Circular No. 915 — Issuance of Internal Control Norms and Procedures for Fixed Income Securities Trading

CIRCULAR NO. 000915

To
Financial Institutions and Entities Part of the Capital Market Distribution System

We communicate that the Board of Directors of the Central Bank, in a session held on this date, in view of the provisions of Article 10, item VIII, of Law No. 4,595, of December 31, 1964, Article 27 of the Regulation annexed to Resolution No. 366, of April 9, 1976, and Resolution No. 981, of December 13, 1984, decided to issue the annexed Internal Control Norms and Procedures, mandatory for use in all and any negotiation of fixed income securities, regardless of whether the institution is authorized to operate at fixed prices.

2. The provisions of this regulation will enter into force within 90 (ninety) days.

Brasília-DF, February 13, 1985

José Luiz Silveira Miranda Iran Siqueira Lima
Director Director

ANNEX

INTERNAL CONTROL NORMS AND PROCEDURES

Intrinsic and Extrinsic Formalities for Negotiation Notes

1. Purchase and sale notes, prepared in at least 3 (three) copies, intended for the client, accounting, and archive, must be issued and numbered typographically, or via an electronic data processing system, with the institution having the discretion to number them by series, allowing the replacement of copies intended for accounting and archive with data archiving on microfiche, microfilm, or magnetic tape, observing the provisions of item 10.

2. A single type of note with multiple uses is admitted, provided that an indicator sign of the type of operation processed (purchase, repurchase, sale, and resale) is adopted. In operations agreed upon between market institutions and for accounting registration purposes, the sale note will be a valid document for both the purchasing institution and the selling institution. The purchase note will be a valid document for the purchasing institution when the seller is a natural or legal person that is not financial.

3. The notes must contain, printed typographically or electronically, identification elements of the issuing company, such as: name or corporate name, complete address, and the registration number of the General Registry of Taxpayers of the Ministry of Finance, as well as the following observation, which must appear in a prominent place with clear clarity: "IMPORTANT: Repurchase or purchase commitments, if any, must be formalized in this document."

4. Said notes must also include the fields specified below, whose completion is mandatory:

a) regarding the client:

I - full name and CGC/CPF, in the case of fixed-price operations, as defined in Resolution 366/76;

b) regarding the general characteristics of the operation:

I - value, date, and type of operation;

II - securities traded, comprising, at minimum: type, issuing or accepting company, issuance and maturity dates, nominal value, issuance rate, periodicity of earnings, unit price, and redemption value, and, where applicable, the quantity;

III - method of settlement (cash, check, debit to checking account, bank reserve, others);

IV - in the case of a fixed-price operation, a declaration that the document corroborating the operation is non-transferable and non-negotiable;

V - value of Withholding Income Tax, when applicable;

c) regarding repurchase/resale clauses, if applicable:

I - operation rate and maturity date of the commitment, if any;

II - value of the commitment;

d) regarding the transfer and custody of securities:

I - if delivered to the client;

II - if in custody in the Special Settlement and Custody System - SELIC;

III - if in custody in a commercial bank or another custodian institution (field to mention the name of the institution);

IV - if in custody in the institution itself.

5. In operations of purchase, sale, repurchase, and resale of Treasury Bills, Treasury Readjustable Notes, and state and municipal securities, settled by the Special Settlement and Custody System (SELIC), with the issuance of the form contained in document No. 8 of MNI 4-5, issued in accordance with the Regulation of that System, this will substitute, for legal purposes, the note referred to in these norms.

6. In refinancings resulting from operations encompassing multiple investors (MNI 4-5-4-14), the internal negotiation notes for securities issued must be archived together with the aforementioned form (document No. 8 of MNI 4-5).

7. In the issuance of notes, no erasures, amendments, or interlineations will be admitted, and fields not filled in must be invalidated, when the note is not issued by electronic processing.

8. Notes related to operations with repurchase guarantee or with custody responsibility must contain, at least in the client's copy, the signature of the director responsible for the technical department of the institution authorized to operate at fixed-price, the legal representative of the institution in other cases, or a specially constituted attorney, or still, signature by mechanical or graphic process.

9. Those who use signature by mechanical or graphic process are obligated and fully responsible for the legitimacy of the negotiation notes thus authenticated, including in cases of improper or irregular use of such process by anyone, and must observe the following requirements:

a) prior registration of the mechanical seal in a Notary Public's Office of the user's domicile, which must contain:

I - the facsimile of the mechanical seal accompanied by the specimen of the signature in their own hand, duly endorsed according to existing legal precepts;

II - the dimensions of the cliché;

III - the general and particular characteristics of the artistic background;

IV - detailed description of the seal;

b) compliance with the following technical and security norms:

I - the clichés must comply with one of the series, freely chosen from the table below, with the use of a single dimension for all securities of the same user being recommended:

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Series Height in mm Length in mm

A B

1 16 88 45
2 12 88 45
3 9 88 45
4 6 88 45

II - clichés in the recommended formats must always be made with a specific artistic background for each institution, outlining the signature with approximately 1mm of separation, covering the entire field;

III - the cliché may contain wording that identifies the Notary Public's Office, city, and state where the seal is registered;

IV - the inks used by printing machines must be black or cyan, with permanent adhesion, and devoid of magnetizable components.

Settlement Control of Operations

10. The institution must deliver to the client, or make available to them, at any time upon request, a copy of the note with all characteristics defined in this regulation. If the negotiation notes are not claimed or received, the institution must, by the third business day of each fortnight, send them to the client or forward a document containing all characteristics of the negotiations carried out by the client in the previous fortnight, including the numbering of the notes.

11. The institution must maintain, in good order, the data related to the settlement of operations, admitting, for this purpose, the use of microfilming or electronic processing.

12. The institution must maintain internal controls that allow specifying the operations carried out, in the form of this Circular, which will be available to the Central Bank, to be provided when demanded.

Custody Controls of Own and Third-Party Securities

13. The institution must maintain specific custody controls for own securities (backed or linked to repurchases) or third-party securities, so that their location is permitted at any time.