CVM Instruction No. 235 of March 23, 1995

CVM INSTRUCTION NO. 235, OF MARCH 23, 1995.

Provides for the disclosure, in explanatory notes, of the market value of financial instruments, recognized or not in the financial statements of publicly-held companies, and gives other provisions.

The PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION - CVM makes public that the Collegiate Body, in a session held on this date, and having in view the provisions of paragraph 3 of article 177 of Law No. 6,404/76, combined with the provisions of items I, II and IV of the sole paragraph of article 22 of Law No. 6,385/76,

HAS RESOLVED:

Art. 1. Publicly-held companies that possess financial instruments, recognized or not as an asset or liability in their balance sheet, must disclose, in an explanatory note annexed to their financial statements and to the quarterly information - ITR, the market value of these financial instruments, in accordance with article 3 of this Instruction.

Sole Paragraph. The criteria and premises adopted for determining this market value, as well as the policies of action and control of operations in the derivative markets and the risks involved, must also appear in an explanatory note.

Art. 2. For the purposes of this Instruction, a financial instrument is characterized as any contract that gives rise to a financial asset in one entity and to a financial liability or equity instrument in another entity, recognized or not in the manner of article 1.

§1. For the purposes of this Instruction, the following are considered financial assets:
a) cash; b) contractual rights to receive in currency or in financial instruments of another entity; c) contractual rights to exchange financial results (swaps) or financial instruments; and d) instruments representing participation in the equity of another entity.

§2. For the purposes of this Instruction, financial liabilities are characterized as contractual obligations to:
a) pay a certain amount in currency or in financial instruments; and b) exchange financial results or financial instruments.

Art. 3. For the purposes of this Instruction, market value is considered:
I - the value that can be obtained with the negotiation of the financial instrument in an active market, in which the buyer and seller possess knowledge of the subject and independence from each other, without corresponding to a compulsory transaction or resulting from a liquidation process, or II - in the absence of an active market for a given financial instrument:
a) the value that can be obtained with the negotiation of another financial instrument of similar nature, term and risk, in an active market, as referred to in item I of this article; or b) the net present value of future cash flows to be obtained, adjusted based on the interest rate prevailing in the market, on the balance sheet date, for financial instruments of similar nature, term and risk.

Art. 4. The provisions of article 1 do not apply to:
a) trade receivables, in the issuing companies, and trade payables; b) insurance contracts, in insurance companies; c) lease contracts, in the lessee; d) investments in shares that do not have a market value in accordance with article 3, item I, of this Instruction; and e) obligations with pension, retirement, insurance and health plans for employees.

Art. 5. In the negotiation of financial instruments made at a value above the market value and combined with a credit operation, the following must be observed:
I - in publicly-held companies selling the securities and financing the credit operation, the gain resulting from the difference between the sale value and the market value of the security must be recorded as a reduction of the asset representing credit, for appropriation to the result, as financial revenue, on the same basis and period in which the interest revenues related to this credit operation are appropriated;

II - in publicly-held companies purchasing the securities, the difference between the acquisition value and the market value of the security must be recorded in a contra-asset and contra-liability account, and this contra-liability account must be appropriated to the result, as financial expense, on the same basis and period in which the interest expenses related to the credit operation are appropriated.

Art. 6. The gain on the acquisition of a financial instrument whose market value is lower than its face value, even in cases where it can be used to settle debts, will only be recognized as it is effectively realized.

Art. 7. This Instruction will enter into force on the date of its publication in the Official Gazette of the Union, applying to quarterly information and financial statements closed from June/95, inclusive.

Signed original by
THOMÁS TOSTA DE SÁ
President