CMN Resolution No. 3505 — Dispenses on the Conduct of Derivative Operations in the Over-the-Counter Market by Financial Institutions and Other Institutions Authorized by the Central Bank of Brazil

RESOLUTION No. 003505

Dispenses on the conduct, in the Country, of derivative operations in the over-the-counter market by financial institutions and other institutions authorized to operate by the Central Bank of Brazil.

THE CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4,595, of December 31, 1964, makes public that the MONETARY NATIONAL COUNCIL, in a session held on October 25, 2007, having in view the provisions of Article 4, item VIII, of the aforementioned law,

RESOLVES:

Art. 1. Multiple banks, commercial banks, savings banks, investment banks, foreign exchange banks, securities brokerage firms, and securities distribution companies may conduct, in the over-the-counter market, in the Country, for their own account and for third parties, swap, forward, and options operations, capable of being registered in organized over-the-counter markets or in systems administered by stock exchanges, commodity and futures exchanges, by registration and financial settlement entities for assets duly authorized by the Central Bank of Brazil or by the Securities and Exchange Commission.

Sole Paragraph. For the purposes of this resolution, operations practiced outside a trading floor, voice, or electronic environment, based on bilateral contracts and parameters agreed upon by the parties, are considered to be conducted in the over-the-counter market.

Art. 2. Financial institutions and other institutions authorized to operate by the Central Bank of Brazil not mentioned in Article 1 may only conduct the operations referred to in this resolution for their own account.

Art. 3. In the conduct of the operations referred to in this resolution, the following must be observed, at a minimum:

I - price indices, stock indices, interest rates, and exchange rates used as benchmarks must have a regularly calculated series and be subject to public disclosure;

II - other quotations of underlying assets used as benchmarks must:

a) observe prices disclosed by stock exchanges, commodity and futures exchanges, organized over-the-counter markets, or by registration, trading, custody, and financial settlement entities for assets authorized by the Central Bank of Brazil or by the Securities and Exchange Commission, when available in these environments; or

b) be determined based on prices or consistent and verifiable methodologies, which take into consideration independence in data collection relative to the parameters practiced in their trading desks.

Art. 4. The conduct of operations referred to in this resolution referenced in underlying assets traded abroad is admitted, provided that their prices are subject to, at a minimum, regular disclosure in the countries where they are practiced, provided that the provisions of Article 3, item II, letter "b" are observed.

Art. 5. The information, documentation, and methodology related to the operations practiced under the terms of this resolution must remain with the institution, available to the Central Bank of Brazil.

Art. 6. The operations referred to in this resolution must be registered in a market or system referred to in Article 1.

Art. 7. The institutions referred to in this resolution must designate to the Central Bank of Brazil the name of the director responsible for the conduct of derivative operations in the over-the-counter market.

§ 1. The data relating to the director must be entered and kept updated in the Information System on Entities of Interest of the Central Bank (Unicad).

§ 2. For the purposes of the responsibility referred to in the caput, it is admitted that the designated director performs other functions in the institution, except those related to the management of third-party resources.

Art. 8. The Central Bank of Brazil is authorized to adopt measures and issue complementary norms necessary for the execution of the provisions of this resolution, including restricting the underlying assets that may be used as benchmarks in the operations conducted by financial institutions and other institutions authorized to operate by the aforementioned agency.

Art. 9. This resolution enters into force on the date of its publication.

Art. 10. Articles 1 to 4 and 6 of Resolution No. 2,873, of July 26, 2001, are hereby repealed.

Brasília, October 26, 2007.

Henrique de Campos Meirelles
President