| Home | Asset Pricing | News & Market Journal | Research |

Brazilian Securities Commission

Brazil:
Regulatory Agencies and Regulation of the Capital
and Derivatives Markets

by Euchério Lerner Rodrigues

June, 1996

Index: | Regulatory Structure | Regulation of Capital Markets | Regulation of Derivatives Markets |

Regulatory Structure

The regulatory system for the Brazilian market is made up of five main agencies: the National Monetary Council (CMN), the Technical Commission on Currency and Credit (COMOC), the Brazilian Central Bank (BACEN), the Securities Commission (CVM) and the Superintendency for Private Insurance (SUSEP). Each one performs one or more of the following functions: standardization, regulation, oversight and consultations regarding activities of the Brazilian financial system. The self-regulating bodies play a similar role and are represented for the most part by the stock and commodities exchanges.

The National Monetary Council is the highest ranking authority in the financial system. It is made up of the Finance and Planning Ministers and by the President of the Central Bank. It is the source of the principal directives regarding economic policy to be followed by the regulatory agencies operating in the financial system. Its function is deliberative, in other words it outlines the general directives of economic policy such as: equilibrium in the balance of payments, the structure of the financial system, co-ordination of the monetary and fiscal policies and currency issue. It was created by Law N^o. 4,595 on December 31^st., 1964, and was an outcome of the financial system reforms at that time, when the basic structure of the National Financial System was also defined.

The Technical Commission on Currency and Credit is made up of the President of the CVM, the Central Bank, the Secretaries from the Planning and Finance Ministries and the National Exchequer and directors responsible for the sectors covering the practices, monetary policy and external affairs of the Central Bank. It is also responsible for the technical analysis of decisions originating in the National Monetary Council.

The Brazilian Central Bank is the foremost monetary authority in the country, and it is responsible for the activities concerned with the control of currency and credit, in addition to the standardization and oversight of the activities carried out by the financial system. The monetary policy, exchange activities and control of Brazilian reserves also fall within its sphere of competence.

The Securities Commission (CVM) is the governmental agency which has been given the task of maintaining the integrity of the workings of the Brazilian capital market. It is expected to look after the regulation and inspection of the activities of investors, financial intermediaries, stock exchanges and public corporations in Brazil. Like the Central Bank, the CVM also is an organ which carries out the Resolutions of the National Monetary Council. It is the regulatory agency of the securities market and its derivatives, such as: options for buying and selling, futures and future operations with shares, indices and other securities.

The Superintendency for Private Insurance (SUSEP) takes responsibility for the regulation and oversight of insurance activities and public entities concerned with private insurance schemes in the country.

The Self-Regulating Entities are represented by the exchanges dealing in stocks, commodities, institutions connected with the systems for the negotiation, registration and custody of stock. The regulatory organs delegate to them the tasks of standardization, monitoring and inspection of the activities of its members.

The financial system regulating instruments are, in order of decreasing importance: the Brazilian Constitution, the Federal Laws, Resolutions of the CMN, Directives, Circulars and Deliberations of the regulatory organs and the Statutes and Resolutions of the self-regulating entities.

The Brazilian regulatory system follows the so-called Mixed Regulation model, in which the government delegates to the self-regulating entities part of the tasks of oversight and orientation of its membersí transactions.

Principal Laws and Regulations of the Capital Market

The Brazilian capital market is regulated by the CMN and disciplined by the CVM, BACEN and SUSEP. The BACEN regulates all financial institutions, SUSEP has a disciplinary role in the private insurance sector, while the CVM regulates institutions that are active in the securities market.

The main laws and regulations applicable to the Brazilian capital market, set out in chronological order, are as follows:

• Law N^o. 4,595 of 31/12/64 - Set up the present structure of the financial system and its principal regulatory agencies - the National Monetary Council and the Brazilian Central Bank.

• Law N^o. 6,385 of 07/12/76 - Set up the Securities Commission, the main oversight agency for the Brazilian capital market.

• Law N^o. 6,404 of 15/12/76 - "the Public Companies Act". Stablishes the legal framework for public companies.

• CMN Resolution N^o.1,190 of 17/09/86 - Deals with the negotiation on Exchanges for Commodities and Futures, subject to approval by the Central Bank or the Securities Commission.

• CMN Resolution N^o. 1,289 of 20/03/87 - Approves the regulations of Supplements I, II and III, which control the articles of association and workings of the investment companies - foreign capital and investment funds - foreign capital and bond portfolios and securities, respectively.

• CMN Resolution N ^o. 1,645 of 06/10/89 - Deals with the standards for scrutiny of the Commodities and Futures Exchanges, subject to the approval and intervention by the Central Bank and the Securities Commission.

• CMN Resolution N ^o. 1,655 of 26/10/89 - Regulates the articles of association, organization and workings of brokerage firms dealing with securities.

• CMN Resolution N ^o. 1,656 of 26/10/89 - Regulates the constitution, organization and workings of the stock exchanges.

• CMN Resolution N^o. 1,832 of 31/05/91 - Approves the regulations in Supplement IV to Regulation 1,289 governing the constitution and administration of securities portfolios held by institutional investors constituted abroad.

• CMN Resolution N ^o. 1,927 of 18/05/92 - Approves the regulation in Supplement V to Resolution 1,289, which regulates foreign investment through the mechanism of Depositary Receipts.

• CMN Resolution N ^o. 2,099 of 17/08/94 -Deals with the conditions for access to the National Financial System, to minimum values of capital and adjusted net assets, to the setting-up of branches and the obligation to maintain adjusted liquid assets at a value compatible with the degree of risk inherent in the active operations of the institutions authorized to act by the Central Bank ("the Basle Accord").

• CMN Resolution N ^o. 2,109 of 20/09/94 - Alters and consolidates the standards which regulate the application of resources of private entities dealing with private insurance schemes and which also operate in Future Markets.

• CMN Resolution N^o. 2,138 of 29/12/94 - Deals with authorization to transact swap operations on the over-the-counter market and options on swaps linked to gold, exchange rates, interest rates and price indices as specified by institutions.
  

Regulation of the Derivatives Market

The market in Brazilian derivatives, formed after the legal structure to regulate financial markets was set up, is regulated, depending on the type of derivative, by three regulatory groups: the Central Bank, the CVM and the self-regulating bodies themselves.

Generally speaking, Brazilís legal macro-structure has facilitated development of the Brazilian derivatives market. The existence of a regulating structure for the banking system and other financial intermediaries has lent flexibility and dependability to the countryís financial transactions.

Regulation of the Brazilian financial system as far as it concerns the derivatives market can be summarised as follows:

The Securities Commission

• Regulates all activities in the derivatives market concerning securities, such as: options, future options and futures on shares, futures share indices and options on futures share index.

The Central Bank

• Regulates all international operations which take place in the derivatives market, since the monitoring of all operations involving foreign currency is its responsibility

• Regulates all the country's financial institutions when these touch upon aspects concerning the expansion of the money supply and credit

• Regulates all financial activities with derivatives which do not fall under the control of the CVM, for example, the over-the-counter market in swaps and the bulk of the contracts negotiated on the exchanges dealing with Commodities and Futures

Stock and Future Exchanges

• Regulate all trading activities or in the systems for electronic trade administered by them. The exchanges are self-regulating bodies which are nevertheless, subject to the above-mentioned regulatory organs. Various types of derived contracts are negotiated on the Brazilian exchanges.

| Return to top | Next Chapter | Previous Chapter | Table of Contents |