Resolution CMN No. 3339 — Amends and Consolidates Regulations Governing Repo Operations Involving Fixed-Income Securities

RESOLUTION NO. 003339

Amends and consolidates the regulations governing repo operations involving fixed-income securities.

The CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law 4,595 of December 31, 1964, makes public that the MONETARY COUNCIL, in a session held on January 26, 2006, based on Articles 4, items VI, VIII, IX, and XXI, of the aforementioned law, Articles 9, 10, 14, and 29 of Law 4,728 of July 14, 1965, and considering the provisions of Articles 16, item IV, and 24 of Law 6,385 of December 7, 1976,

RESOLVES:

Article 1. To amend and consolidate, in accordance with the attached regulation, the regulations governing repo operations involving fixed-income securities.

Article 2. The Central Bank of Brazil is authorized to adopt measures and issue regulations deemed necessary for the execution of the provisions of this resolution.

Article 3. This resolution enters into force on the date of its publication.

Article 4. Resolutions 2,950 of April 17, 2002, 3,054 of December 19, 2002, and 3,171 of February 19, 2004, are revoked, and the regulatory basis and citations to Resolution 2,950 of 2002 contained in normative acts issued by the Central Bank of Brazil shall henceforth refer to this resolution.

Brasília, January 26, 2006.

Alexandre Antonio Tombini
Acting President

Attached Regulation to Resolution 3,339 of January 26, 2006, which governs repo operations involving fixed-income securities.

Chapter I

ON OPERATIONS AND SECURITIES

Article 1. The following types of fixed-income securities transactions are subject to the provisions of this regulation:

I - Operations with a repurchase commitment maturing on a future date, prior to or equal to the maturity date of the securities involved in the operation:

a) Sale with a repurchase commitment assumed by the seller, conjugated with a resale commitment assumed by the buyer, for settlement on a predetermined date;

b) Sale with a repurchase commitment assumed by the seller, conjugated with a resale commitment assumed by the buyer, for settlement at any time during a specified period, at the discretion of either party, as previously agreed between them;

c) Sale with a repurchase commitment assumed by the seller, settleable at the exclusive discretion of the buyer, on a determined date or within a specified period;

II - Operations with a resale commitment maturing on a future date, prior to or equal to the maturity date of the securities involved in the operation:

a) Purchase with a resale commitment assumed by the buyer, conjugated with a repurchase commitment assumed by the seller, for settlement on a predetermined date;

b) Purchase with a resale commitment assumed by the buyer, conjugated with a repurchase commitment assumed by the seller, for settlement at any time during a specified period, at the discretion of either party, as previously agreed between them;

c) Purchase with a resale commitment assumed by the buyer, settleable at the exclusive discretion of the seller, on a determined date or within a specified period;

III - Operations involving the sale of securities with a repurchase commitment assumed by the seller, conjugated with a resale commitment assumed by the buyer, for settlement on the same day;

IV - Operations involving the purchase of securities with a resale commitment assumed by the buyer, conjugated with a repurchase commitment assumed by the seller, for settlement on the same day;

V - Forward purchase or sale operations, where the seller, at the time of contracting the operation, owns the negotiated security or has certainty of such ownership until the settlement date of the forward sale, in this case based on an effective repurchase commitment or a forward purchase operation with a settlement date equal to or prior to that of the forward sale;

VI - Forward purchase or sale operations, where the seller does not own, at the time of contracting the operation, the negotiated security nor has certainty of such ownership until the settlement date of the forward sale.

§ 1. For the purposes of this regulation, operations defined in this article are designated as repo operations.

§ 2. Repo operations must be registered and settled in the Special Settlement and Custody System (Selic) or in a custody and settlement system or clearing and settlement system for transactions involving securities and financial assets authorized by the Central Bank of Brazil or by the Securities and Exchange Commission (CVM).

§ 3. The repo operations referred to in items I and II must be carried out with defined profitability or with a remuneration parameter established.

§ 4. It is prohibited to carry out repo operations with a value adjustment clause based on the variation of foreign currency exchange rates, except when it concerns forward purchase or sale operations provided for in items V and VI, involving securities whose nominal value is updated by this remuneration parameter.

§ 5. The repo operations referred to in items II and IV, when carried out with clients who are not financial institutions nor other institutions authorized to operate by the Central Bank of Brazil, may only involve securities not linked to resale commitments.

§ 6. The forward purchase or sale operations provided for in items V and VI may be contracted conjugated with the assumption of the repurchase or resale commitments referred to in items I and II.

§ 7. The forward purchase or sale operations provided for in item VI may only be carried out between financial institutions and other institutions authorized to operate by the Central Bank of Brazil.

Article 2. Repo operations may exclusively involve the following securities, duly registered in Selic or in a custody and settlement system for transactions involving securities and financial assets authorized by the Central Bank of Brazil or by the Securities and Exchange Commission (CVM):

I - Securities issued by the National Treasury or the Central Bank of Brazil;

II - Securitized credits by the National Treasury;

III - Land Debt Securities issued by the National Institute of Colonization and Agrarian Reform (Incra);

IV - State and municipal securities;

V - Bank deposit certificates;

VI - Bank credit notes;

VII - Certificates of bank credit notes;

VIII - Bills of exchange accepted by financial institutions;

IX - Mortgage letters;

X - Real estate credit letters;

XI - Real estate credit notes;

XII - Debentures;

XIII - Debenture notes;

XIV - Commercial notes;

XV - Real estate receivables certificates;

XVI - Rural product notes with financial settlement;

XVII - Agricultural credit rights certificates;

XVIII - Agricultural credit letters;

XIX - Agricultural receivables certificates;

XX - Export credit notes;

XXI - Export credit notes;

XXII - Other securities that may be authorized by the Central Bank of Brazil.

§ 1. For the purposes of this regulation, securities are considered the fixed-income financial assets referred to in this article.

§ 2. The forward purchase or sale operations provided for in Article 1, item VI, may only involve securities issued by the National Treasury or the Central Bank of Brazil, except when registered and settled in a clearing and settlement system for transactions involving securities and financial assets authorized by the Central Bank of Brazil or by the Securities and Exchange Commission (CVM) and administered by a clearinghouse or service provider that assumes the position of contracting party for the purpose of settling operations carried out through its intermediation.

§ 3. From July 3, 2006, it is prohibited to carry out repo operations involving securities issued or accepted by the institution itself, allowing that those existing on that date be maintained until their maturity, with the respective extension or renewal prohibited.

§ 4. Repo operations carried out between the date of entry into force of this resolution and June 30, 2006, involving securities issued or accepted by the institution itself, must be contracted with a term of up to two years.

Article 3. The forward purchase or sale operations provided for in Article 1, item VI, may involve securities issued by the National Treasury linked to a public offering, regardless of the existence of securities of the same species (type, maturity, and remuneration basis) in the market, provided that, cumulatively, the following conditions are met:

I - The public offering of the securities has been previously disclosed by an act of the Secretariat of the National Treasury of the Ministry of Finance or the Central Bank of Brazil;

II - The settlement of the operations is conditioned on the sale, in the public offering, of 51% (fifty-one percent), at minimum, of the quantity of securities previously announced in the manner provided for in item I;

III - The settlement date of the operations is equal to the settlement date of the public offering.

Sole paragraph. The Central Bank of Brazil, at its discretion, may determine the interruption of the registration of the operations referred to in this article when the total quantity registered reaches an amount incompatible with the total quantity of securities previously announced in the manner provided for in item I.

Article 4. Free movement of the securities involved in resale commitments is admitted, provided that this possibility is agreed upon between the parties and that the commitments involve:

I - Any of the securities referred to in Article 2, in the case of commitments to be settled in a clearing and settlement system for transactions involving securities and financial assets authorized by the Central Bank of Brazil or by the Securities and Exchange Commission (CVM) and administered by a clearinghouse or service provider that assumes the position of contracting party for the purpose of settling operations carried out through its intermediation;

II - Securities issued by the National Treasury or the Central Bank of Brazil, in other cases.

Article 5. Securities involved in resale commitments without a free movement agreement cannot be sold or otherwise negotiated, except when it concerns new repo operations without a free movement agreement and with a repurchase date equal to or prior to that of the committed resale.

Chapter II

ON QUALIFICATION

Article 6. In repo operations, at least one of the contracting parties must be a multiple bank, commercial bank, investment bank, development bank, credit, financing, and investment company, securities brokerage company, securities distribution company, or Caixa Econômica Federal, qualified to carry out these operations.

§ 1. An institution is considered qualified if, satisfying the conditions established in the current regulation, it sends written communication to the Central Bank of Brazil, at least five days prior to the start of its activity in the modality, informing such intention, the start date of the repo operations, and the name of at least one administrator responsible for them.

§ 2. In the event of substitution of the administrator responsible for the repo operations, the fact must also be communicated to the Central Bank of Brazil within a maximum period of five days from its occurrence.

Chapter III

ON LIMITS AND OPERATIONAL NORMS

Article 7. In carrying out repo operations, the basis for calculating the operational limits of the institution shall be its respective Reference Equity (PR).

Article 8. Institutions qualified to carry out repo operations are subject to the following operational limits:

I - Thirty times the calculation basis, for operations, individually or cumulatively, with:

a) Securities issued by the National Treasury or the Central Bank of Brazil, securitized credits by the National Treasury, and Land Debt Securities issued by Incra;

b) Securities and financial assets issued by states, the Federal District, or municipalities, as well as by public sector bodies and entities, referred to in Article 1, § 1, item I, letter "c", of Resolution 2,827 of March 30, 2001, observing the limits and conditions established in that regulation;

c) Private securities, limited to five times the calculation basis;

II - The updated amount of securities in circulation issued by the respective states or municipalities, in the case of repo operations carried out by institutions that manage state or municipal public debt funds.

§ 1. Forward purchase operations provided for in Article 1, item V, and forward purchase or sale operations referred to in item VI of that article must be computed for the purpose of the operational limits established in item I of this article.

§ 2. Institutions that manage state or municipal public debt funds, in carrying out repo operations with securities other than those issued by the respective states or municipalities, must observe the operational limits established in item I.

§ 3. The risk diversification limit provided for in Article 2 of Resolution 2,844 of June 29, 2001, does not apply to state and municipal public securities involved in repo operations in the manner of item II.

Article 9. In the event of qualification of more than one institution by a financial conglomerate, the operational limits established in Article 8 must be calculated on a consolidated basis, observing the conditions provided for in the current regulation.

Sole paragraph. The provisions of this article do not apply to the operational limit provided for in Article 8, item II.

Article 10. For the purpose of verifying compliance with the operational limits established in Article 8, the following procedures must be observed:

I - If the repurchase or resale term and profitability are defined, repo operations must be computed by their respective settlement values;

II - If the repurchase or resale term is open, or stipulated for any time during a specified period, and profitability is defined, repo operations must be computed, respectively, by the redemption value of the securities or by the settlement value provided for at the end of the agreed period;

III - Repo operations without a defined repurchase or resale price, involving securities with remuneration contracted based on a fixed rate, must be computed by the redemption value of the securities;

IV - Repo operations without a defined repurchase or resale price, involving securities with remuneration contracted based on post-fixed rates, must be computed by the value of the securities, evaluated by the last updated nominal value plus accrued interest, if any;

V - Forward purchase or sale operations, involving securities with remuneration contracted based on a fixed rate, must be computed by their respective settlement values;

VI - Forward purchase or sale operations, involving securities with remuneration contracted based on post-fixed rates, must be computed by their respective settlement values, if provided, or by the value of the securities, evaluated by the last updated nominal value plus accrued interest, if any.

Article 11. For the purpose of operational limits, the following are not computed:

I - Repurchase or resale commitments of securities that have served as collateral, respectively, to resale or repurchase commitments assumed by the same institution, provided that such commitments have the same settlement date;

II - Repo operations provided for in Article 1, items III and IV;

III - Forward sale operations provided for in Article 1, item V;

IV - Repo operations in which institutions participating in Selic or in a custody and settlement system for transactions involving securities and financial assets authorized by the Central Bank of Brazil or by the Securities and Exchange Commission (CVM) act as mere intermediaries, not assuming the status of contracting party.

Sole paragraph. For the purpose of the provisions of items I and III, it is admitted that the securities involved in a certain repurchase or resale commitment or a certain forward sale operation may be related to more than one resale or repurchase commitment or to more than one forward purchase operation.

Article 12. In carrying out repo operations with securities issued or accepted by affiliated institutions, the provisions of Resolution 2,107 of August 31, 1994, and subsequent regulation must be observed.

Sole paragraph. The provisions of this article apply to repo operations carried out with securities issued or accepted by the institution itself, observing the conditions established in Article 2, §§ 3 and 4.

Article 13. Regardless of qualification in the manner of Article 6, the institutions referred to therein may assume conjugated commitments of repurchase and resale of the same securities or carry out forward purchase operations conjugated with forward sale operations of the same securities, provided that:

I - At least one of these commitments is assumed or one of these operations is contracted with an institution qualified to carry out repo operations;

II - Such commitments and operations are registered on the same date and have the same settlement date;

III - The financial values of the repurchase or forward purchase operations are lower than those of the corresponding resale or forward sale operations.

Sole paragraph. For the purpose of the provisions of this article, it is admitted that the securities involved in a certain repurchase or resale commitment or a certain forward purchase or sale operation may be related, respectively, to more than one resale or repurchase commitment or to more than one forward sale or purchase operation.

Chapter IV

ON DISCLOSURE OF INFORMATION AND SUBMISSION OF DOCUMENTS

Article 14. The Central Bank of Brazil is authorized to regulate the conditions for providing and disclosing information on fixed-income securities transactions carried out by financial institutions and other institutions authorized to operate by the aforementioned agency.

Chapter V

ON GENERAL PROVISIONS

Article 15. At the discretion of the Central Bank of Brazil, operations involving the purchase of securities that have been the subject of final sale by the buyer, carried out at prices other than market prices or that constitute, in any way, the payment of defined or established profitability based on a remuneration parameter, may be characterized as repo operations, therefore subject to the provisions of this regulation.

Article 16. Non-compliance with the provisions embodied in this regulation and, in particular, the occurrence of any of the situations listed below, regardless of the characteristics they assume in practice, subjects the institution and its administrators to the sanctions provided for in the current legislation and regulation:

I - Carrying out repo operations involving securities other than those referred to in Article 2;

II - Sale of securities without the seller owning, at the time, the securities negotiated, except for the operations referred to in Article 1, items V and VI, and those registered and settled in a clearing and settlement system for transactions involving securities and financial assets authorized by the Central Bank of Brazil or by the Securities and Exchange Commission (CVM) and administered by a clearinghouse or service provider that assumes the position of contracting party for the purpose of settling operations carried out through its intermediation;

III - Creation of artificial trading conditions or manipulation of prices of securities involved in repo operations;

IV - Non-observance of the operational limits established in this regulation;

V - Non-compliance with the obligation to submit, at the times established in the current regulation, information regarding repo operations;

VI - Adoption of a practice that deliberately implies the presentation of inaccurate information.

Article 17. The Central Bank of Brazil may:

I - Suspend the carrying out of any of the types of repo operations, as well as render such suspension void;

II - Prohibit the carrying out of repo operations involving any of the securities provided for in Article 2;

III - Regulate the movement of securities involved in repo operations;

IV - amend the conditions relating to forward purchase or sale transactions linked to public offerings of securities issued by the National Treasury, as set forth in Article 3;

V - review the operational limits, as well as the respective calculation basis, for the execution of repo transactions;

VI - modify the procedures to be observed for the purpose of verifying compliance with the operational limits relating to repo transactions;

VII - at any time, determine the suspension of the execution of repo transactions by an institution that does not meet or ceases to observe the conditions established in this regulation.