Financial products, financial instruments and securities (Italian Law)

Introduction.

Financial market regulation is based on the notions of financial products, financial instruments and securities. The three definitions outline a system of concentric circles, whereby:

- the category of financial products includes that of financial instruments;

- the category of financial instruments includes that of securities.

Financial products.

Pursuant to Article 1(1)(u) of Legislative Decree 58/1998 (“Testo unico delle disposizioni in materia di intermediazione finanziaria”, the Consolidated Law on Finance, commonly referred to in Italian as “TUF”), financial products are 'financial instruments and every other form of investment of a financial nature; bank or postal deposits without the issue of financial instruments shall not constitute financial products'.

This is an open category, which includes but is not limited to financial instruments. The legally atechnical term 'other form of investment of a financial nature' is apt to embrace any transaction carried out with the use of capital that entails the assumption of a risk related to the expectation of a profit. For a transaction to be of a financial nature, it must have the following essential elements:

1) investment of money;

2) expectation of profit;

3) associated risk.

It therefore includes all the atypical and unnamed forms of investment gradually created by the market.

The category of financial products is decisive for the purposes of the application of the regulatory complex of provisions designed to protect savers, including the regulation of the public savings appeal (Art. 94 ff. TUF).

Financial instruments.

Pursuant to Article 1(2) TUF, financial instruments are 'any instrument listed in Section C of Annex I, including instruments issued using distributed ledger technology. The payment instruments are not financial instruments'.

Section C of Annex I includes, among others: transferable securities, money market instruments, units of a collective investment undertaking, option contracts, standardized financial futures, swaps, agreements for future exchange of interest rates and other derivative contracts listed therein. Financial instruments are thus divided into derivative and non-derivative instruments.

Securities.

Pursuant to Article 1(1 bis) of the Consolidated Law on Finance, transferable securities are the 'categories of security that can be traded in capital markets, such as:

a) company shares and other titles equivalent to company shares, of partnership or of other parties and share deposit receipts;

b) bonds and other debt titles including the deposit receipts relative to said shares;

c) any other transferable security that permits buying or selling transferable securities indicated in letters a) and b) or that involve spot settlement determined with reference to transferable securities, foreign exchange, interest rates or rates of return, commodities or other indices or measurements".

The rule introduces an illustrative list. Accordingly, the notion identifies an open category.

References and Websites.

V. Calandra Buonaura, Commentario breve al testo unico della finanza, Wolters Kluwer, Milano, 2020, sub art. 1, p. 26 ss.;

Consob, I titoli di credito e gli strumenti finanziari, available here.

The Consolidated Law on Finance (“Testo Unico dell’intermediazione finanziaria”) and its Annex I are available here.

The English version is available here.

The Consob guidelines on the notion of financial product/instrument can be found at this page.

A stylised representation of the configuration of the current financial system is accessible at the Consob website, here.

For the definition and identification of the main derivative instruments, see Consob, I derivati, available here.