CVM Instruction No. 51 of June 9, 1986, with amendments introduced by CVM Instruction No. 604/18

CVM INSTRUCTION NO. 51, OF JUNE 9, 1986, WITH AMENDMENTS INTRODUCED BY CVM INSTRUCTION NO. 604/18.
Regulates the granting of financing for the purchase of shares by Brokerage and Distribution Companies.

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 VI of CMN Resolution No. 1,133, of May 15, 1986, resolved to issue the following Instruction:

Art. 1 Brokerage and distribution companies may only grant financing for the purchase of shares and lend shares for sale, provided that the provisions of this Instruction are observed.

Sole Paragraph. Brokerage and distribution companies are prohibited from granting financing and lending shares to:
a) their administrators, employees, or agents, members of the Fiscal Council or any other body with technical or consultative functions created by the bylaws or social contract, as well as their respective spouses or partners; b) natural or legal persons who participate directly or indirectly in their capital with more than 10% (ten percent); c) relatives up to the 2nd degree of the natural persons referred to in the previous items; d) collective accounts, including investment clubs, where the majority of quotas belong to any of the persons referred to in this article; e) legal entities whose capital is participated in directly or indirectly with more than 10% (ten percent) by the persons cited in items "a", "b", and "c"; f) members of the distribution system provided for in Art. 15 of LAW No. 6,385, of December 7, 1976.

FINANCING FOR THE PURCHASE OF SHARES

Art. 3 Financing for the purchase of shares is considered to be that granted by a brokerage or distribution company to its clients, for the acquisition, in the spot market, of shares issued by open companies and admitted to trading on a Stock Exchange.

Sole Paragraph. The financing referred to in this article shall be made using the own resources of the brokerage or distribution company, or obtained by these companies from commercial banks, investment banks, or credit, financing, and investment companies.

Art. 4 The financing and the corresponding acquisition of shares may only be carried out by the same brokerage or distribution company.

FINANCING CONTRACT

Art. 5 The financing contract must mention:
I - The term of its validity, if for a determined time; II - The right of the brokerage or distribution company to proceed with the sale, including extrajudicial, of the securities that constitute the guarantee of the operation in accordance with Art. 6, when the client fails to meet a call for reinforcement of the guarantee margin, within the period established by Art. 12, or fails to fulfill the main obligation of the contract; III - The rates and charges charged by the brokerage or distribution company.

Sole Paragraph. In the financing contract for an indefinite period, the following clauses must be included obligatorily:
a) The right of either party to rescind it at any time, independent of judicial notification, by sending a registered letter or delivering a protocolized notice. b) The period in which the financed party, in the event of rescission provoked by the brokerage or distribution company, must proceed to liquidate the outstanding balance of the operation. c) The right of the brokerage or distribution company to proceed with the sale, including extrajudicial, of the securities that constitute the guarantee of the operation in accordance with Art. 6, whenever, if the contract is rescinded at the initiative of the brokerage or distribution company, the client does not liquidate the balance of the operation within the period established in the contract.

GUARANTEE OF FINANCING

Art. 6 As guarantee for the financing, the financed party must pledge to the brokerage or distribution company the shares acquired, whose value, added to other guarantees, represents, at minimum, 140% (one hundred and forty percent) of the value of the financing.

Sole Paragraph. To the acquired shares, other securities or fixed-income titles, public or private, all owned by the financed party, must be added as guarantee for the operation, evaluated in accordance with Arts. 9 and 10.

Art. 7 The titles or securities pledged to the brokerage or distribution company must be kept in custody with these companies, on Stock Exchanges, or in other institutions authorized by the CVM to provide this service, until the liquidation of the operation.

Art. 8 The brokerage or distribution company may, among the titles or securities mentioned in Arts. 2 and 6, select those that will integrate the guarantee of the operation.

Art. 9 The pledged shares will be evaluated, at most daily, by the average price recorded on the Stock Exchange where they were most traded on the previous day, or on the last day they were transacted.

Art. 10. The pledged fixed-income titles and debentures will be evaluated daily by their market value.

Art. 11. It will be optional for the financed party, by agreement with the brokerage or distribution company, to proceed with the substitution of the pledged titles or securities, provided that the total value of the guarantee does not decrease on the date of substitution.

Art. 12. When the titles or securities guaranteeing the financing suffer devaluation, such that the guarantee no longer represents, at minimum, 140% of the value of the financing, the brokerage or distribution company is obliged to demand, and the financed party to meet, within a maximum period of 2 (two) business days, counted from the day the devaluation occurred, reinforcement of guarantee, under penalty of immediate rescission of the financing contract.

Art. 13. Brokerage or distribution companies may use the credit rights they hold as a result of financing operations, in the manner provided by Decree No. 24,778, of July 14, 1934, as guarantee with financial institutions that have provided them with the resources necessary for the operations.

SPECIAL CURRENT ACCOUNT

Art. 14. For the purpose of registering the financing granted, the brokerage or distribution company will open a special current account in the name of each financed party, registering therein all effects of the operation.

Art. 15. Always accompanying the current account mentioned above will be an Auxiliary Control Register, from which all conditions and characteristics of each financing operation must be perfectly identified, such as: outstanding balance, characteristics and quantity of the shares acquired, as well as the titles or securities given as guarantee, and the value of the guarantees according to evaluation on the date of each operation.

Sole Paragraph. The data contained in the auxiliary register, added to the entries made in the current account provided for in Art. 14, must enable, at any time, the immediate verification of compliance with the provisions of this Instruction.

Art. 16. It is prohibited to use any other current account that the client maintains with the brokerage or distribution company, including that used for the registration of share lending operations for sale, for the registration of the effects of financing operations for the purchase of shares.

CONTROL AND INFORMATION SYSTEM

Art. 17. Every share purchase operation made with financing granted by a brokerage or distribution company must be identified as such in the client specification made after the closing of the trading session.

Sole Paragraph. When the purchase is made with financing granted by a distribution company, or a brokerage from another market, these are obliged to communicate this fact, as well as the name or code of the financed party, to the brokerage company that executes the purchase on the Stock Exchange, as soon as they receive confirmation of the operation from it.

Art. 18. Brokerage and distribution companies must maintain a control system that enables, regarding financing operations for the purchase of shares, the identification, at any time, of at least the following data:
I - total values financed by them (financing in progress); II - characteristics, quantity, and updated market value of the financed shares; III - characteristics, quantity, and updated market value of the titles or securities integrating the guarantee of the financing granted.

Art. 19. The monthly statements and semi-annual balance sheets of brokerage and distribution companies must contain, in a separate rubric, the total value of financing granted and the total value of titles or securities integrating the guarantee.

Art. 20. Stock Exchanges must publish in their bulletins, within a maximum period of 3 (three) business days from the date of the trading session, the total volume of margin purchases, specifying the quantities, volumes, and number of trades per share.

Art. 20. REVOKED

• Art. 20. revoked by CVM Instruction No. 604, of December 13, 2018.

LENDING OF SHARES FOR SALE

Art. 21. Lending of shares for sale is considered to be that carried out by a brokerage or distribution company, having as its object shares issued by open companies and admitted to trading on Stock Exchanges, which shall be destined exclusively for sale in the spot market, in the name of the borrower of the loan.

§ 1 The shares lent may only be sold through the same brokerage or distribution company that granted the loan.

§ 2 The lending for sale may only have as its object shares:
a) custodied in the brokerage or distribution company, or in other institutions authorized by the CVM to provide custody services, and whose owners have contractually authorized their use in operations of this nature, observing the provisions of Art. 25; b) owned by the brokerage or distribution company.

LENDING CONTRACT

Art. 22. The lending contract must mention, at minimum:
I - The term of its validity, if for a determined time; II - The right of the borrower to liquidate the loan by delivering shares of the same form, species, class, and company, independent of the serial number of the certificates sold by him; III - The right of the brokerage or distribution company to proceed with the sale, including extrajudicial, of the securities that constitute the guarantee of the operation in accordance with Art. 23, when the client fails to meet a call for reinforcement of the guarantee margin, within the period established in Art. 25, or fails to fulfill the main obligation of the contract; IV - The rates and charges charged by the brokerage or distribution company.

Sole Paragraph. In the lending contract for an indefinite period, the following clauses must be included obligatorily:
a) the right of either party to rescind the contract at any time, independent of judicial notification, by sending a registered letter or delivering a protocolized notice; b) the period in which the borrower, in the event of rescission provoked by the brokerage or distribution company, must proceed to liquidate the operation; c) the right of the brokerage or distribution company to proceed with the sale, including extrajudicial, of the securities that constitute the guarantee of the operation in accordance with Art. 23, whenever, if the contract is rescinded at the initiative of the brokerage or distribution company, the client does not liquidate the loan within the period established in the contract.

GUARANTEE OF LENDING

Art. 23. As guarantee for the lending, the borrower must deliver to the brokerage or distribution company, in addition to the proceeds of the sale mentioned in Art. 21, public or private fixed-income titles or securities of his ownership, such that the total guarantee represents a value equivalent to, at minimum, 140% of the shares lent, according to evaluation in accordance with Arts. 9 and 10.

§ 1 The titles or securities pledged to the brokerage or distribution company must be kept in custody with these companies, on a Stock Exchange, or in other institutions authorized by the CVM to provide this service, until the liquidation of the lending operation.

§ 2 The eventual application of the proceeds of the sale may only be made in fixed-income titles, and the destination of the yields obtained must be the subject of contractual stipulation.

Art. 24. The guarantees of the lending are subject to the provisions contained in Arts. 8 to 11.

Art. 25. When, during the course of the loan, the total value of the guarantees, whether due to appreciation of the lent shares or devaluation of the titles or securities given as guarantee, suffers a reduction such that it comes to represent less than 140% of the outstanding balance, the brokerage or distribution company is obliged to demand, and the borrower to meet, within a maximum period of 2 (two) business days counted from the day the value fluctuation occurred, reinforcement of guarantee, under penalty of immediate rescission of the lending contract.

SPECIAL CURRENT ACCOUNT

Art. 26. For the purpose of registering the loans granted, the brokerage or distribution company will open a special current account in the name of each borrower, registering therein all effects of the operation.

Art. 27. Always accompanying the current account mentioned above will be an Auxiliary Control Register from which all conditions and characteristics of each lending operation must be perfectly identified, such as: discrimination and evaluation of the shares taken on loan, discrimination of the titles or securities given as guarantee, value of the guarantees, according to evaluation on the date of each operation.

Sole Paragraph. The data contained in the auxiliary register, added to the entries made in the current account mentioned in Art. 26, must enable, at any time, the immediate verification of compliance with the provisions of this Instruction.

Art. 28. It is prohibited to use any other current account that the client maintains with the brokerage or distribution company, including that used for the registration of financing operations for the purchase of shares, for the registration of the effects of a lending operation of shares for sale.

CONTROL AND INFORMATION SYSTEM

Art. 29. Brokerage and distribution companies must maintain a control system that enables, regarding lending operations of shares for sale, the identification, at any time, of at least the following data:
I - characteristics, quantity, and updated market value of the shares lent and sold by them (loans in progress); and II - characteristics, quantity, and updated market value of the titles or securities integrating the guarantee of the operations.

Art. 30. Every share sale operation of shares taken on loan through a brokerage or distribution company must be identified as such in the client specification made after the closing of the trading session.

Sole Paragraph. When the shares are lent by a distribution company, or a brokerage from another market, these are obliged to communicate this fact, as well as the name or code of the borrower, to the brokerage company that executes the sale on the Stock Exchange, as soon as they receive confirmation of the operation from it.

Art. 31. The monthly statements and semi-annual balance sheets of brokerage and distribution companies must contain, in a separate rubric, the total value of lending operations of shares carried out and the total value of titles or securities integrating the guarantee.

Art. 32. Stock Exchanges must publish in their bulletins within a maximum period of 3 (three) days from the date of the trading session, the total volume of margin sales, specifying the quantities, volumes, and number of trades per share.

Art. 32. REVOKED

• Art. 32. revoked by CVM Instruction No. 604, of December 13, 2018.

RELATIONSHIP BETWEEN THE OWNERS OF THE SHARES SUBJECT TO THE OPERATION AND THE BROKERAGE AND DISTRIBUTION COMPANIES

Art. 33. Brokerage and distribution companies will identify, among the shares custodied by their clients, those that are used in lending operations for sale.

Art. 34. Brokerage and distribution companies are responsible, towards the client owners of the shares lent by them, for the replacement of the same, with no link being established between them and the borrowers of the loan.

Art. 35. The contract referred to in Art. 21, § 2, item "a", must contain:
I - if the loan is for a determined or indefinite period; II - that the return of the shares used by the brokerage or distribution company in carrying out the lending operation will not necessarily be made through the same certificates; III - in the case of an indefinite period contract, in how many days, from the client owner's request, the brokerage or distribution company must proceed with the return of the shares subject to lending; IV - what treatment will be given to the rights inherent to the shares used in the lending operation; V - the form of remuneration for the lending of shares.

OPERATIONAL LIMIT

Art. 36. The total volume of operations regulated by this Instruction carried out by the brokerage or distribution company may not exceed 5 (five) times the value of its respective net worth, calculated from the data of the balance sheet or statement referring to the month immediately preceding.

§ 1 The total volume of operations will be considered as the sum of the volume of financing granted for the purchase of shares and the updated market value of the shares lent for sale, calculated in accordance with § 2.

§ 2 The operational limit provided for in this article must be calculated daily by the brokerage or distribution company, considering as the updated market value of the shares their last average quote on the Stock Exchange where they were most traded.

RESPONSIBLE DIRECTOR

Art. 37. Brokerage companies may only carry out the operations provided for in this Instruction, after the indication, to the CVM and the Stock Exchange, of a director or managing partner responsible for these operations, and distribution companies must adopt the same procedure with respect to the CVM.

GENERAL PROVISIONS

Art. 38. According to market conditions, the CVM may determine the temporary suspension of the carrying out of the operations provided for in this Instruction.

Sole Paragraph. Observing the minimum guarantee provided for in this Instruction, Stock Exchanges and brokerage and distribution companies may set differentiated guarantee margins, taking into account the degree of liquidity and volatility of the shares subject to margin account operations.

Art. 39. It is prohibited for brokerage and distribution companies to grant any financing for operations in the securities market under conditions different from those provided for in this Instruction.

Art. 40. It is the responsibility of Stock Exchanges to establish the complementary norms necessary for the carrying out, by brokerage companies, of the operations regulated in this Instruction, obligatorily including in their supervision plans the verification of all norms and procedures established therein.

Sole Paragraph. In the case of operations carried out by distribution companies, it is the responsibility of the CVM to adopt the procedures provided for in this article.

EFFECTIVENESS

Art. 41. This Instruction will enter into force on the date of its publication in the Official Gazette of the Union.

Rio de Janeiro, July 9, 1986

Signed original by
VICTÓRIO FERNANDO BHERING CABRAL
President