Resolution CMN No. 5166 — Establishes Conditions for Issuance of Structured Operations Certificates (COE) by Specified Financial Institutions

RESOLUTION
CMN NO. 5,166, OF AUGUST 22, 2024

Establishes the conditions for the issuance of Structured Operations Certificate – COE by the financial institutions specified herein.

The Central Bank of Brazil, in accordance with Article 9 of Law No. 4,595, of December 31, 1964, makes it public that the National Monetary Council, in a session held on August 22, 2024, based on Articles 4, caput, items VI and VIII, of said 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 Certificate – COE.

§ 1 Only the following may issue COE:

I - multiple banks;

II - commercial banks;

III - investment banks;

IV - Caixa Econômica Federal;

V - the National Bank for Economic and Social Development – BNDES; and

VI - credit, financing, and investment companies – SCFI.

§ 2 The institutions mentioned in item VI of § 1 are limited to the issuance of COE in the credit risk modality, as provided for in Article 9, caput, item II, letter "b".

CHAPTER II
OF DEFINITIONS

Art. 2 For the purposes of this Resolution, consider:

I - financial obligation: an obligation, contracted in Brazil or abroad, arising from a credit operation, financial leasing, surety guarantee, securitization instrument, derivative, public bond, credit title, debenture, or any other instrument, title, or security subject to credit risk;

II - credit operation: loans and financing, advances, provision of aval, guarantee, co-obligation, or any other form of personal guarantee for the fulfillment of third-party financial obligations, availability of credit limits and other credit commitments, credits contracted with resources to be released, interbank deposits regulated under Article 4, caput, item XXXII, of Law No. 4,595, of December 31, 1964, and deposits and applications abroad, in accordance with current regulation, in financial institutions or equivalent to financial institutions;

III - reference entity: an investment fund or legal entity of public or private law, domiciled in Brazil or abroad, issuer, debtor, or guarantor of financial obligations, specified in the COE issued in the credit risk modality referred to in Article 9, caput, item II, letter "b";

IV - reference obligation: the financial obligation of the reference entity, discriminated in the COE issued in the credit risk modality referred to in Article 9, caput, item II, letter "b", for the purpose of:

a) physical settlement of the COE;

b) calculation of the financial settlement value of the COE; or

c) determination of the occurrence of credit events referred to in Article 19;

V - credit event: an event associated with the reference entity of the COE issued in the credit risk modality referred to in Article 9, caput, item II, letter "b", previously defined by the parties, whose occurrence allows the production of effects provided for in the certificate;

VI - protection rate: remuneration, included in payments made to the COE investor in the credit risk modality, for assuming the credit risk of the certificate's reference entities;

VII - calculation agent: entity responsible for calculating the values to be paid or the reference obligations to be delivered by the COE issuer in the credit risk modality referred to in Article 9, caput, item II, letter "b", to the investor, upon settlement of the certificate; and

VIII - initial investment: value paid by the investor for the acquisition of the COE.

CHAPTER III
OF GENERAL CHARACTERISTICS OF THE COE

Art. 3 The COE is a certificate issued against an initial investment, representing a unique and indivisible set of rights and obligations, with a profitability structure that presents characteristics of financial derivative instruments.

§ 1 Issuing institutions of COE must observe the following criteria regarding the initial investment mentioned in the caput, the profitability structure, and the potential results predicted for the certificate at the time of its issuance:

I - the issuance of the certificate must have as its main characteristic the raising of resources by the issuing financial institution;

II - the issuance of the certificate cannot result, at any time, in exposure of the issuing financial institution to the investor's credit risk;

III - the certificate's profitability structure must be expressed as a proportion of the value of the initial investment;

IV - scenarios that, at the time of issuance of the certificate, predict total payment of zero or negligible value relative to the initial investment must reflect extreme conditions of very low probability; and

V - the results to be used for comparison with the initial investment must be compatible with a one-year period or the certificate's term, whichever is shorter.

§ 2 The procedures used to meet the criteria established in § 1 must be carried out by the COE issuing institution based on consistent and verifiable methodologies.

§ 3 The information, methodologies, and procedures used for the evaluation and compliance with the provisions of §§ 1 and 2 must remain available to the Central Bank of Brazil for a minimum period of five years, counted from the maturity date of each certificate.

Art. 4 The COE issued by BNDES must:

I - have a unit nominal value greater than or equal to R$200,000.00 (two hundred thousand reais); and

II - be intended exclusively for qualified investors, as defined in norms of the Securities and Exchange Commission (CVM), when subject to private offering.

CHAPTER IV
OF THE FORM OF ISSUANCE, REGISTRATION, AND CENTRALIZED DEPOSIT

Art. 5 The COE must be issued exclusively in book-entry form, through entry in the issuer's electronic system.

§ 1 The entry referred to in the caput must contain, at minimum, the following information, among others necessary for the calculation and parameterization of the profitability structure and payment flows of the certificate:

I - the denomination "Structured Operations Certificate";

II - identification of the issuing financial institution;

III - identification of the holder;

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

V - the nominal value;

VI - the start date of the certificate's remuneration;

VII - the maturity dates of intermediate remuneration installments, if any, and the final maturity of the COE;

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

IX - the underlying assets or reference obligations used;

X - the conditions for remuneration of the certificate;

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

XII - conditions for periodic payment of earnings, if any;

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

XIV - provision for delivery of underlying asset or reference obligation, if applicable; and

XV - conditions for repurchase or redemption before the agreed final maturity, if any.

§ 2 After the implementation of the provisions of Article 6, the code of the registration or centralized deposit generated must be inserted into the issuer's electronic system.

Art. 6 The COE must be subject to registration or centralized deposit in a registration or centralized deposit system authorized by the Central Bank of Brazil or the Securities and Exchange Commission (CVM).

Sole paragraph. The registration or centralized deposit referred to in the caput must:

I - be carried out on the same day of the COE issuance; and

II - contain the same information about the certificate required in Article 5.

Art. 7 The transfer of ownership of the COE must be effected through the electronic system:

I - of the issuer, if the certificate is not subject to centralized deposit; or

II - of the central depository, if the certificate is subject to centralized deposit.

Sole paragraph. The registration or centralized deposit system in which the COE is registered or deposited must maintain a record of the historical sequence of transactions, including the identification of the certificate holders.

Art. 8 The issuing institution must inform the registration or centralized deposit system referred to in Article 6 monthly, with reference to the last business day of the previous month:

I - the value resulting from the market value assessment of the certificate, calculated according to the minimum requirements established in current regulation for financial instruments assessed at market value; and

II - the certificate values resulting from sensitivity analysis performed in accordance with a specific methodology published by the Central Bank of Brazil.

Sole paragraph. The entity administering the systems mentioned in the caput must maintain a record of the historical sequence of the information provided.

CHAPTER V
OF COE MODALITIES

Art. 9 The following COE modalities are authorized:

I - regarding its profitability structure:

a) investment with protected nominal value: investment whose total minimum payments to be made to the investor are equal to or greater than the initial investment mentioned in Article 3; or

b) investment with nominal value at risk: investment whose total minimum payments to be made to the investor are equal to or greater than a previously defined portion of the initial investment mentioned in Article 3; and

II - regarding the types of risk in which the COE is referenced:

a) market risk: COE referenced in price indices, bond indices, securities indices, interest rates, exchange rates, securities, and other underlying assets, except the COE referenced in credit risk referred to in letter "b"; or

b) credit risk: COE that meets the requirements specified in Article 11, referenced in the credit risk of a reference entity, issuer, or debtor of financial obligations, as well as in indices or baskets representative of these entities, even if it contains reference to other risk factors, such as those mentioned in letter "a".

§ 1 The nominal value of the certificate, on the date of its issuance, must be equal to the initial investment referred to in Article 3.

§ 2 The COE issued in the credit risk modality must necessarily be issued in the investment with nominal value at risk modality referred to in item I, letter "b", of the caput.

CHAPTER VI
OF COE ISSUED IN MARKET RISK MODALITY

Art. 10. The COE issued in the market risk modality must meet, at minimum, the following requirements regarding its underlying assets:

I - the 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 must present quotes publicly disclosed by:

a) stock exchanges, commodity and futures exchanges, organized over-the-counter markets;

b) entities administering clearing, settlement, registration, or asset deposit systems authorized by the Central Bank of Brazil or the Securities and Exchange Commission (CVM);

c) regulators and self-regulatory entities; or

d) trading platforms or independent information providers of wide use in the financial market.

§ 1 The use of underlying assets whose values are calculated through a consistent and verifiable methodology, combining the benchmarks mentioned in items I or II of the caput, is permitted.

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

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

CHAPTER VII
OF COE ISSUED IN CREDIT RISK MODALITY

Section I
Of Specific Characteristics

Art. 11. The COE issued in the credit risk modality must meet the following requirements regarding payments to be made:

I - the issuing institution must pay the investor the initial investment, increased or decreased by the return, in the amount and manner established in the certificate;

II - the return mentioned in item I of the caput must comprise, at minimum:

a) remuneration for protection against predetermined credit events (protection rate); or

b) values associated with the receipt flow of charges and consideration and the variation in the market value of reference obligations; and

III - in the event of the occurrence of any credit event provided for in the certificate, its early maturity or financial or physical settlement, total or partial, may occur, as stipulated between the parties.

Sole paragraph. For the purpose of the settlement of the COE referred to in the caput:

I - the settlement value to be paid to the investor will be calculated based on the market value of the reference obligations subject to credit event or those stipulated in the certificate for this purpose; and

II - the total values to be paid to the investor by the issuer must have as a lower limit the previously defined portion of the initial investment referred to in Article 9, caput, item I, letter "b".

Section II
Of Issuance Conditions

Art. 12. The COE issued in the credit risk modality must meet the following requirements, according to the investor profile:

I - when issued for investors who are not considered professional investors, as defined in norms of the Securities and Exchange Commission (CVM), it must have as reference entities only the following types of institutions:

a) central governments;

b) multilateral entities; or

c) publicly traded companies issuing securities admitted to trading on stock exchanges or over-the-counter markets; and

II - when issued for investors who are not considered qualified investors, as defined in norms of the Securities and Exchange Commission (CVM), it must have only:

a) reference entities among those mentioned in item I of the caput;

b) reference obligations, when specified, that are financial assets or securities admitted to trading on stock exchanges or organized over-the-counter markets; and

c) financial settlement.

Art. 13. The issuance of COE in the credit risk modality for an investor considered a related party of the issuer, as defined in Article 34, § 3º, of Law No. 4,595, of December 31, 1964, including members of the same prudential conglomerate, is permitted, provided that:

I - in conditions compatible with market conditions, without additional or differentiated benefits compared to operations contracted with other investors of the same profile; and

II - specific norms governing the contracting of operations between institutions authorized to operate by the Central Bank of Brazil and legal entities located abroad are observed, when applicable.

Art. 14. The issuance of COE in the credit risk modality that has as a reference entity:

I - one of the counterparties; or

II - an entity:

a) considered a related party, as defined in Article 34, § 3º, of Law No. 4,595, of December 31, 1964; or

b) part of the same prudential conglomerate as one of the counterparties, is prohibited.

Art. 15. The institutions referred to in Article 1, § 1, in the case of issuing COE in the credit risk modality that has as a reference obligation a credit operation or financial leasing, must observe the following conditions:

I - maintain records available to the Central Bank of Brazil proving the holding of the credit risk of the reference obligations at the time of issuance;

II - provide the investor of the COE issued in the credit risk modality with the data necessary to support the adequate estimation of the credit risk of the reference obligations; and

III - keep the reference obligations mentioned in the caput in portfolio during the validity period of the COE associated with them.

Sole paragraph. During the validity period of the COE, the direct or indirect transfer, by any means, of the reference obligations mentioned in the caput, or their respective risks and benefits, to third parties is prohibited.

Art. 16. Financial assets and securities issued in the country and used as reference obligations of the COE issued in the credit risk modality must be registered or deposited in a registrar or central depository authorized by the Central Bank of Brazil or the Securities and Exchange Commission (CVM).

Art. 17. The credit risk of reference entities and the value of reference obligations of the COE issued in the credit risk modality must be sufficiently measurable, so as to allow their market value assessment through the use of:

I - prices or quotes publicly disclosed by:

a) stock exchanges, commodity and futures exchanges, organized over-the-counter markets;

b) entities administering clearing, settlement, registration, or centralized deposit systems for assets authorized by the Central Bank of Brazil or the Securities and Exchange Commission (CVM);

c) regulators and self-regulatory entities; or

d) trading platforms or independent information providers of wide use in the financial market; or

II - pricing models based on consistent and verifiable data and methodologies.

Section III
Of Additional Information and Credit Events

Art. 18. In addition to those established in Article 5, the COE issued in the credit risk modality must have the following specific information entered in the issuer's electronic system at the time of its book-entry issuance, which must also be reproduced in its registration or centralized deposit:

I - specification of reference entities;

II - specification of reference obligations, where applicable, for the purposes described in Article 2, caput, item IV, letters "a" to "c";

III - the value or calculation criteria and the dates or frequency of payments due by the issuer referred to in Article 11, caput, items I to III;

IV - credit events covered in the issuance of the certificate, including specification of elements necessary for their objective characterization, and those responsible for determining their occurrence;

V - conditions that lead to the settlement of the certificate; and

VI - specification of calculation agents.

Sole paragraph. For the purpose of items I and II, specification of credit indices, asset indices, baskets, or reference portfolios, whose entities and financial obligations become, respectively, the reference entities and obligations of the certificate, is permitted.

Art. 19. Only the following types of credit events are admitted in the issuance of COE in the credit risk modality:

I - failure to pay: non-payment of obligations as agreed by reference entities, for periods and in amounts sufficient to characterize the occurrence of the credit event;

II - bankruptcy or similar: situation that implies temporary or permanent suspension of payment of obligations as agreed by reference entities or indicates the inability of these entities to honor their obligations, such as:

a) declaration of bankruptcy or civil insolvency or request by reference entities;

b) request for judicial or extrajudicial recovery;

c) declaration of intervention or extrajudicial liquidation;

d) recognition of insolvency status in judicial, regulatory, or administrative proceedings; or

e) dissolution, liquidation, or extinction, not as a result of consolidation, merger, or incorporation;

III - restructuring: renegotiation of terms of obligations of reference entities in aggregate value sufficient to characterize the occurrence of the credit event, resulting from relevant deterioration in their credit quality, affecting the rights of all creditors of their obligations, such as:

a) reduction of interest rate or value of agreed interest;

b) reduction of principal value or any other remuneration;

c) postponement of one or more scheduled dates or extension of term for payment or addition of interest, or for payment of principal or any other remuneration;

d) change in payment priority order of obligations; or

e) change in currency or composition of payment of principal, interest, or any other remuneration;

IV - obligation acceleration: declaration of early maturity of one or more obligations of reference entities, in aggregate value sufficient to characterize the occurrence of the credit event, as a consequence of default or any other condition agreed;

V - obligation default: possibility of declaring early maturity of one or more obligations of reference entities, in aggregate value sufficient to characterize the occurrence of the credit event, as a consequence of default or any other condition agreed;

VI - repudiation or moratorium: characterized by the occurrence of the following events:

a) potential repudiation/moratorium: characterized when authorized representatives of reference entities or state authority:

1. repudiate, question, do not recognize, reject, or contest the validity, in whole or in part, of one or more obligations of these entities, in aggregate value sufficient to characterize the occurrence of the credit event; or

2. declare or impose moratorium, suspension, postponement, or extension of term for fulfillment of one or more obligations of these entities, in aggregate value sufficient to characterize the occurrence of the credit event; and

b) failure to pay or restructuring of any of the obligations referred to in letter "a", determined within the period established in the certificate, counting from the date of potential repudiation or potential moratorium, referred to in letter "a", regardless of the aggregate value of unpaid or renegotiated obligations;

VII - governmental intervention: occurrence of one or more of the following events, resulting from action adopted by state authority through law, decree, regulation, decision, or resolution act or restructuring instrument, or similar instrument, that applies compulsorily to one or more obligations of reference entities, in aggregate value sufficient to characterize the occurrence of the credit event:

a) reduction of interest rate, or value of agreed interest or any other remuneration;

b) reduction of principal value or other installments to be paid upon redemption;

c) deferral of one or more scheduled dates or extension of the payment term or addition of interest, or for the payment of principal or any other remuneration;

d) change in the payment priority order of obligations;

e) expropriation, change of control, or other event that alters the ownership of obligations;

f) cancellation, conversion, or mandatory exchange of obligations; or

g) any event that has an effect analogous to those specified in items "a" to "f"; and

VIII - other types of credit events, provided they are stipulated in regulations of self-regulatory entities formalized in a convention previously approved by the Central Bank of Brazil.

§ 1º The issuer may assign to an independent third party the determination of the occurrence of a covered credit event in the certificate, provided it is specified at issuance, as set forth in Art. 18, main paragraph, item IV.

§ 2º The obligations referred to in items I to VII of the main paragraph comprise all types of obligations of the reference entities established in the certificate for the purpose of characterizing the credit event, including reference obligations.

§ 3º For the purposes of items VI and VII of the main paragraph, a state authority is considered any body or entity of the public administration, direct or indirect, a body of the judiciary, or an entity responsible for the regulation or supervision of financial markets in the country of constitution or operation of the reference entity.

§ 4º The convention mentioned in item VIII of the main paragraph must:

I - detail the credit events and their types, in consonance with recognized international standards and practices of the credit derivatives market;

II - be prepared by a market representative entity that includes the institutions referred to in Art. 1, § 1º; and

III - have its first version and subsequent amendments submitted for approval by the Central Bank of Brazil.

CHAPTER VIII
ON REFERENCES OUTSIDE BRAZIL IN THE COE

Art. 20. The underlying assets or reference obligations, when disclosed or traded only abroad, must meet, in the countries where disclosed or traded, the same requirements as those disclosed or traded in the country.

CHAPTER IX
ON RESPONSIBILITIES AND CONTROLS

Art. 21. The issuing institution, observing the requirements established in Art. 12, and the institutions participating in the distribution, placement, or trading process of the COE, must implement and maintain policies and procedures that ensure the adequacy of the certificates to the profile of investors, considering their needs, interests, and objectives.

§ 1º The policies referred to in the main paragraph 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 net worth 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 trading of the COE.

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

Art. 22. The issuing institution and the institutions participating in the distribution, placement, or trading process of the COE must ensure that information regarding the certificate is provided through documents made available to the investor, drafted in clear, objective, and appropriate language for its nature and complexity, in a manner that allows comprehensive understanding of the operating conditions, payment flows, and risks incurred.

§ 1º The information mentioned in the main paragraph must make clear that the receipt of payments mentioned in Art. 9, main paragraph, item I, is subject to the credit risk of the certificate issuer.

§ 2º The COE issuing institution in the credit risk modality must make available to the investor the methodology adopted by the calculation agent to perform its duties.

Art. 23. Issuing institutions must ensure that their operational control and risk management processes are adequate to the complexity and volume of certificates in circulation.

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

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

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

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

IV - ensure the consistency of information contained in the registry or deposit mentioned in Art. 6º; and

V - contain systematic controls to prevent operational failures and issuances incompatible with market prices.

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

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

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

III - assess 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.

§ 3º The activities described in § 2º must be linked to the structure responsible for the integrated risk management of the institution or its prudential conglomerate.

Art. 24. The institutions referred to in this Resolution must designate a director responsible for the issuance, distribution, or trading of the COE.

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

CHAPTER X
GENERAL PROVISIONS

Art. 25. Public distribution of COE is permitted in accordance with specific regulations.

Art. 26. Issuing institutions may acquire, at any time, certificates of their own issuance, provided through stock exchanges or organized over-the-counter markets, for treasury retention and subsequent sale, in an amount up to 40% (forty percent) of the outstanding COE issued.

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

Art. 27. The entities administering the centralized registry and deposit systems referred to in Art. 6º must keep available to the Central Bank of Brazil and the Securities and Exchange Commission (CVM) a database containing information regarding the records and centralized deposits made in accordance with this Resolution, for a minimum period of ten years, counted from the maturity date of the COE, without prejudice to the provision of specific information requested by these agencies.

Art. 28. The information, documentation, and methodology mentioned in Art. 10, § 1º, regarding operations conducted under this Resolution, must remain available to the Central Bank of Brazil for a minimum period of ten years, counted from the maturity date of the COE.

Art. 29. The Central Bank of Brazil and the Securities and Exchange Commission (CVM) may, within their spheres of competence, adopt complementary measures necessary for the execution of the provisions of this Resolution.

Art. 30. Except as provided in this Resolution, it is prohibited for institutions authorized to operate by the Central Bank of Brazil to issue, individually or jointly, financial instruments with the characteristics mentioned in Art. 3º.

Art. 31. The following are revoked:

I - Resolution No. 4,263, of September 5, 2013, published in the Official Gazette of the Union on September 6, 2013; and

II - Resolution No. 4,536, of November 24, 2016, published in the Official Gazette of the Union on November 28, 2016.

Art. 32. This Resolution enters into force on September 2, 2024.

OTÁVIO
RIBEIRO DAMASO
President of the Central Bank of Brazil (substitute)