Resolution CMN No. 1655 — Regulates the Constitution, Organization, and Operation of Securities Brokerage Companies

RESOLUTION NO. 001655

THE CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4,595 of December 31, 1964, makes public that the MONETARY COUNCIL NATIONAL, in a session held on October 25, 1989, having regard to the provisions of Articles 2, item VI, 8, and 9 of Law No. 4,728 of July 14, 1965, and Article 18, item I of Law No. 6,385 of December 7, 1976,

RESOLVES:

I - To approve the attached Regulation, which governs the constitution, organization, and operation of securities brokerage companies.

II - The Central Bank and the Securities and Exchange Commission, each within their respective spheres of competence, may issue norms and adopt measures deemed necessary for the execution of the provisions of this Resolution.

III - This Resolution shall enter into force on the date of its publication, with Resolution No. 922 of May 15, 1984, item XX of Resolution No. 1,339 of June 15, 1987, and items III and V to IX of Circular No. 76 of February 22, 1967, being repealed.

Brasília-DF, October 26, 1989

Wadico Waldir Bucchi
President

ATTACHED REGULATION TO RESOLUTION NO. 1,655, OF OCTOBER 26, 1989, WHICH GOVERNS THE CONSTITUTION, ORGANIZATION, AND OPERATION OF SECURITIES BROKERAGE COMPANIES

CHAPTER I

Of the Characteristics, Constitution, and Operation

Art. 1. The securities brokerage company is an institution authorized to practice the activities attributed to it by Laws No. 4,728 of July 14, 1965, 6,385 of December 7, 1976, and applicable regulation.

Art. 2. The securities brokerage company has the following corporate purpose:

I - to operate in the premises or in a system maintained by a stock exchange;

II - to subscribe, individually or in consortium with other authorized companies, issuances of securities and financial assets for resale;

III - to intermediate public offerings and distribution of securities and financial assets in the market;

IV - to buy and sell securities and financial assets for its own account and for third parties, observing regulation issued by the Securities and Exchange Commission and the Central Bank of Brazil in their respective areas of competence;

V - to be responsible for the administration of portfolios and the custody of securities and financial assets;

VI - to be responsible for subscription, transfer, and authentication of endorsements, splitting of deposit receipts, receipt and payment of redemptions, interest, and other proceeds of securities and financial assets;

VII - to exercise the functions of fiduciary agent;

VIII - to establish, organize, and administer investment funds and clubs;

IX - to constitute an investment company - foreign capital and administer its respective portfolio of securities and financial assets;

X - to exercise the functions of issuer agent for certificates and maintain book-entry services;

XI - to issue deposit certificates for shares and pledge certificates for debentures;

XII - to intermediate foreign exchange operations;

XIII - to practice operations in the floating rate foreign exchange market;

XIV - to practice margin account operations, in accordance with regulation of the Securities and Exchange Commission;

XV - to conduct repo operations;

XVI - to practice buy and sell operations of precious metals, in the physical market, for its own account and for third parties, under the terms of regulation issued by the Central Bank of Brazil;

XVII - to operate in commodity and futures exchanges for its own account and for third parties, observing regulation issued by the Securities and Exchange Commission and the Central Bank of Brazil in their respective areas of competence;

XVIII - to provide intermediation and advisory or technical assistance services, in operations and activities in the financial and capital markets;

XIX - to exercise other activities expressly authorized, jointly, by the Central Bank of Brazil and the Securities and Exchange Commission.

Art. 3. The constitution and operation of a brokerage company depend on authorization from the Central Bank.

Paragraph 1. The brokerage company must be constituted as a corporation or a limited liability company.

Paragraph 2. The conditions indispensable for the granting of the authorization provided for in this article, among others, are admission as a member of a stock exchange, due to the acquisition of an equity title issued by it, and approval by the Securities and Exchange Commission for the exercise of activities in the securities market.

Paragraph 3. If the authorization for operation is not requested within 180 (one hundred and eighty) days from the acquisition of the equity title, the stock exchange shall proceed to its sale at auction.

Art. 4. The installation of a branch of a brokerage company in a city where a stock exchange operates depends on the acquisition of the respective equity title, this requirement may be waived:

I - for the practice of all activities contained in its corporate purpose, provided it is admitted to operate due to an agreement between the stock exchange of which it is a member and that of the intended location;

II - for the practice of all activities contained in its corporate purpose, with the exception of that referred to in item I of Article 2.

Sole Paragraph. The brokerage company must register its branches in the stock exchange of the city or region where they are located, complying with the requirements established in each case, except in the case of item II of this article.

Art. 5. The brokerage company must observe the minimum limits of paid-in capital and net worth fixed in the regulation in force.

Art. 6. The Central Bank will cancel the authorization for the operation of a brokerage company or branch that, within 6 (six) months from the date of granting, does not start activities.

Sole Paragraph. In fully justified cases, the Central Bank may, after hearing the Securities and Exchange Commission previously, extend the period referred to in this article.

CHAPTER II

Of the Equity Title

Art. 7. The equity title guarantees, preferentially, through real pledge, opposable to third parties, in accordance with Articles 790 to 795 of the Civil Code, the debts of the brokerage company to the stock exchange and the good settlement of operations carried out therein, and must be pledged in favor of the exchange before the company starts its operations.

Sole Paragraph. The brokerage company will be in default if it does not pay its debts when due or does not settle any operation within the regulatory period, in which case the respective equity title must be auctioned by the stock exchange.

Art. 8. The brokerage company that alienates the equity title, by any means, must immediately communicate the fact to the respective stock exchange.

Paragraph 1. If the title is already pledged, the alienation may only occur with the express consent of the stock exchange and after all obligations guaranteed by the pledge have been settled, not implying waiver of the creditor, in accordance with Article 803 of the Civil Code.

Paragraph 2. The alienation will result in the loss of the quality of member of the exchange and the cessation of the activity of the brokerage company, without prejudice to the enforceability of all obligations contracted by the alienator and the compliance with penalties imposed on it in accordance with regulation.

CHAPTER III

Of Administration

Art. 9. Only natural persons, residents in Brazil, who meet the conditions provided for in the legislation and regulation in force, may be administrators of a brokerage company.

Art. 10. The brokerage company must maintain, for each area of activity it develops, a technically qualified administrator responsible for the operations, accumulation of areas being admitted, except in cases prohibited by legal and regulatory norms.

CHAPTER IV

Of Operational Norms

Art. 11. The brokerage company is responsible, in operations carried out in stock exchanges, towards its clients and towards other brokerage companies with which it has operated or is operating:

I - for their settlement;

II - for the legitimacy of the securities or financial assets delivered;

III - for the authenticity of endorsements in financial assets and legitimacy of power of attorney or documents necessary for the transfer of financial assets.

Art. 12. It is prohibited for the brokerage company:

I - to carry out operations that characterize, in any form, the granting of financing, loans, or advances to its clients, including through the assignment of rights, except for margin account operations and those otherwise provided for in the regulation in force;

II - to charge its clients brokerage or any other commission regarding negotiations with a specific financial asset during its primary distribution period;

III - to acquire goods not intended for own use, except those received in settlement of difficult or doubtful debts, in which case it must sell them within a period of 1 (one) year, from receipt, extendable up to 2 (two) times, at the discretion of the Central Bank;

IV - to obtain loans or financing from financial institutions, except those linked to:

a) acquisitions of goods for own use;

b) operations and commitments involving fixed income securities, in accordance with regulation in force;

c) margin account operations of its clients, in accordance with regulation in force;

d) guarantees in subscription or acquisition of financial assets subject to public distribution;

V - to carry out operations involving a final client who does not have registration identification in the Stock Exchange.

Art. 13. The brokerage company is obliged to maintain secrecy in its operations and services provided, keeping secret the names and operations of its clients, revealing them only with their written authorization.

Paragraph 1. The name and operations of the client must be reported, whenever requested, to the Securities and Exchange Commission, the Stock Exchanges, and the Central Bank of Brazil, observing their respective spheres of competence, as well as in other cases provided for in the legislation in force.

Paragraph 2. It is optional for the brokerage company, in the case of default or infringement of legal or regulatory norms practiced by its client and independent of judicial or extrajudicial measures, to reveal his name to the Board of Directors of the respective Stock Exchange, requesting that, in the general interest, it be noted and posted, for at least one week, on the notice board of the exchange and communicated to all other brokerage companies and stock exchange.

Art. 14. The brokerage company must maintain a checking account system, not movable by check, for the purpose of recording operations on behalf of its clients.

CHAPTER V

Of Financial Statements

Art. 15. The brokerage company must prepare trial balances and, on the last day of the months of June and December of each year, financial statements that must be audited by independent auditors registered with the Securities and Exchange Commission.

Art. 16. The brokerage company is subject to the bookkeeping norms issued by the Monetary Council and the Central Bank of Brazil.

Paragraph 1. It is the responsibility of the Central Bank and the Securities and Exchange Commission to issue norms for the valuation of securities registered in the assets of brokerage companies.

Paragraph 2. Without prejudice to compliance with the requirements contained in the Chart of Accounts issued by the Central Bank, the following documents regarding the brokerage company must be forwarded to the Securities and Exchange Commission:

a) trial balances, within 15 (fifteen) days after the closing of each month;

b) financial statements, as well as opinions and reports of the independent auditors referred to in Article 15, within 90 (ninety) days of the closing of each period.

CHAPTER VI

Of General Provisions

Art. 17. The following acts regarding the brokerage company shall be subject to prior approval by the Central Bank, in addition to the authorization referred to in the "caput" of Article 3:

I - transfer of headquarters;

II - installation, transfer, or closure of branch activities;

III - alteration of the social capital value;

IV - transformation of legal type, merger, incorporation, and spin-off;

V - appointment of administrators, responsible persons, and agents;

VI - appointment of fiscal councilors and members of other statutory bodies;

VII - alienation of corporate control;

VIII - foreign participation in social capital;

IX - any other alteration of the bylaws or articles of association;

X - liquidation.

Sole Paragraph. It is an indispensable condition, in the cases of items IV, V, VI, VII, and X, the favorable manifestation of the Securities and Exchange Commission, after hearing the respective stock exchange previously.

Art. 18. The brokerage company is subject to permanent supervision by the Stock Exchange and, within the scope of their respective competences, by the Central Bank and the Securities and Exchange Commission.

Art. 19. Non-compliance with the legal and regulatory norms governing the activities of the brokerage company will subject the infringing company and its administrators to the sanctions provided for in Article 44 of Law No. 4,595 of December 31, 1964, and in Article 11 of Law No. 6,385 of December 7, 1976.

CHAPTER VII

Of Transitional Provisions

Art. 20. The brokerage company that, on this date, possesses goods not intended for own use must adapt itself, within the period provided for in item III of Article 12, counted from the date of entry into force of this Regulation.

Art. 21. The brokerage company will have a period of 90 (ninety) days to adapt itself to the provisions of item V of Article 12, counted from the date of entry into force of this Regulation.