise markets in financial instruments.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


Post-Trading Expert Group (PTEG)

The PTEG aims to assist CESR and the European Commission in matters relating to the
clearing (including central counterparties) and settlement of securities. It also acts as
a platform for the exchange of information on post-trade among CESR's members and
as a research centre of a regulatory model for such systems and platforms and links
between same, including consideration of the type of assets to be dealt with therein.

Among other matters, the PTEG paid particular attention to completing the review of
the standards by CESR and the Eurosystem on clearing and settlement of securities
which began in 2008. This was converted to recommendations and followed by a
public consultation including drafting the implementation of the Recommendations in
2010. It also monitored the Target2Securities (T2S) project, (a European platform for
securities settlement to be launched by the ECB in 2013) and advice regarding its
governance model and also research the possibility of a European central counterparty
for OTC derivatives in particular the adjustment of the Eurosystem and CESR
Recommendations on Clearing and Settlement in this context.

2009 was the last year for the running of the PTEG. Under the reform of the European
regulatory model for the financial system, the growing importance of post-trade was
acknowledged. This motivated the establishment of a CESR Standing Committee.

Substitute Financial Products

Following a European Commission release, which was published in April 2009, on
Package Retail Investment Products (PRIP) concerning the intention to submit
legislation on the marketing and data of these products by mid-April 2010, a CESR
Task Force to advise the European Commission was established. The aim is to
harmonize the rules and requirements for the marketing of financial products, with
similar characteristics, that have different legal status and also different levels of
investor protection.

The Task Force divided the work into the following three main areas: defining the
concept of PRIPs, format and content of the information memorandum on PRIPs and
marketing of PRIPs. The CMVM was the lead drafter of the report concerning the
format and content of the information memorandum.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets

   CMVM     College of Euronext Regulators

During the course of 2009, the activity of NYSE Euronext was heavily influenced by
both the unfolding of the crisis in the securities market and by an increase in the
competition brought about by MiFID. In view of both factors, the NYSE Euronext
carried out far-reaching internal restructuring and continued to streamline services,
market diversification and in-depth technological sophistication. It is therefore
understandable that the College of Euronext Regulators has undergone an intensive
effort in order to monitor the strategy pursued by the company and coordination of
regulatory interventions in the various markets in which it operates. This effort
resulted in a thorough consideration by regulators, of some issues that in 2010, shall
be widely    discussed throughout the European Union, during MiFID's review.
Particularly salient, for example, is the issue of exceptions to the rules for pre-trade or
the impact of supervisory costs on regulated markets when compared with those on
the MTFs platforms or OTC market.

Through its presence in the Coordination Committee on Clearing, the CMVM takes part
in the supervision of LCH.Clearnet SA with regard to the clearing activities that said
entity undertakes in the Portuguese regulated market. The activity of this coordinating
body of supervisors has been conforming to the changes affecting the European
clearing and settlement sector since the signing of the Memorandum of Understanding
by companies operating in the post-trading sector.     MIBEL

The MIBEL's Board of Regulators monitors the developments of the spot and forward
markets that constitute MIBEL. Within the context of the spot market, changes in the
daily market in Spain and Portugal, the prices and price divergences, matters relating
to interconnection between Portugal and Spain, the mechanism for market-splitting
and energy distribution are monitored.

Monitoring the futures market includes the clearing house and settlement system, the
activity of negotiators, clearing and settlement agents, financial data of the respective
management entities and even the operating rules of the futures market and its
clearing house, central counterparty and settlement system.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


Taking the developments that took place in the management of the Portugal-Spain
interconnection time limit into account, the new proposed model for management of
this system in Spain by means of the designated explicit auctions of contracts for
differences in price was discussed and analysed.

On the other hand, due to the Regulatory Harmonisation Plan between Portugal and
Spain in the Energy Sector, projects were developed aimed at submitting a proposal
for harmonising the tariff methodology, which, upon completion, would be referred to
the Governments of both countries. This Plan, wherein MIBEL's Board of Regulators
was requested to present a harmonised methodology for calculating tariffs for access
at the Iberian level, was signed in March 2007.

Within the context of monitoring the new legislation in the energy sector, also worth
mentioning is the carrying out of a detailed analysis on the introduction in Spain of the
Tariff of Last Resort. The international developments impacting on the functioning of
MIBEL, namely the Third Energy Package and the European working groups formed in
the commodities' sector were also likewise monitored.

Within the tasks of monitoring the functioning of the Iberian Electricity Market,
MIBEL's Board of Regulators published the first descriptive study of the functioning of
MIBEL in 2009. This analyses the developments in this market since its establishment.
In this document, the Board of Regulators addresses issues that are fundamental to
understanding the developments in the Iberian market since its entry into operation in
July 2006 with the aim of providing all interested parties with a systematic description
of actions undertaken and results thereof.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets



• Market Structure
During the last couple of years the structure of the wholesale market in Spain and
Portugal evolved into a lower concentration, although significant differences remain
between the structures of markets in both countries.

The retail market shows a greater level of concentration, partly related to the
integration between distribution and marketing of incumbents, which made it easier
for clients to stay with the suppliers of the same group. There is also this integration
in the marketing and production, verifying that the marketing obtains a very
significant percentage, which is around 60% -80%, from the producers of the same

Thus, the development of marketing and the entry of new competitors were restricted
in the last couple of years by the tariff deficit problem. This contributed to a decline in
consumer participation in the free market. In Spain, this situation is being corrected as
a result of recent regulatory developments and the volume of energy traded in the
free market stood at around 60% of total demand in July 2009. The liberalisation
process was slower in Portugal, although there has been an increase that led to the
liberalised market exceeding 27% of total demand in July 2009.

• Daily and Intraday Market
The daily market has provided a platform for meeting the demand and supply of
electricity reliably and representing the Spanish system since 1 January 1998 and
since 1 July 2007 also the Portuguese system. Since that date, the method applied in
the joint management of the Portugal-Spain interconnection consists of market
splitting on the daily horizon that allows for the safe allocation of available capacity.

The Spain-Portugal price differential (spread rate) times has been decreasing
gradually since 2007 when it exceeded the value of €10/MWh, to just below €1/MWh
in 2009.
                        2009 Annual Report on the Activity of the CMVM and the Securities Markets


Moreover, the Iberian intraday market is an adjustment market, which enables more
flexibility in the operation and optimisation of the players' portfolio along a sequence
of successive time horizons by offering the same guarantees in terms of transparency
and possibilities for supervision as the daily market.

• Futures Market
The MIBEL's futures market is an organized market and is managed by OMIP, which
started its activity in Portugal on 3 July 2006. The study examined the characteristics
of trading in the futures market, considering the characteristics, patterns of
performance and outcomes of the market, in its different forms of engagement.

• Regulated Auctions
The regulated auctions, both those integrated within the Portuguese hub of MIBEL and
the mechanisms for capacity release (known as VPP internationally) arbitrated in
Spain and Portugal and, finally, intended for the demand provided by the price
regulated by the so-called last resort suppliers, are a specific aspect of the term

Between June 2007 and March 2009, seven auctions for the release of production
capacity (EPE auctions) were carried out in the Spanish market, wherein the Endesa
and Iberdrola companies were required to take part as sellers of capacity (50% each).
Four virtual power plant auctions (VPP auctions in Anglo-Saxon terminology) were also
conducted in the Portuguese market between June 2007 and March 2008, wherein
REN Trading acted as the transferor in the first two VPP, and together with EDP (both
with 50% each) for the third and fourth auctions.

Furthermore,    Order   ITC/400/2007       regulates     the    auctions    through     which       the
distributors (the last recourse suppliers since 1 July 2009) enter into bilateral
contracts for the supply to tariff in the Spanish peninsular (CESUR auctions). With this
type of contract, an automatic mechanism for determining the rates of last resort is
set up and includes auction prices for contracts with the implementation period
coinciding with the tariff period.
                          2009 Annual Report on the Activity of the CMVM and the Securities Markets


• System Services Markets
The study focuses on another timing aspect of the market: the service or balance
system, which is closely linked to safe and reliable operation of the system in time
periods gradually closer to real time.

In Portugal, the system services are divided into mandatory, which are not paid
(which include the voltage regulation, frequency regulation and maintenance of
stability) and supplementary (such as static synchronous compensation, reserve,
secondary regulation, interruptible quick start, black start and tele start), which are
liable to be paid. Currently, only secondary regulation and regulatory reserves are
remunerated under a competitive market. The other supplementary services can be
contracted bilaterally. Furthermore, there is a resolution process for technical
restrictions that is based on market mechanisms. In Spain, the services of adjusting
the system contained in a resolution process for technical restrictions, management of
deviations and additional services which, in turn, include services linked to the
adjustment frequency/power (primary, secondary and tertiary reserve) and control
voltage of the transmission. Currently, the primary allocation and control voltage are
mandatory and not reciprocated, while other services are reciprocated according to
market mechanisms.

• Interconnection
The study provides data on events that occur and also the capacity and degree of
utilization of the infrastructure for interconnection between both countries. It
addresses the need for strengthening it for the ultimate purpose of removing the
structural bottlenecks.

Currently, the maximum capacity of commercial exchange at a point between the two
zones of MIBEL is approximately 1,600 MW in the direction of Spain to Portugal and
1,300 MW in the opposite direction. The expectation is that the mentioned capabilities
are duplicated within the time frame that extends until 2014, thus enabling the
available capacity to be close to 3,000 MW in both directions. This, in turn, should
allow the structural congestion that is reflected in the interconnection to be
significantly reduced.
                        2009 Annual Report on the Activity of the CMVM and the Securities Markets


• Taking part in the Special Regime Generation on the Market
It defines a set of general rules for the gradual incorporation into the market of the
special regime generation. This is a key element to confront commitments made in the
development of renewable energy sources with full guarantees and economic

• CO2 Emission Allowances
In the electricity generation sector, the study describes how Portugal and Spain face
up to the challenge of taking a model increasingly demanding in terms of reducing
CO2 emissions.

The solution to be found within the MIBEL scope for the handling of CO2 emission
allowances linked to electricity generation should be necessarily aligned with the new
Directive 2009/29/EC of the European Parliament and Council of 23 April 2009, which
amends Directive 2003/87/EC to improve and extend the Community trading system
for greenhouse gas emission allowances.

• Market Supervision
The study reviewed the powers and duties of regulators in discharging the duty of
supervision as guarantors of the proper functioning of the market, paying particular
attention     to   mechanisms   of   coordination     among      themselves      and    with    their
governments and supervisory authorities.

The Santiago Agreement provides that 'the supervision of markets as defined under
MIBEL will be conducted by the supervisory entities of the party wherein constituted in
accordance with the law on this matter.' However, the necessary interconnection
between the spot market and the futures market requires joint and coordinated
pursuit of supervisory activity, as likewise laid down in the Santiago Agreement. This
requires the use of shared information, sometimes non-public, based on the
reciprocity mechanism.
                        2009 Annual Report on the Activity of the CMVM and the Securities Markets


• Co-ordination with Competition Authorities
The   sector regulators    should     inform    the   competition      authorities    of   practices
unfavourable to the development of competition in regulated sectors, and also
amendments to the legal and regulatory framework. The competition authorities
should carry out preliminary and non-binding consultations with the regulators on
mergers in regulated sectors and on decisions or sanctions covering entities operating
in regulated sectors.   Other Aspects of International Activity

In light of the European economic integration, a significant part of the Portuguese
financial market regulation results from European institutions. In these instances, the
discussion and drafting of new regulation is carried out with the assistance of national
delegations. The Portuguese delegations, which are appointed by the Ministry of
Finance, have often included permanent managerial staff from the CMVM.

The Ministry of Finance appointed a CMVM managerial staff member to take part in the
European Securities Committee (ESC) so as to contribute towards the discussion of
topics under analysis. The derivatives markets, complex financial products, the
measures for collective investment undertakings and reform of financial supervision at
the EU level are among the most salient.

In 2009, the Ministry of Finance appointed a managerial staff member from the CMVM
to join the Portuguese delegation that actively took part in negotiating the revision of
the Prospectus Directive. Likewise, a managerial staff member from the CMVM,
appointed by the Ministry of Finance, also contributed to the negotiation of the
Alternative Investment Fund Managers Directive (AIFMD). The staff member was a
CMVM's expert in the delegation that represented Portugal in that negotiation. The
AIFMD (Alternative Investment Managers Directive) introduces harmonized European
regulation on the activity of managers of alternative investment funds, which covers
all the managers of non-regulated investment funds under the auspices of the UCITS
Directive (including venture capital funds, real estate funds and hedge funds) and
proposes attributing European passport to same. The negotiation of this Directive is
not yet complete.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


The Company Law Expert Group of the European Commission (CLEG) also received
CMVM's attention. The Ministry of Justice made the appointment. In 2009 this working
group was primarily engaged in the discussion on European cooperation between
business records, on the remuneration of executive directors and the European

Moreover, the work of the European Corporate Governance Network (where the CMVM
was represented) was about remuneration policies, management of risk in the
corporate governance codes and the implementation of the Shareholders Rights

By appointment of the Ministry of Justice, an expert from the CMVM took part in the
Committee on Civil Law Matters, where work centered mainly on the negotiation of the
draft UNIDROIT convention on the substantive framework applicable to intermediated
securities. Similarly appointed by the Ministry of Justice, the CMVM has also integrated
the Portuguese delegation present at the second session of the Diplomatic Conference
that adopted the 'UNIDROIT Convention on Substantive Rules for Intermediated
Securities in October 2009.

The CMVM continued to be part of the Portuguese delegation at several community
accounting fora. These include, notably, the Accounting Regulatory Committee (ARC),
which is responsible for accounting matters, the Auditing Regulatory Committee
(AuRC), which was established under the review of the 8th Directive on Company Law
with the task of analysing and issuing an opinion to the European Commission on
matters relating to the audit function, and EGAOB, which is the advisory group to the
AuRC, whose mission is the effective coordination of new systems for the public
supervision of auditors and audit firms in the EU.

IOSCO includes securities markets regulators from around the world. It was
established as a key instrument for regulatory coordination (by establishing common
principles guiding the legislative frameworks underlying the organisation of domestic
securities markets) and supervision (by establishing a reference framework for the
exchange of information among supervisors). This reference framework for the
exchange of information between supervisors appears to be increasingly crucial to the
enforcement of local regulatory provisions for the prevention of unfair market
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


With the ongoing crisis in financial markets, IOSCO had a leading role in drafting
proposals for more effective regulation and supervision in order to mitigate the
systemic risk. Likewise to improve responsiveness, IOSCO proposed a reorganization
of its activity which was already approved during 2010. This can be carried out by
reformulating the principles and methodologies and reviewing its strategic guidelines.

In 2009, the CMVM was closely involved in IOSCO's projects, including being the
coordinator of two applications - Brazil and Slovenia - status of full members
(signatories of Appendix A of the IOSCO Memorandum of Understanding).

CMVM took part in IOSCO through its various Committees and Working Groups,
among which the following are particularly salient:

- Chairmen Committee: fundamental decision-making body of IOSCO which has the
implementation of the Objectives and Principles of Securities Regulation of IOSCO
(IOSCO Principles) as the main objective. These principles, which were approved in
1998, are intended to encourage jurisdictions to improve the quality of its securities
regulation and continues to be the main benchmark of regulatory practices in
securities markets;

- European Regional Committee: the CMVM is a member of the European Regional
Committee, with the essential task of regulatory convergence between the European
members of IOSCO. The Committee monitors the various matters under discussion in
other technical committees, particularly the monitoring conducted to the financial
crisis' issues. In 2010, the CMVM's Chairman was elected Chairman of this Committee.

- Screening Group: this group is responsible for deciding and validating applications
from   Supervisory    Authorities    to   the    IOSCO's      Multilateral     Memorandum          of
Understanding on Cooperation (MMoU) for subsequent submission to the Chairmen
Committee. The CMVM took part in one of the validation teams, which assesses the
compliance of the candidate's legislation to the signature of the MMoU. During 2009,
this team completed the analysis of seven candidates, with the CMVM being
responsible for coordinating two of said applications;
                        2009 Annual Report on the Activity of the CMVM and the Securities Markets


- Implementation Task Force: the group began analysing the need to review the
principles and methodology of IOSCO vis-à-vis the needs highlighted by the crisis. The
review was primarily based on analysis of the effectiveness of existing principles to
meet regulatory requirements of some specific issues identified by IOSCO as having
assumed a critical role in the financial crisis, such as short selling, hedge funds,
corporate governance and rating agencies. It was concluded as a result of the need to
adapt the methodology and principles but without substantial amendments;

- Monitoring Group: the mission of which is to monitor the implementation of the
IOSCO Memorandum of Understanding and possible conflicts and shortcomings in
cooperation between IOSCO members;

- Technical Committee: a CMVM took part in two Standing Committees, respectively
specialized in issues related to exchange of information, enforcement among
supervisory authorities and the identification of conflicts of interest in the field of asset
management. The CMVM also continued to take part in the working subgroup on
corporate governance.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets



IOSCO has over 100 regulatory and supervisory authorities that represent close to
95% of markets worldwide. By means of its permanent structures, the following
objectives are pursued:

- Step up cooperation on the promotion of high standards of regulation so as to ensure
fair and efficient functioning of the markets;

- Promote the exchange of information on practices implemented by its members in
order to assist in the development of domestic markets;

- Joining forces on the definition of effective supervisory standards on international
transactions in financial instruments;

- Promote mutual assistance among its members in matters relating to the markets'
integrity and the prosecution of unlawful conduct.

The identification and mitigation of systemic risk in the activity of cross-border
institutions and transparency and supervision of non-regulated markets are among the
main topics currently under discussion within IOSCO.

The impact of alternative trading systems and new types of orders on efficiency and
market integrity is another issue that has been the focus of analysis by global
regulators. The 'dark liquidity pools', 'dark orders', the high-frequency trading and
direct electronic access, which may disproportionately benefit some market players,
have raised the need for a common regulatory approach internationally.

The debate on these topics focuses largely on the Technical Committee of IOSCO,
which involves the Chairmen of 19 regulatory and supervisory authorities of large
and/or more developed markets worldwide.

Restructuring the internal organization of IOSCO should be decided at the annual
meeting to be held in 2011 and aims to respond more effectively to the problems
caused by the international crisis.
                      2009 Annual Report on the Activity of the CMVM and the Securities Markets

Particularly salient among the key challenges facing the Chairman of the European
Regional Committee is the close cooperation between regulators and the adoption of
best supervisory practices in Europe; the implementation of the cooperation network
based on the multilateral agreement on cooperation and exchange of information
among IOSCO members; the development of the implementation of the IOSCO
principles on good practices for regulation and supervision and the development of
best corporate governance practices in European countries.

Along with the other three IOSCO's Regional Committees (Asia/Pacific, Inter-
American, Africa/Middle East) the European Regional Committee's task is to examine
the specific problems incumbent on European countries of the IOSCO's initiatives,
such as those that aim to intensify and increase cooperation in the field of regulation
and supervision of capital markets and also complying with the implementation of
international supervisory standards.

The CMVM also took part in the Corporate Governance Taskforce, which was
established under the Technical Committee. This Taskforce was responsible for
drafting a report on the rights of minority shareholders that was completed and
released in March 2009.

During 2009, CMVM intensified relationships with international counterpart authorities,
in compliance with the duty of cooperation that is allocated to it by law. Thus, the
CMVM provided and requested international assistance to and from several foreign
counterparts, particularly for the purpose of exchanging information on cross-border
activity of financial intermediaries, concerning overall non-authorised financial
intermediation, qualifying holdings and investigations regarding suspected market
abuse practices.

An Institutional Partnership Agreement was signed on 26 March 2009 between the
Securities Regulators of the Mediterranean. This partnership brings together securities
regulators from both sides of the Mediterranean with the aim of determining working
conditions and terms to give effect to increased operational cooperation and directed
towards mutual recognition between the signatories, in terms of financial market
regulation and supervision included within their respective powers. As a prerequisite,
Members undertake to attain the collective target of promoting convergence with the
EU regulatory framework.
                       2009 Annual Report on the Activity of the CMVM and the Securities Markets


The partnership will review current practices by means of specific comparative
exercises and analysis of differences between jurisdictions in order to lay down
examples to be followed in several fields examined.

On the initiative of the European Commission's Directorate General for Health and
Consumers, a study was conducted on the use of systems for alternative settlement of
disputes among the various schemes (13 domestic and 750 European) identified. The
European Union, which included the CMVM's participation, was notified thereof. The
issues relating to judicial proceedings, such as costs, duration and formalities that can
be resolved through an effective alternative settlement of disputes were particularly
salient in the main conclusions of the final report drawn up. Acknowledging, however,
that the systems surveyed generally comply with the European Recommendations
(98/257/EC and 2001/310/EC), wherein is defined the requirements to be complied
with the imposition of said systems, it is suggested, in light of the wide diversity of
multiple procedural frameworks found, that best practices are identified and the
compilation thereof. This project is aiming at a possible release in the form of a
generic script or standard instruction, to be developed in the national plan by the
appropriate entity.

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