Resolution CMN No. 4263 — Establishes Conditions for Issuance of Structured Operations Certificates (COE) by Financial Institutions

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The Central Bank of Brazil, in accordance with Article 9 of Law No. 4,595 of December 31, 1964, makes public that the National Monetary Council, in an extraordinary session held on September 4, 2013, based on Articles 4, items VI and VIII, of the aforementioned Law, and Article 43 of Law No. 12,249 of June 11, 2010,

R E S O L V E D:

CHAPTER I

OF THE OBJECT AND SCOPE OF APPLICATION

Art. 1 This Resolution governs the issuance of Structured Operations Certificates (COE) by multiple banks, commercial banks, investment banks, and savings banks.

CHAPTER II

OF GENERAL CHARACTERISTICS

Art. 2 The COE constitutes a certificate issued against an initial investment, representing a unique and indivisible set of rights and obligations, with a return structure that presents characteristics of financial derivative instruments.

§ 1 The initial investment mentioned in the main text must be significantly higher than the most probable results of the certificate at the time of its issuance, in the form of criteria established by the Central Bank of Brazil.

§ 2 Only the financial institutions mentioned in Art. 1 may issue COEs.

CHAPTER III

OF REGISTRATION

Art. 3 The COE must be issued exclusively in book-entry form, through registration in a registration and financial settlement system for assets authorized by the Central Bank of Brazil or by the Securities and Exchange Commission (CVM).

Sole paragraph. The registration referred to in the main text must allow for the calculation and parameterization of the certificate's return structure and payment flows, and must contain, at a minimum, the following information:

I - the denomination "Structured Operations Certificate";

II - the identification of the issuing financial institution;

III - the identification of the holder;

IV - the serial number, place, and date of issuance;

V - the nominal value;

VI - the date the certificate begins to accrue remuneration;

VII - the maturity dates;

VIII - the dates of early settlement or the conditions for its occurrence, if applicable;

IX - the underlying assets used as benchmarks;

X - the conditions for the certificate's remuneration;

XI - the specification of the rights and obligations of the holder and the issuer that may influence the remuneration conditions;

XII - the conditions for periodic payment of returns, if any;

XIII - the modality, in accordance with Art. 9, including the portion of the nominal value protected;

XIV - the provision for physical delivery of the underlying asset, if applicable;

XV - the code of the registration in the system referred to in the main text; and

XVI - the conditions for repurchase or redemption before the agreed maturity.

Art. 4 The transfer of ownership of the COE is effected through the system referred to in Art. 3, which must maintain a record of the historical sequence of transactions, including the identification of the certificate holders.

Art. 5 The issuing institution must inform the administrator entity of the system referred to in Art. 3 monthly of the following values, with reference to the last business day of the previous month:

I - the market-marked value of the certificate; and

II - the values of the certificate resulting from sensitivity analysis performed according to a methodology to be disclosed by the Central Bank of Brazil.

Sole paragraph. The administrator entity of the system mentioned in the main text must maintain a record of the historical sequence of the information provided.

CHAPTER IV

OF UNDERLYING ASSETS

Art. 6 The COE may be referenced to price indices, bond indices, securities indices, interest rates, exchange rates, securities, and other underlying assets, observed, at a minimum, that:

I - price indices, bond indices, securities indices, interest rates, and exchange rates used as benchmarks must have a regularly calculated series and be subject to public disclosure; and

II - securities and other underlying assets used as benchmarks must have quotations regularly disclosed by stock exchanges, commodity and futures exchanges, organized over-the-counter markets, or by entities administering compensation, settlement, or asset registration systems authorized by the Central Bank of Brazil or by the Securities and Exchange Commission.

§ 1 The use of underlying assets calculated through a methodology that combines the benchmarks mentioned in items I or II of the main text is admitted, provided it is consistent and verifiable.

§ 2 The use of the methodology mentioned in § 1 is the exclusive responsibility of the issuing institution.

§ 3 The values or quotations of the underlying assets must be independent of parameters related to specific operations carried out by the issuing institutions.

Art. 7 The COE may be referenced to underlying assets disclosed or traded abroad, observed the same requirements imposed for assets in the country, including regarding stock exchanges and over-the-counter markets, which must be regulated by competent foreign authorities.

Art. 8 The issuance of COEs referenced to credit operations, credit instruments, securitization instruments, and credit derivatives is prohibited.

Sole paragraph. For the purposes of this Resolution, the prohibition referred to in the main text does not apply to the following assets, provided they are subject to public offering and traded actively and frequently:

I - debentures;

II - private debt instruments issued in the international market; and

III - internal and external public debt instruments issued by the National Treasury.

CHAPTER V

OF COE MODALITIES

Art. 9 The following COE modalities are authorized, according to their return structure:

I - Investment with Protected Nominal Value: an investment whose total value of minimum payments expected to the investor is equal to or greater than the initial investment referred to in Art. 2; or

II - Investment with At-Risk Nominal Value: an investment whose total value of minimum payments expected to the investor is equal to or greater than a previously defined portion of the initial investment referred to in Art. 2.

Sole paragraph. The nominal value of the certificate, on the date of its issuance, must be equal to the initial investment referred to in Art. 2.

Art. 10 Public distribution of COEs is admitted in accordance with specific regulation.

CHAPTER VI

OF RESPONSIBILITIES AND CONTROLS

Art. 11 The issuing institution and institutions participating in the COE distribution, placement, or negotiation process must implement policies and procedures that ensure the adequacy of the certificates to the investors' profile, observing their needs, interests, and objectives.

§ 1 The policies referred to in the main text must consider, at a minimum:

I - the modality, risk level, and complexity of the COE;

II - the amount to be invested;

III - the investor's asset and financial situation;

IV - the investor's experience and their capacity to understand the investment risks;

V - the investor's declared preferences regarding risk assumption; and

VI - the procedures used in the negotiation of the COE.

§ 2 The policies and procedures mentioned in the main text must be based on consistent and verifiable criteria.

Art. 12 The issuing institution and institutions participating in the COE distribution, placement, or negotiation process must ensure that information regarding the certificate is provided through documents made available to the investor, which must present clear, objective, and appropriate language for its nature and complexity, in order to allow broad understanding of the operating conditions, payment flows, and risks incurred.

Sole paragraph. The information mentioned in the main text must make clear that the receipt of the payments mentioned in Art. 9, items I and II, is subject to the credit risk of the certificate issuer.

Art. 13 Issuing institutions must ensure that their operational control and risk management processes are adequate to the complexity and volume of certificates in circulation.

§ 1 The operational control processes mentioned in the main text must, at a minimum:

I - allow for the calculation of the market-marked value of certificates, individually, on a daily basis;

II - be based on clearly defined and documented criteria and procedures;

III - enable continuous verification control of the operational limits established by the institution;

IV - guarantee the consistency of the information contained in the register mentioned in Art. 3; and

V - contain systematic controls for preventing operational failures and issuances incompatible with market prices.

§ 2 The risk management processes mentioned in the main text must, at a minimum:

I - observe the adequate decomposition of certificate exposures into market risk factors and credit risk, if any;

II - consider exposures resulting from non-linearities and asymmetries generated by the certificate's return structure;

III - evaluate exposure to liquidity risk arising from certificate issuances;

IV - measure exposures and risks both in an integrated manner, involving all exposures, and by product, by risk factor, and by other relevant dimensions; and

V - provide for the performance of stress tests with sufficient frequency and scope to evaluate, at a minimum:

a) the effect of concentrations in risk factors, counterparties, or segments;

b) the break of correlations and other premises of risk measurement models;

c) the effect of non-linearities and asymmetries; and

d) the effect of adverse scenarios on liquidity conditions.

§ 3 The activities described in § 2 of this article must be linked to the institution's risk management structure, and the unit responsible for these activities must be segregated from those that carry out the issuance, distribution, or negotiation of the COE.

Art. 14 The institutions referred to in this Resolution must designate a director responsible for the issuance, distribution, or negotiation of the COE.

Sole paragraph. For the purposes of the responsibility mentioned in the main text, it is admitted that the designated director performs other functions in the institution, except those related to the administration of third-party funds and risk management.

CHAPTER VII

OF GENERAL PROVISIONS

Art. 15 Issuing institutions may acquire, at any time, certificates of their own issuance, provided through stock exchanges or organized over-the-counter markets, for the purpose of retention in treasury and subsequent sale, in an amount of up to 40% (forty percent) of the balance of COEs issued by them.

Sole paragraph. Certificates acquired from third parties by institutions of the same economic conglomerate as the issuer must be considered in the calculation of the limit referred to in the main text.

Art. 16 The administrators of the systems referred to in Art. 3 must keep available to the Central Bank of Brazil and the Securities and Exchange Commission a database containing information regarding the registrations carried out in accordance with this Resolution, for a minimum period of 10 (ten) years counted from the maturity date of the COE, without prejudice to the provision of specific information requested by these agencies.

Art. 17 The information, documentation, and methodology mentioned in Art. 6, § 1, regarding operations carried out in accordance with this Resolution, must remain available to the Central Bank of Brazil for a minimum period of 10 (ten) years, counted from the maturity date of the COE.

Art. 18 The Central Bank of Brazil and the Securities and Exchange Commission are authorized, within their spheres of competence, to establish criteria and adopt complementary measures necessary for the execution of the provisions of this Resolution.

Art. 19 The financial institutions mentioned in Art. 1 must complement the registration mentioned in Art. 3 of financial derivative instruments with COE characteristics, not yet redeemed, contracted between the date of publication of this Resolution and the date of its entry into force, exclusive, within 30 (thirty) days after the entry into force of this Resolution.

Art. 20 Except as provided in this Resolution, financial institutions are prohibited from issuing financial derivative instruments with the characteristics mentioned in Art. 2.

Art. 21 This Resolution enters into force 120 (one hundred and twenty) days after the date of its publication.

Alexandre Antonio Tombini
President of the Central Bank of Brazil