Thursday, July 16, 2015

Lisbon: The Securities Exchange Commission of Portugal

This series of posts describes a study abroad course in which students visited several central banks and talked with central bankers about how they responded to—and sometimes failed to respond to—the global financial crisis, and how they are adjusting to their new roles.

by Oscar Olmos Jr

May 25, 2015, our study abroad group had the privilege to visit the Portuguese Securities Exchange Commission. Initially, this visit seemed rather unorthodox as our trip was to focus on the Central Banks of Europe. However, to our surprise, this was an extremely beneficial visit in understanding the reform of financial governance after the Financial Crisis.

During this visit, the S.E.C. discussed a variety of their roles, but there were three which really stuck out to be the most important that any institution could do for people investing within the European Market: their report audits, their financial literacy courses, and their financial instrument consumer protection. As I was learning about this I was simply in awe as I trade in my spare time, and knowing that there was an agency that protects its consumers I was just amazed by their high standards.

The S.E.C. offers a financial literacy course to the public in order both to increase the public’s understanding and capabilities, and to increase the total number of people who invest within the financial markets of both Europe and Portugal. In doing so, they hope to increase the total proportion of households which invest from their strikingly low ten percent rate to around 50 percent of the population. This will create a more efficient market for everyone. While promoting financial literacy is something that agencies should do, I was very impressed by their dedication.

While the S.E.C. generates a variety of audits, in particular I see their audit process of asset valuation relative to the many other things they do to be one of the most useful to consumers. Margarida M. Rosa clearly explained that by using appropriate and conservative measures for asset valuation there may be a clear division between the appropriate returns and speculated returns when investing in a firm. This would be seen as the company would then have to report more accurate figures for their total assets rather than a false number which may make the company seem to be in a better standing financially than it really is. Having this accurate representation of a company’s financial standing allows investors to make better decisions on which firm they would like to invest in if any. Furthermore, proper valuation also allows for a more transparent market for all consumers.

By making sure that the consumer is aware of the financial risks they may be undertaking, then an auditor may able to gauge whether or not that the financial instrument they are purchasing is suitable for them. This may be easily seen as they may find the instrument to be too aggressive for their strategy, or trading habits. Furthermore, the S.E.C. also constantly gauges the riskiness of these financial instruments to also help consumers be aware of what the maximum loss may be due the riskiness of the instrument. Often, many people assume that maximum loss is the total amount initially invested, but certain financial instruments may yield a negative by having the investor pay capital in addition to losing their initial investment. As the S.E.C. continues to protect people from unknowingly investing within highly risky financial instruments, they aid in the recovery of the market since the financial collapse.

Overall, as the days of our study abroad trip began to wind down and perhaps our group grew that much closer, but we also grew closer to the feelings a government can have for its people. Even as we left we knew that the idealism witnessed and heard within that room would continue not just in Portugal, but in all of Europe. All I really knew by the end of it was that the beauty of Portugal could only be matched by the inner beauty of its citizens and how kind they were even to us travelers. In the end Portugal was a country that none of us could really forget, but I will also remember the lessons I learned within the Securities Exchange commission about responsible financial regulation.

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