Brazilian Depositary Receipts (BDRs) are certificates issued by a depositary institution in Brazil that represent securities (stocks) issued by publicly-held corporations with headquarters overseas1.

On March 15, 2011 the Board of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM) decided to include Brazilian Pension Funds (Entidades Fechadas de Previdência Complementar - EFPCs)2 and individuals and legal entities with financial investments exceeding R$ 1 million in the list of investors that are authorized to purchase certain BDRs listed on the Brazilian Exchange´s (BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros - BVMF) regulated over-the-counter (OTC) market, under the International Market segment, and traded in the Mega Bolsa3.

The above-me mentioned inclusion in the list of authorized investors has been made by means of CVM Instruction No. 493, of March 24, 2011, which amends the wording of article 3 of CVM Instruction No. 332, of April 4, 2000 that regulates the issuance and trading of BDRs in Brazil.

According to the current CVM regulation, there are three types of BDRs for trading: Level I, II or III.

BDR Level I4 can be Sponsored or Unsponsored. Sponsored BDRs are issued by a depositary institution that has an agreement with the foreign issuer (the foreign company that issues the stocks) and can only be Level II5 and III6. Unsponsored BDRs can only be Level I and to not involve the foreign issuer7.

From now on, the investors authorized to acquire BDRs Level I8 comprise: (i) financial institutions; (ii) investment funds; (iii) portfolio managers and consultants previously authorized by CVM, regarding their own resources; (iv) employees of the sponsored company or of any other company of the same economic group; (v) EFPCs; and (vi) individuals and legal entities with financial investments exceeding R$ 1 million.

Therefore, individuals and legal entities with financial investments of less than R$ 1 million can only participate indirectly of the acquisition BDRs Level I, Sponsored or Unsponsored, through investment funds.

Only companies headquartered in countries whose regulatory agencies have a cooperation agreement with CVM and are members of the International Organization of Securities Commission (Organização Internacional das Comissões de Valores - OICV) are allowed to issue BDRs Level I.

For portfolio composition, the acquisition of BDRs Level I is considered a foreign investment.

If the foreign issuing company pays a dividend overseas, the Brazilian investor will receive the net value of the dividend in Brazilian Reais, after the dividend is paid abroad, through the foreign custodian institution.

Settlement of Unsponsored BDRs Level I trading is executed at BVMF, together will all other equities transactions. Custody of these BDRs is done at BVMF´s central depositary, which controls investor positions and also tracks the issuing and cancellation of certificates.

The depositary institution is responsible for all necessary issuing and cancellation procedures. For issuing, the investor must deliver the asset-backed BDRs to the foreign custodian institution and request the delivery of the BDRs to the depositary institution in Brazil. To purchase the asset-backed BDRs, the investor can contact a local or international brokerage house and follow the settlement process of the local market of the asset-backed BDRs. For cancellation, the investor requests that their corresponding asset-backed certificates be delivered overseas.


1 The BDR is issued by a depositary institution in Brazil, backed by stocks of a foreign company not registered as a publicly-held corporation in Brazil. The depositary institutions must be authorized by the Central Bank of Brazil (Banco Central do Brasil - Bacen) and CVM to issue BDRs. The responsibility of disclosing the financial information of the issuing foreign company lies with the depositary institution.

2 EFPCs are occupational pension plans, organized as closed entities, used to finance private pension benefits, structured in the form of pension funds and sponsored by corporations. They can offer defined contribution (DC) pension benefits or defined benefit (BF) type pension benefits. These Pension Plans are not-for-profit organizations by definition and are ruled by a special Government Agency, the Secretariat of Complementary Security ("Secretaria da Previdência Complementar – SPC") under the Ministry of Social Security.

3 Mega Bolsa is the BVMF´s electronic equities trading platform.

4 The main characteristics of BDRs Level I are: (a) trading is limited exclusively to the non-organized OTC market or in specific segments for BDR Level I of an entity of the organized OTC market or of Stock Exchanges and only between the authorized investors listed by CVM; (b) disclosure of financial information on a regular basis in accordance with the regulation to which the issuing foreign company is submitted (in the Portuguese language); (c) it is not necessary to register the issuing foreign company with CVM; and (d) exclusive acquisition by the authorized investors listed by CVM.

5 The main characteristics of BDRs Level II are: (a) admission to trading on Sock Exchanges or the organized OTC market; and (b) registration of the issuing foreign company with the CVM.

6 BDRs Level III presents the following characteristics: (a) public distribution on the market; (b) admission to trading on the Stock Exchange or the organized OTC market; and (c) registration of the issuing foreign company with CVM.

7 The decision to issue a Unsponsored BDR Level I comes from a depositary institution established in Brazil, which requests the program´s registration with CVM and BVMF, without having to involve the foreign company that issues the stocks.

8 There are no restrictions for the acquisition of BDRs Level II or III. The list of authorized investors is only applicable to the acquisition of BDRs Level I.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.