CVM Explanatory Note 14

CVM EXPLANATORY NOTE NO. 14/79.

The need to avoid fraud and manipulation modalities aimed at creating artificial conditions of demand, supply, or price for securities distributed in the market, as well as the requirement that equitable commercial practices be observed in the capital market, was already felt by LAW NO. 4,728, of July 14, 1965, whose art. 2nd included, in its items III and IV, such objectives among the main lines that should guide the action of the National Monetary Council and the Central Bank of Brazil, in the area of the capital market. In this line and with a view to the operationalization of that device, Resolution No. 39, of October 20, 1966, was issued, whose art. 93 established the prohibition, substantially reproducing the terms of the law, of the practice of manipulation or fraud aimed at creating artificial conditions of demand, supply, or price of securities negotiated in the Stock Exchange or distributed in the capital market, as well as, simultaneously, the prohibition of the use of inequitable commercial practices. At that time, there was no talk of the need for prior conceptualization by the regulatory bodies of what constituted an inequitable practice or a fraudulent operation, for example, proceeding from the law's premise that the use of those generic expressions would not prejudice the coerciveness of the legal rule, given the clear evidence of its real scope. Therefore, a model similar to that used by the Penal Code itself with regard to certain crimes, such as crimes against property, where typical figures of quite broad content are included, called "open types," was adopted. With the advent of LAW NO. 6,385, of December 7, 1976, however, competence was attributed to the Securities and Exchange Commission (CVM), by art. 18, II, "b", of that legal instrument, to define the configuration of these same operations or practices harmful to the regular functioning of the market. The intention was to lend greater flexibility to the CVM's disciplinary action over the market, making it possible to gradually adapt the adopted definitions to the needs demonstrated by practice. However, since it is a clearly not self-executing device, the prohibitive norm of Resolution No. 39, cited above, remains fully in force, whose legal basis is repeated almost literally in article 4, V and VII of LAW NO. 6,385/76 itself.

In effect, since the legislator intended to replace the previous system, in which the punishability of irregular practices and operations was based on a regulatory norm that was self-sufficient, with a new regime, based on the prediction of concepts by part of the CVM, the coerciveness of the rule already self-executing persists as a clear example of the ultractivity of the previous law until a subsequent norm, through its regulation, comes to replace or extend the scope of incidence of the previous regulatory provision, which can then be considered derogated. In view of this last option - to replace or extend the concepts until now in force - the CVM deemed it convenient to adopt the second solution, expanding, in view of the experience already accumulated, the scope of the provisions already contained in Resolution No. 39, and conceptually defining, in a deliberately generic way, situations that constitute operations or practices incompatible with the regularity that is intended to be ensured to the securities market. Within this perspective, CVM INSTRUCTION NO. 08/79 is issued, which explicitly states that it is forbidden for all market participants to create artificial conditions in the negotiation of securities, price manipulation, fraudulent operations, and the use of inequitable practices. Expanding, as said, the concepts contained in Resolution No. 39, each of these figures is defined in the Instruction, establishing, moreover, in view of the particular relevance of the interest that the norm intends to protect, namely the regular functioning of the market, the possibility of aggravated punishment for those who, by their behavior, attack the interest by practicing acts forbidden in the Instruction.