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Securities trading in regulated markets

The Brazilian Securities Commission (CVM) has submitted to public hearing two draft regulations which will (i) replace CVM Rule 122, dated June 6 1990, and CVM Rule 387, dated April 28 2003, setting forth new rules and procedures governing securities trading in regulated markets, and (ii) amend CVM Rule 301, dated April 16 1999, which regulates the identification, registration form, communication, limits and liability before the CVM for money laundering crimes, and CVM Rule 14, dated October 17 1980, which regulates call and put options transactions that take place in the securities exchange and their requirements.

CVM's main concern in the first draft regulation is to establish a model focusing on compliance rules and procedures, strengthening the rules of conduct applicable to intermediaries in their relationship with clients for securities trades in regulated markets.

Moreover, some key developments proposed in the first draft include:

  • The appointment of two statutory officers, separating the responsibility for compliance with the proposed rules from the responsibility for monitoring internal compliance procedures;
  • The creation of new rules of conduct applicable to the institutions acting as intermediaries, establishing the duty of evaluating the suitability of the investment for their clients by verifying if the client's objective is compatible with its risk profile, financial knowledge, financial standing and investment track record;
  • A duty for institutions acting as intermediaries to seek the best execution that is reasonably available for their clients, taking into consideration the price, cost, speed, probability of execution and settlement; and
  • Specific regulation on the means accepted for the placement of orders, as well as the duty to register and promptly identify clients during the execution of orders.

In reference to the second draft, the proposed amendments will enhance the quality of the identification and registration of clients. Comments and suggestions can be presented to the CVM until June 29 2009.

José Eduardo Carneiro Queiroz and Alexei Bonamin

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