Investor Protection trust

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The CNMV and Investor Protection Trust  

September 2014


CNMV stands for "Comisión Nacional del Mercado de Valores" (National Securities Market Commission), an institution that according to its website has the objective "to ensure the transparency of the Spanish securities market, its pricing as well as the protection of investors "
Well, with the aim to fulfill this investors protection (it is understood that we talk about small investors, since large investors already know how to look after themselves), the CNMV decided to implement a reclassification of financial products in line with three variables:

Risk, Liquidity and Complexity.


This classification intends to assist in the investment decision making and should be included in advertising and pre-contractual information, in other words, we should soon become familiar with it.

A. Risk

The classification of risk is measured following a five colors diagram, from GREEN products as less risky (entity with good rating that is committed to return the capital in less than three years) to RED products, such as derivatives being considered the riskiest of all.

B. Complexity and Liquidity

The CNMV will use symbols for these two variables: One or two exclamation marks for difficult to understand products and particularly complex products respectively. One or two padlocks for less liquid products and where the investor will have difficulties or will be unable to recover the investment before a certain date.

Great Difficulty

Since we are complying persons, lets assume that the only intent of the CNMV is the protection of investors. But even then, we must admit that the task proposed is very difficult since two different analysts disagree on whether the product A is more risky than the product B and vice versa.

Let me just mention some of the reviews I've read: Why do derivatives belong to the worst class to be held? Are ALL derivatives riskier than any other investment? Are ALL investment-grades in ANY CURRENCY at three years more risky than, lets say, a German Treasury Bond in Euros at 10 years?

And we could be discussing on and on. But as I said, we are good persons, so lets assume that this classification is well-intentioned and, like everything in life, needs to be improved.


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