Circular No. 3068 — Establishes Criteria for the Recording and Accounting Valuation of Securities

CIRCULAR NO. 003068

Establishes criteria for the recording and accounting valuation of securities.

The Collegiate Board of the Central Bank of Brazil, in a session held on November 7, 2001, based on Article 4, item XII, of Law No. 4,595 of December 31, 1964, by competence delegated by the National Monetary Council, by act of July 19, 1978, and having in view the provisions of Article 22 of Law No. 6,385 of December 7, 1976, with the alterations introduced by Article 14 of Law No. 9,447 of March 14, 1997,

D E C I D E D:

Art. 1. Establish that securities acquired by financial institutions and other entities authorized to operate by the Central Bank of Brazil, except credit cooperatives, development agencies, and microentrepreneur credit companies, must be recorded at the price effectively paid, including brokerage fees and emoluments, and classified into the following categories:

I - securities for trading;

II - securities available for sale;

III - securities held to maturity.

Paragraph 1. In the category of securities for trading, securities and financial assets acquired with the purpose of being actively and frequently traded must be recorded.

Paragraph 2. In the category of securities available for sale, securities and financial assets that do not fit into the categories described in items I and III must be recorded.

Paragraph 3. In the category of securities held to maturity, securities and financial assets, except non-redeemable shares, for which there is an intention and financial capacity of the institution to hold them in the portfolio until maturity must be recorded.

Paragraph 4. The financial capacity referred to in the previous paragraph must be characterized by the availability of third-party resources, except for subordinated debts and hybrid instruments of capital and debt eligible for capital, in accordance with Resolution No. 2,837 of May 30, 2001, referenced in the same currency and with a term equal to or greater than that of the corresponding securities.

Paragraph 5. The provisions of this article also apply to securities and financial assets traded abroad.

Art. 2. Securities and financial assets classified in the categories referred to in the previous article, items I and II, must be adjusted to market value, at least at the time of interim statements and balance sheets, computing the appreciation or depreciation in counterpart:

I - to the appropriate revenue or expense account, in the result of the period, when relative to securities and financial assets classified in the category of securities for trading;

II - to the equity highlighted account, when relative to securities and financial assets classified in the category of securities available for sale, by the net value of tax effects.

Paragraph 1. For the purposes of the adjustment provided in the caput, the methodology for calculating market value is the responsibility of the institution and must be established based on consistent and verifiable criteria, which take into account independence in data collection regarding the rates practiced in its trading desks, and may use as a parameter:

I - the average trading price on the day of calculation or, when not available, the average trading price on the previous business day;

II - the probable net realization value obtained through the adoption of a pricing technique or model;

III - the price of a similar financial instrument, taking into account, at a minimum, the payment and maturity terms, credit risk, and currency or index.

Paragraph 2. Unrealized gains or losses recorded in the equity highlighted account, in the form of the caput, item II, must be transferred to the result of the period upon the definitive sale of securities and financial assets classified in the category of securities available for sale.

Art. 3. Securities and financial assets, except non-redeemable shares, classified in the category of securities held to maturity, as referred to in Article 1, item III, must be valued at their respective acquisition costs, plus the income earned, which must impact the result of the period.

Art. 4. The income produced by securities and financial assets must be computed directly in the result of the period, regardless of the category in which they are classified, observing that those relative to shares acquired less than six months ago must be recognized in counterpart to the appropriate account that records the corresponding acquisition cost.

Art. 5. The re-evaluation regarding the classification of securities and financial assets, according to the criteria provided in Article 1, can only be carried out at the time of preparing the semi-annual balance sheets.

Paragraph 1. The transfer to a different category must take into account the intention and financial capacity of the institution and be carried out at the market value of the security or financial asset, observing, furthermore, the following procedures:

I - in the event of transfer from the category of securities for trading to the other categories, the reversal of values already computed in the result resulting from unrealized gains or losses will not be admitted;

II - in the event of transfer from the category of securities available for sale, the unrealized gains and losses, recorded as a highlighted component in equity, must be recognized in the result of the period:

a) immediately, when to the category of securities for trading;

b) based on the remaining term until maturity, when to the category of securities held to maturity;

III - in the event of transfer from the category of securities held to maturity to the other categories, the unrealized gains and losses must be recognized:

a) immediately in the result of the period, when to the category of securities for trading;

b) as a highlighted component in equity, when to the category of securities available for sale.

Paragraph 2. The transfer from the category of securities held to maturity to the other categories can only occur for an isolated, unusual, non-recurring, and unforeseen reason, occurring after the date of classification, in such a way as not to disfigure the intention evidenced by the institution when classifying in this category.

Paragraph 3. Documentation serving as the basis for reclassification, duly accompanied by an exposition of motives from the institution's administration, must remain available to the Central Bank of Brazil.

Art. 6. Permanent losses with securities and financial assets classified in the categories of securities available for sale and securities held to maturity must be recognized immediately in the result of the period, observing that the value adjusted as a result of the recognition of said losses becomes the new cost basis.

Sole Paragraph. The reversal of the losses mentioned in the caput is admitted if for a justified reason subsequent to that which led to their recognition, limited to the acquisition cost, plus the income earned.

Art. 7. It is mandatory to disclose, in explanatory notes to the financial statements, information that covers, at a minimum, the following aspects relative to each classification category:

I - the amount, nature, and maturity bands;

II - the cost and market values, segregated by type of security, as well as the parameters used in determining these values;

III - the amount of reclassified securities, the reflection in the result, and the reasons that led to the reclassification;

IV - the unrealized gains and losses in the period, relative to securities and financial assets classified in the category of securities available for sale.

Sole Paragraph. For publication purposes, securities and financial assets classified in the category of securities for trading must be presented in current assets, regardless of the maturity term.

Art. 8. In addition to the minimum information required in the previous article, a declaration regarding the financial capacity and intention of the institution to hold until maturity the securities classified in the category of securities held to maturity must be disclosed in the administrative report.

Art. 9. Institutions must keep available to the Central Bank of Brazil the reports that clearly and objectively evidence the procedures provided for in this circular.

Sole Paragraph. If impropriety or inconsistency is found in the classification and evaluation processes, the Central Bank of Brazil may determine, at any time, the reclassification of securities and financial assets, with the consequent recognition of effects in the financial statements, in the form of Article 5.

Art. 10. The adjustments resulting from the application of the criteria established in this circular compared to those required in the regulation then in force, for the securities and financial assets existing in the portfolio, must be recorded, due to the change in accounting criterion, in counterpart to the title ACCUMULATED PROFITS OR LOSSES, code 6.1.8.10.00-2, of the Accounting Plan of the Institutions of the National Financial System - Cosif.

Sole Paragraph. The adjustments referred to in the caput must be subject to disclosure in explanatory notes to the financial statements, evidencing, in a comparative manner, their amount and the effects on the result up to the base date of December 31, 2002.

Art. 11. This circular enters into force on the date of its publication, producing effects from March 31, 2002, when Circulars No. 2,329 of July 7, 1993, and No. 2,913 of July 21, 1999, will be revoked.

Brasília, November 8, 2001

Sérgio Darcy da Silva Alves
Director
--------------------------------------------------------------------- Obs.: Re-transmitted to correct the date of the meeting and the Circular.