CVM Instruction 117 (Repealed)

Provides for the own securities portfolio of brokerage firms and gives other provisions.

The PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION makes public that the Collegiate Body, in a session held on this date, and in accordance with the provisions of item IV of Article 1 of Resolution CMN No. 1,655, of October 25, 1989,

HAS RESOLVED:

OWN PORTFOLIO

Art. 1. Brokerage firms may operate their own securities portfolio, acting in the stock and over-the-counter markets, observing the provisions of Article 4 of this Instruction.

RESPONSIBLE ADMINISTRATOR

Art. 2. Brokerage firms that operate their own portfolio must indicate to the Securities and Exchange Commission, and to the stock exchange of which they are members or permittees, one of their directors or managing partners as responsible for the operation of the portfolio.

RESOURCES

Art. 3. Brokerage firms may only apply, in the constitution and operation of their portfolio, their own resources.

OPERATIONAL LIMIT

Art. 4. Brokerage firms that operate their own portfolio must observe the following limits:

I - The value of the own portfolio of brokerage firms whose adjusted net worth, computed from March 31, 1990 in the manner determined by the norms contained in the Accounting Plan of the Financial Institutions of the National Financial System (COSIF), is less than 2,000,000 (two million) National Treasury Bonds for tax purposes (BTNF) shall not exceed, at any time, 50% (fifty percent) of the value of the working capital of these firms.

II - The value of the own portfolio of firms with adjusted net worth greater than 2,000,000 (two million) BTNF but less than 3,000,000 (three million) BTNF shall not exceed, at any time, 60% (sixty percent) of the value of their own working capital.

III - For firms with net worth greater than 3,000,000 (three million) BTNF, the value of the own portfolio shall not exceed, at any time, 70% (seventy percent) of the value of their own working capital.

§ 1st. Brokerage firms whose adjusted net worth is less than 1,000,000 (one million) BTNF may only carry out own portfolio operations in the spot market.

§ 2nd. For the purposes of this Instruction, own working capital is considered to be the positive result of the difference between the adjusted net worth, in the manner of the current regulation, and the permanent asset.

§ 3rd. In the calculation of this operational limit, the own working capital ascertained in the trial balance of the previous month shall be used.

REGISTRATION OF OPERATIONS

Art. 5. Operations executed on behalf of a brokerage firm, or of persons linked to it, must be registered in the corresponding orders, with a highlight that reveals this circumstance.

FINANCIAL STATEMENTS

Art. 6. From the balance sheet or trial balance of brokerage firms, in accordance with specific legislation, the amount of the own portfolio must appear in a separate item.

§ 1st. The semi-annual balance sheet and respective additional financial statements, including explanatory notes, must be accompanied by a summary demonstrative table of applications by security and by market, for the respective semester, of the resources comprising the own portfolio, as well as information regarding the custody of the titles.

§ 2nd. The monthly trial balance must be accompanied by a demonstrative table of applications by security and by market of the resources comprising the own portfolio, with explanatory notes necessary to clarify the operations, as well as information regarding the custody of the titles.

§ 3rd. The semi-annual financial statements, as well as the respective demonstrative tables of the applications of the resources comprising the own portfolio, must be accompanied by an audit opinion, including regarding the observance of the limits established for own portfolio applications, contained in Article 4 of this Instruction.

§ 4th. The documents referred to in this article must be sent to the Securities and Exchange Commission within the regulatory deadlines.¹

RELATIONSHIP WITH THE CLIENT

Art. 7. Brokerage firms, as well as persons linked to them, may only act as counterparties to operations of individual portfolios administered by them when there is written authorization from the respective holder, which will be attached to the corresponding registration card.

§ 1st. Brokerage firms, as well as persons linked to them, are considered market professionals, for the purposes of the provisions provided for in CVM Instruction No. 33, of March 26, 1984.

§ 2nd. The operation of brokerage firms, as well as persons linked to them, as counterparties to operations with Mutual Equity Funds, Investment Clubs, Investment Companies - Foreign Capital, Investment Funds - Foreign Capital, Conversion Funds - Foreign Capital and Securities and Securities Portfolio maintained in the Country by entities mentioned in Article 2 of Decree-Law No. 2,285/86, administered by them, is prohibited.

§ 3rd. The prohibition provided for in § 2nd also applies when the administration of those funds, clubs, companies and portfolios maintained in the Country is carried out by an institution that is part of the same conglomerate as the brokerage firms.

Art. 8. The document that confirms the execution of client orders must highlight the operation of brokerage firms, or persons linked to them, when they are acting as the counterparty to the operation.

CONTROL AND SUPERVISION

Art. 9. Brokerage firms must keep, updated daily, records that specify, at minimum:

a) the characteristics, quantities, acquisition value and market value of the securities comprising the own portfolio;

b) the value of operations by type of business, whether purchase or sale, by market (spot, forward, futures and options), as well as the value of the margins corresponding to the guarantees required for these operations.

Art. 10. It is the responsibility of Stock Exchanges, futures and similar exchanges and over-the-counter associations to establish a control and supervision system for own portfolio operations that allows, at any time, immediate verification of compliance with the provisions provided for in this Instruction.

Sole Paragraph. The control and supervision reports resulting from the verification referred to above, as well as the measures adopted to remedy any irregularities, must be made available to the CVM.

EMOLUMENTS AND OTHER COSTS FOR BROKERAGE FIRMS

Art. 11. On the own portfolio operations of brokerage firms, an amount equivalent to 50% (fifty percent) of the brokerage fee that would be due if the operation were carried out on behalf of their clients shall be levied.¹

§ 1st. The amount referred to in the "caput" of this article must be paid to the stock exchanges where the negotiation was carried out, after the deduction of the portions corresponding to the usual and regulatory contributions due to them, for the purpose of provisioning resources for future capitalization of the equity of the Corporation for Compensation and Settlement of Operations, as provided for in Article 74 of Resolution No. 1,656, of October 26, 1989, of the Monetary National Council.

§ 2nd. For purchase and sale operations, and vice-versa, of the same security, on the same day, in auctions located in different markets, an amount equivalent to 25% (twenty-five percent) of the brokerage fee that would be due if the operation were carried out on behalf of their clients shall be levied.

§ 3rd. The return of brokerage fees provided for in Article 39 of Resolution No. 1,656, of October 26, 1989, of the Monetary National Council, is prohibited when the principal is a member of the distribution system, defined in Article 15 of Law No. 6,385/76, or persons linked to it, and is acting on their own behalf.

§ 4th. For the cases provided for in § 3rd, the amount equivalent to 50% (fifty percent) of the brokerage fee incident on those operations must be paid to the stock exchanges where the negotiation was carried out, for the purpose of provisioning resources for the capitalization of the equity of the Corporation referred to in § 1st.

§ 5th. The brokerage fees of operations carried out on behalf and order of persons linked to the brokerage firm are, without exception, due in full and, for the purpose of their payment, are equated to the own portfolio operations of the broker.

DIRECTOR TERMINAL

Art. 12. Stock exchanges that have negotiated, in the second half of the month of April 1990, average daily volumes greater than Cr$ 50,000,000.00 (fifty million cruzeiros) must install a director terminal at the CVM, prior to the start of purchase and sale operations, or vice-versa, of the same security in the same auction ("day-trade") with the own portfolio of brokerage firms.

SERIOUS OFFENSE

Art. 13. Non-compliance with the provisions provided for in this Instruction, as well as the presentation of false documents and declarations, constitutes a serious offense, for the purposes of § 3rd of Article 11 of Law No. 6,385, of December 7, 1976.

GENERAL AND TRANSITIONAL PROVISIONS

Art. 14. For the purposes of this Instruction, linked persons are considered those who hold, directly or indirectly, control of the brokerage firm, the other partners and directors of that firm, as well as their spouses or partners and minor children.

Sole Paragraph. Collective accounts, including investment clubs, whose majority of quotas belong to any of the persons referred to in the "caput" of this article, are equated to linked persons.

Art. 15. For the purposes of this Instruction, the following will not integrate the own portfolio:

I - the balances of securities originating from guarantees given in public distribution of securities, provided they are alienated within a maximum period of 180 (one hundred and eighty) days, counted from the end of the placement;

II - the shares received in payment in kind, provided they are alienated within a maximum period of 180 (one hundred and eighty) days counted from receipt.

Art. 16. Stock Exchanges may establish complementary norms to this Instruction, which must, together with the control system provided for in Article 10, be communicated to the CVM.

Art. 17. The provisions of this Instruction apply to operations executed on their own behalf in the tax incentive market.

Art. 18. The norms issued by the CVM regarding the securities market also apply to the own portfolio, insofar as applicable.

Art. 19. Brokerage firms will have a period of 60 (sixty) days, counted from the date of publication of this Instruction, to adapt to its norms.

Art. 20. This Instruction enters into force on the date of its publication in the Official Gazette of the Union, with CVM Instruction No. 105, of October 26, 1989, being repealed.

Signed original by
ARY OSWALDO MATTOS FILHO
President

CORRECTION IN INSTRUCTIONS 116 AND 117

After the publication of Instructions 116 and 117, we received from the CVM a communication of alterations that we publish below:

In the new regulation, the operational limits of brokerage and distribution firms that operate their own portfolio will become the following:

• firms whose adjusted net worth, computed from 03/31/90, in the manner determined by the norms in force, is between 1 million and 2 million BTNF, may apply up to 50% of the value of their own working capital;
• those that fall between 2 million and 3 million BTNF, may apply up to 60% of the value of their own working capital;
• those that have net worth greater than 3 million BTNF, may apply up to 70% of the value of their own working capital;
• as for firms whose adjusted net worth is less than 1 million BTNF, they may only carry out own portfolio operations in the spot market.

Another alteration that occurred is that only the semi-annual financial statements must be accompanied by an audit opinion. The monthly trial balance no longer requires this opinion; the monthly financial statement must be accompanied by explanatory notes necessary to clarify the operations, as well as information regarding the custody of the titles.

Finally, one more paragraph was included in Article 11 of Instruction 117, in the item Emoluments and other costs for Brokerage Firms. This paragraph states that in "day-trade" operations in auctions located in different markets, an amount equivalent to 25% of the brokerage fee that would be due if the operation were carried out on behalf of their clients shall be levied.