PORTUGAL Law and Practice Contributed by: João G Gil Figueira, Rodrigue Devillet Lima and Catarina Andrade Miranda, GFDL Advogados
ance licences. In contrast, others opt for a more mod - est approach to retain a crowdfunding licence. The ability to pass the crowdfunding licence to other EU member states, allowing new investment oppor - tunities to different markets, has spiked the interest of some newly established players and legacy institu - tions. 6.7 Rules of Payment for Order Flow Financial intermediaries must select their trading and execution venue based on a “best execution” policy and provide their clients with information on costs and expenses per service and financial instrument. Additionally, inducement rules prohibit firms from paying or receiving benefits from third parties, with a few exceptions. Specifically, firms may accept pay - ments or inducements if they are necessary to provide services that enhance the quality of those services. However, this is only permitted if the amount is clearly disclosed to the client in advance and does not com - promise the investment firm’s obligation to act hon - estly, fairly and professionally in the best interests of its clients. Please see 6.5 Order Handling Rules . 6.8 Market Integrity Principles EU Regulation 596/2014 plays a key role in prevent - ing market abuse within financial markets and trading activities. 7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations High-frequency and algorithmic trading (HFAT) is allowed under the Portuguese Securities Code, bringing significant benefits to the market, such as increased speed of orders, increased market liquidity and reduction of bid-ask spreads. However, there are also some risks associated with HFAT, such as: • increased risk of market abuse and manipulation;
• protection issues for small investors; • volatility and operational risks; and • market fragmentation.
The general legal framework for HFAT is set out in MiFID II, and the Portuguese Securities Code, which stipulates that all financial intermediaries deploy - ing such systems must keep registries of all placed orders, including cancellations, which must be imme - diately made available to the CMVM upon request. Before initiating HFAT operations, any intermediary must communicate this intention to the CMVM and must provide the following: • information about investment strategy; • detailed information about the system metrics and limits; • detailed information about security measures to avoid faulty orders; and • detailed information proving that the system does not create a risk of market manipulation or abuse. A financial intermediary can operate as a market mak - er through algorithmic trading provided it has informed the CMVM. Still, it must ensure that the market-mak - ing activity is conducted continuously during the plat - form’s negotiation period and that market liquidity is periodic and predictable. A written agreement must be entered into with the trading platform establishing the conditions regarding how the liquidity and continuity of the market activity are to be ensured. Additionally, security and control systems must be designed and put in place, allowing the monitoring of whether the conditions set out in the agreement entered into by the market makers and the platform are being consistently fulfilled. 7.3 Regulatory Distinction Between Funds and Dealers No distinction is made between funds and dealers engaged in these activities in the Portuguese juris - diction. 7.2 Requirement To Be Licensed or Registered as a Market Maker When Functioning in a Principal Capacity
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