Circular Letter CVM/SMI 07/2019

SECURITIES COMMISSION OF BRAZIL
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Circular Letter No. 7/2019-CVM/SMI
Rio de Janeiro, November 08, 2019.
To
Organized market administrative entities and other market participants Subject: Cancellation of transactions by organized securities market administrative entities as provided for in Article 4 of CVM Instruction No. 168/1991.

Dear Sirs,

1. This Circular Letter aims to clarify to organized securities market administrative entities and other market participants the adequate application of the cancellation procedure provided for in Article 4 of CVM Instruction No. 168/1991, transcribed below:

“Article 4. To analyze the classification of the operations provided for in item I of Article 1 and in items VI and VII of Article 2, Stock Exchanges shall consider consecutive transactions by the same client in one or more auctions, or through one or more brokerage firms, and may, in addition, cancel transactions already executed.”

2. After evaluating market demands, the Securities Commission concluded that, if applied compulsorily and automatically, the cancellation provided for in Article 4 may cause losses to investors who have been, in good faith, counterparties to the cancelled transactions, bringing uncertainty to the trading environment and negatively impacting its functioning.

3. For this reason, the CVM considered that the market conditions that
   Circular Letter 7 (0876844) SEI 19957.010282/2019-09 / pg. 1

prompted the issuance of CVM Instruction No. 168/1991 were very different from those currently observed, when one observes a completely electronic trading environment, with intensive use of algorithms, sophisticated trading strategies, high execution speed and increasing traded volumes, which adds complexity to the analysis of transactions subject to cancellation.

4. Thus, the cancellation of transactions must be understood as a faculty attributed to organized securities market administrative entities, which should only be used when they identify an attempt to prevent the free possibility of interference by other investors in executed transactions, including through the use of direct offers or the coordinated and instantaneous sending of buy offers and sell offers.

5. In other words, cancellation must be understood as an exceptional measure, and not as an imposing procedure resulting from the obligation to analyze the classification of operations by organized market administrative entities as stated in Article 4 of CVM Instruction No. 168/1991.

6. Regardless of whether transactions are cancelled or not, indications of irregularities must be the subject of investigation and analysis in a process established for this purpose, with the imposition of sanctioning measures if abusive practices are proven.

7. In this sense, it is the duty of the organized stock market administrative entity to promptly report to the BSM and the CVM all cases with indications of atypicalities and deviations in the manner provided for in the aforementioned Article 4, which will be duly treated in the regular course of the supervision and investigation processes of this Agency and the self-regulatory organization.

Sincerely,

Document electronically signed by Francisco José Bastos Santos, Superintendent, on 11/08/2019, at 10:37, based on Article 6, § 1 of Decree No. 8.539, of October 8, 2015.
The authenticity of the document can be verified on the site https://sei.cvm.gov.br/conferir_autenticidade, providing the code verifier 0876844 and the CRC code 2759208B.
This document's authenticity can be verified by accessing https://sei.cvm.gov.br/conferir_autenticidade, and typing the "Código Verificador" 0876844 and the "Código CRC" 2759208B.
Reference: Process No. 19957.010282/2019-09 SEI Document No. 0876844 Circular Letter 7 (0876844) SEI 19957.010282/2019-09 / pg. 2