CVM Instruction No. 431 of May 29, 2006 (Revoked)

FULL TEXT OF CVM INSTRUCTION NO. 431, OF MAY 29, 2006, WITH THE CHANGES INTRODUCED BY CVM INSTRUCTION NO. 480/09.

Amends CVM Instructions Nos. 331 and 332, both of April 4, 2000.

THE PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION OF BRAZIL – CVM makes public that the Collegiate Body, in a meeting held on May 26, 2006, based on the provisions of Arts. 8, item I, 19 and 21 of Law No. 6,385, of December 7, 1976, resolved to issue the following Instruction:

Art. 1 The arts. 1, 3, 4, 5 and 12 of CVM Instruction No. 331, of April 4, 2000, shall enter into force with the following wording:

“Art. 1 The negotiation of certificates of deposit of securities – BDRs Levels II and III in a stock exchange or in an organized over-the-counter market depends on the prior registration of the company with the CVM, in accordance with the norms provided for in this Instruction.” (NR)

“Art. 3 ...
...
II – the designation of a legal representative of the company in Brazil, with full powers to deal with any issues, who may be sued and receive initial summons and notifications on behalf of the company.
§1 The legal representative must be domiciled and resident in Brazil, and their designation must be expressly and formally accepted by them, including indication of awareness of the responsibilities imposed on them by Brazilian law and regulation. §2 In the event of resignation, death, incapacity or permanent impediment of the legal representative, the company shall have a period of 20 (twenty) days to promote their replacement, observing the formalities referred to in § 1.” (NR)

“Art. 4 The legal representative referred to in art. 3 is responsible, together with the company, for providing the information mentioned in this Instruction to investors, the CVM, the stock exchange or the over-the-counter market entity, as well as for keeping the company registration up to date.” (NR)

“Art. 5 ...
I – document from the company’s administration designating the legal representative and document from the depositary institution designating the responsible director, observing the provisions of § 1 of art. 3;

II – ... a) the stock exchange or the over-the-counter market entity in which the company has its securities negotiated and the trading volumes in each of the last twelve months; ... h) the legal opinion issued by a lawyer from the country where the securities are held regarding the legal environment of that country, especially with regard to trading requirements and limitations, hypotheses for cancellation of registration and restrictions on the exercise of political or pecuniary rights, including, if applicable, due to the difference between the company’s headquarters and the custodian’s location; and i) issues of interest to investors pertinent to the BDR program and the services provided by the depositary institution. ... IV – accounting information provided by the company’s legal representative:
a)... b) the company’s financial statements and consolidated statements, prepared in accordance with Brazilian accounting standards accompanied by a special review report issued by an independent auditor registered with the CVM, and the presentation of the Standardized Financial Statements form – DFP, filled out based on the cited report; c) quarterly information on the balance sheet and the quarterly income statement, in accordance with Brazilian accounting principles and practices, accompanied by a quarterly performance report, on each of the first three quarters of the current fiscal year, provided that more than forty-five days have passed since the end of each quarter, or that they have already been disclosed in another country, accompanied by a special review report issued by an independent auditor registered with the CVM. V – ... f) indication of risk factors related to the limitation on the exercise of rights by BDR holders, including those resulting from the diversity between the company’s headquarters and the country where the securities are negotiated, prepared on a date that precedes the submission of the request to the CVM by up to three months; and g) any other additional information disclosed in any other market in which the company has its securities negotiated.

§1 The company must disclose the deadline set for BDR holders to participate in the relevant general assemblies concerning the securities represented by the BDRs.
§2 The company’s financial statements and consolidated statements referred to in item “b” of item IV of the caput must be supplemented by Additional Explanatory Notes to the statements cited in item “a” of the same item, which describe:
I – the accounting standard of the company’s home country and a comparative analysis of the accounting principles and practices applicable in the country with Brazilian accounting principles and practices; II – accounting information disclosed in any other country other than the company’s country of origin; and III – the reconciliation of equity and result elements with those determined in accordance with Brazilian accounting principles and practices. §3 The information cited in items “b” and “c” of item IV of the caput, as well as those provided in § 2 of this article, must be converted into national currency according to the norms of the Brazilian Institute of Accountants – IBRACON and approved by the CVM. §4 If the statements referred to in item “a” of item IV of the caput are prepared in consonance with international accounting standards issued by the International Accounting Standards Board – IASB:
I – the presentation of the statements and quarterly information provided for in items “b” and “c” of item IV of the caput is waived; and II – the requirements contained in items I to III of § 2 and in § 3 apply to the statements and quarterly information prepared in consonance with international standards, which must be accompanied by a special review report issued by an independent auditor registered with the CVM, regarding the sufficiency and adequacy of the explanatory notes referred to in items I to III of § 2. §5 The provisions of § 4 apply even in cases where only the consolidated statement is prepared and disclosed in consonance with international accounting standards.” (NR)

“Art. 12...
I – the financial statements and, if applicable, the consolidated statements, prepared in the manner of item IV of art. 5 or § 4 of the same article, on the day of their disclosure in any other country or market; …………..” (NR)

• Article revoked by CVM Instruction No. 480, of December 7, 2009

Art. 2 The arts. 1, 2, 3, 4, 5, 8, 9, 10 and 11 of CVM Instruction No. 332, of April 4, 2000, shall enter into force with the following wording:

“Art. 1 ...
I – ...
II – custodian institution: the institution, headquartered in the country where the securities are negotiated, authorized by an authority similar to the CVM to provide custody services; III – depositary institution: the institution that issues, in Brazil, the corresponding deposit certificate, based on the securities held in custody abroad; ......” (NR)

“Art. 2 Only securities issued by open companies, or similar, that are admitted to negotiation and held in custody in countries whose regulatory bodies have entered into a cooperation agreement with the CVM regarding consultation, technical assistance and mutual assistance for the exchange of information, or are signatories to the multilateral memorandum of understanding of the International Organization of Securities Commissions – IOSCO, will be accepted. §1 It will be admitted that the securities are held in custody and negotiated in different countries, provided that the regulatory bodies of both countries meet the requirement established in the caput. §2 If the securities that serve as collateral for the issuance of BDRs are negotiated in more than one country, the provisions of the caput shall apply to the country where the same securities have the highest trading volume. §3 In the event that the company is headquartered in a country whose regulatory body does not maintain a cooperation agreement with the CVM or is not a signatory to the multilateral memorandum of understanding of the IOSCO, the legal representative referred to in §§ 1 and 2 of art. 3 of CVM Instruction No. 331, of 2000, must be designated among the 2 (two) main executives of the company. §4 The CVM may, as appropriate, deny registration or determine the adjustment or cancellation of Programs backed by securities admitted to negotiation and held in custody in countries whose regulatory body is, or comes to be considered by the CVM as non-cooperative, for the purpose of mutual assistance for the exchange of information.” (NR)

“Art. 3 ...

§1 A sponsored BDR program is characterized by being established by a single depositary institution, contracted by the issuing company of the securities object of the deposit certificate, and may be classified in the following levels:
I – ... a) negotiation in an unorganized over-the-counter market or in specific segments for Level I BDRs of an over-the-counter market entity or stock exchange; b) disclosure, in Brazil, of the information that the issuing company is obliged to disclose in its country of origin, plus those mentioned in § 3; c)... d) exclusive acquisition by:

1. financial institutions;
2. investment funds intended exclusively for qualified investors;
3. portfolio administrators and securities consultants authorized by the CVM, regarding their own resources; and
4. employees of the sponsoring company or another company part of the same economic group.
   II – ... a) admission to negotiation in a stock exchange or in an organized over-the-counter market; and b)...
   III – ... a)... b) admission to negotiation in a stock exchange or in an organized over-the-counter market; and c)...

§2 A non-sponsored BDR program is characterized by being established by one or more depositary institutions issuing certificates, without an agreement with the issuing company of the securities object of the deposit certificate, only allowing negotiation in the manner of Sponsored BDR Level I. §3 In non-sponsored programs, the depositary institution issuing the Level I BDR must disclose, as soon as they are available in the country of origin, the following information:
I – relevant facts and communications to the market; II – notice of the availability of financial statements in the country of origin; III – notices of convening assemblies; IV – notices to shareholders; V – deliberations of shareholders’ assemblies and board of directors meetings, or corporate bodies with equivalent functions, in accordance with the legislation in force in the country of origin; and VI – financial statements of the company, without the need for conversion into reais or reconciliation with the accounting standards in force in Brazil. §4 Stock exchanges and over-the-counter market entities that maintain negotiation segments for Level I BDRs must establish warning mechanisms regarding the risks inherent to the assets negotiated there, especially regarding the fact that it is a company not registered with the CVM and subject to different accounting standards and legislation than those in force in Brazil. §5 The acceptance of orders for Level I BDR negotiation by intermediaries is conditioned on proof that the investor fits into at least one of the conditions established in item “d” of item I of § 1 of this article.” (NR)

“Art. 4 The depositary institution issuing BDRs must request the CVM to register the program, specifying its characteristics.” (NR)

“Art. 5 The registration request for the BDR Program must be accompanied by the following documents and information:
...
III – declaration from the stock exchange or the over-the-counter market entity regarding the approval of the request for admission to BDR negotiation, conditioned only on obtaining registration with the CVM; ...
V – term of assumption of responsibility by the depositary institution or BDR issuer for the simultaneous disclosure to the market of the information provided by the sponsoring company in its country of origin and in the country where the securities are negotiated; ... X – specifically in the case of Level III BDRs, compliance with CVM Instruction No. 400, of December 29, 2003, and other CVM norms applicable to the distribution of the securities object of the program will also be required. ... §3 The registration of the BDR program will also depend on the commitment, by the depositary institution or BDR issuer, to observe the procedures for discontinuation of the program that are established by the stock exchange or over-the-counter market entity where it is negotiated. §4 In the event that there is a subjective or objective restriction on the negotiation of the securities in the country where they are negotiated, the registration of the BDR distribution in Brazil will be granted with the same restrictions. §5 The contracts referred to in this article must stipulate that the depositary institution is obliged to provide the CVM, at any time and within the period to be determined by it, any information and documents related to the approved programs and the issued securities. §6 Without prejudice to the provisions applicable to public distributions in general, the legal representative is responsible for the veracity of the information provided by the depositary in the registration of the company and in the registration of the BDR distribution, which relate to the limitations on the exercise of rights by BDR holders, including those resulting from the diversity between the company’s headquarters and the country where the securities are negotiated, and with the trading requirements and limitations, hypotheses for cancellation of registration, and subjective or objective restrictions on the negotiation of the securities in the country where they are negotiated.” (NR)

“Art. 8 The depositary institution and its responsible director are liable to the CVM for any irregularity in the conduct of the program, respecting the competencies of the Central Bank of Brazil and the Federal Revenue Secretariat.” (NR)

“Art. 9 It is the duty of the depositary institution to keep up to date and available to the CVM the statements that reflect the daily movement of issued and cancelled BDRs.” (NR)

“Art. 10 When the depositary institution is granted the right to vote corresponding to the deposited securities, it must exercise it in the interest of the community of BDR holders.” (NR)

“Art. 11. It constitutes a serious offense, for the purposes of the provisions of § 3 of art. 11 of Law No. 6,385, of December 7, 1976, the non-compliance with the provisions of item “b” of item I of § 1 and §§ 3 and 5 of art. 3, and of arts. 4, 5, 9 and 10 of this Instruction.” (NR)

Art. 3 Article 14 of CVM Instruction No. 331, of April 4, 2000, is revoked.

• Article revoked by CVM Instruction No. 480, of December 7, 2009

Art. 4 This Instruction enters into force on the date of its publication in the Official Gazette of the Union.

Signed original by
MARCELO FERNANDEZ TRINDADE
President