Explanatory Note CVM 05 - Resolution No. 464: Adjustment of Brokerage Rates for Stock Exchange Intermediation

EXPLANATORY NOTE No. 05 - RESOLUTION No. 464.
Ref.: Adjustment of brokerage rates for stock exchange intermediation operations.

Operations conducted in Stock Exchanges reflect the guarantee of the possible mobilization of capital, a relevant factor in the process of raising resources for the financing of the economy via the stock market.

The possibility of converting shares into cash and vice versa, at the most appropriate time, is an essential factor for investor confidence willing to invest their savings in productive activities necessary for the country's development. It is indisputable, therefore, the public interest inherent in activities conducted in the stock market, whose reliability must be guaranteed through, among other factors, responsible, capable, and financially solid intermediaries, willing to invest material and human resources necessary to offer better services to the investing public.

Considering, therefore, the public interest in negotiations conducted in Stock Exchanges and oriented towards investor protection, the authorities established brokerage rates applicable to transaction values that guarantee clients a fair price for received services and adequate remuneration for the intermediary institution.

Stock exchange intermediation is an activity exclusive to Brokerage Societies, whose remuneration is brokerage. The exercise of this activity requires a specialized operational and administrative structure, using advanced technology and high qualification of its human resources.

The provision of technical analysis, information, and customer service, execution of orders in the trading floor, processing, settlement, and control of operations is inherent to intermediation, and its costs are directly related to this activity.

However, in recent years, the reduction in the real volume in cruzeiros of operations in Stock Exchanges, with the simultaneous increase in the quantity of shares traded and the increase in operational costs, were not sufficiently compensated by the adjustments made in the brokerage fee tables, causing a real reduction in remuneration for Brokerage Societies in the activity of stock exchange intermediation.

Naturally, what could represent an advantage to the investor through the real reduction in the prices of received services may signify a threat to the quality of the same or, even, its loss, mainly prejudicing the small investor since the unit cost of an order does not depend on the value of the transaction. On the other hand, Brokerage Societies, discouraged by the low profitability of this activity, have not been investing sufficiently in the technical and human instruments necessary to guarantee the high quality indispensable for the guidance of investments and execution of their clients' operations.

EXPLANATORY NOTE No. 05 - RESOLUTION No. 464.
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The damage that the maintenance of this situation has brought to both parties, intermediaries and investors, has led to the need for a revision in the structure of the brokerage fee tables in force.

Considering that the monetary correction of the limits of the ranges related to the values of operations only restores the value of brokerage to the levels established since July 1968, and that only in the last five years has the volume in cruzeiros of negotiations in Stock Exchanges had a reduction of 43% with an increase of 200% in the quantity of shares traded, and therefore, with a significant increase in the workload regarding the handling, registration, and control of the certificates representing these shares, it was deemed necessary to provide an average real increase for brokerage revenues of the order of 45%, representing a partial recovery of losses resulting from market behavior in recent years. In this sense, within the guidelines originally established by Resolution No. 39/66, one of the initial ranges of operation value with a brokerage rate of 2% was re-established, presented in the following form:

BROKERAGE TABLE
OPERATION VALUE
CR$
BROKERAGE RATE
%
Up to 50,000 2.0 Minimum CR$ 80.00
On what exceeds
50,000 up to 150,000
1.5
On what exceeds
150,000 up to 300,000
1.0
On what exceeds
300,000
0.5

EXPLANATORY NOTE No. 05 - RESOLUTION No. 464.
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Furthermore, concerned with the need for continuous and permanent resources especially directed to the development programs of the Securities Market, it was established that 1% of brokerage fees on stock exchange intermediation operations be allocated to the formation of a special fund, managed by the Stock Exchanges themselves, with a view to financing education and market dissemination programs approved by the Capital Market Dissemination Committee – CODIMEC.

We believe that with these measures, Brokerage Societies will have the conditions to improve their services, taking the position that belongs to them by natural vocation in this important segment of the capital market.