Brazil: The New Rules Applied to the Securities Analysts in Brazil

On July 12, 2010, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) announced the new rules applied to the securities analysts (analistas de valores mobiliários) established by CVM Instruction No. 483, dated July 6, 2010, which will become valid as of October 1st, 2010.

The main objectives of the new rules are: (a) to modernize and improve the rules of conduct to which analysts are subject, (b) to recognize the responsibilities of the institutions that employ securities analysts, and (c) to strengthen the structure of self-regulation applicable to them. Individuals or legal entities that carry out risk classification activities are not subject to these rules.

According to the new rules, securities analyst is the individual who professionally prepares analysis reports for publication, disclosure or distribution to others, even though restricted to clients. The term "analysis report" means any text, monitoring reports, studies or analysis on specific securities or issuers of certain securities or influence that might assist investors in making investment decision. Public exhibitions, presentations, meetings, conference calls and other non-written events, whose content is typical of the analysis report, are also included in the same definition.

The activity of securities analyst may be exercised in the following ways: (i) autonomous; (ii) bound to an institution within the distribution system or to any individual or legal entity authorized by CVM to play the role of securities portfolio manager or consultant (distribution system institution); or (iii) bound to any legal entity formed with the exclusive purpose to carry out the activity of securities analyst (securities analyst company).1

The securities analyst must act with honesty, good faith and professional ethics, employing in his/her activity all care and diligence expected of a professional in his/her position.

It is forbidden for the securities analyst: (i) to issue analysis reports in order to obtain for himself/herself or for others, improper advantage, (ii) to omit information on conflict of interest, (iii) to negotiate directly or indirectly, in his/her own name or in the name of others, securities object of analysis reports or derivatives backed by such securities for a period 30 days before and five days after the disclosure of the analysis report on such security or its issuer, and (iv) to deal directly or indirectly on behalf of himself/herself or others, securities object of analysis reports or derivatives backed by these securities which conflict with the recommendations or conclusions expressed in the reports of analysis prepared: (a) up to six months from the disclosure of such report, or (b) until the release of a new report on the same issuer or security. The restrictions mentioned in items (iii) and (iv) herein do not apply to trading with shares of investment funds, unless: (a) the analyst can influence directly or indirectly the administration or management of the fund, or (b) the investment fund concentrates its investments in industries or businesses covered by the reports produced by the analyst.

The companies (i.e. the distribution system institutions and the securities analyst companies) that hire securities analysts must: (i) supervise the financial activities of the professional analysts related to them to ensure compliance with CVM Instruction 483/2010; (ii) develop and implement rules, procedures and adequate internal controls to: (a) ensure that the analysts will perform their functions independently, (b) prevent that their commercial interests or those of their clients influence the analysts' work related to them, (c) identify, manage and eliminate conflicts of interest that may affect the impartiality of the analysts they bound and their analysis reports, and (d) ensure that the requirements for the analysis reports contained in CVM Instruction 483/2010 are met in all the reports published, disseminated or distributed; (iii) ensure that the professionals they bound comply with the set of rules provided for in item (ii) herein; (iv) disclose such set of rules and any updates thereto in their webpage; (v) inform CVM and/or the accrediting entity of any acts committed by the analysts that may be deemed to be an evidence of violation of the CVM rules or non-compliance of the norms of the code of professional conduct, as soon as they become aware of such violation; (vi) segregate physically the premises where the team of analysts carry out their activities from the other activities performed by the company; (vii) designate a person responsible for the implementation and compliance of items (i) to (vi) herein and include his/her contact information in their webpage; and (viii) give the accrediting entity access to their premises, archives and documents relating to rules, procedures and internal controls related to compliance with CVM Instruction 483/2010 in order to enable such accrediting entity to exercise the supervisory functions assigned to it by CVM.

The organizational structure of these companies should not allow an individual whose duties are potentially incompatible with the fairness opinion issued by the analyst to supervise him/her or otherwise have interference on the content of the analysis reports or on the remuneration of the analyst. The compensation of analysts should be structured so as to preserve their impartiality. The analysis team should be formed by at least: (i) 30% of accredited analysts until December 31, 2010; (ii) 50% of accredited analysts until December 31, 2011; and (iii) 70% of accredited analysts until 31 December 2012.

The rules, procedures and internal controls must provide at least the forms of identification and management of conflicts of interest and the type and form of contact that the analyst may have with the issuers object of his/her analysis.

The analysis reports should be written in clear and objective language differing interpretations of facts, projections, estimates and opinions. Whenever possible and appropriate, factual data should be accompanied by an indication of its sources. The projections and estimates must accompany the relevant assumptions and methodology adopted.

These reports must be signed by at least one accredited analyst. The report shall identify clearly the accredited analyst who, without prejudice to the responsibility of any co-author, is the main responsible for the content of the report and compliance with the provisions of CVM Instruction 483/2010.

The analyst shall include in all his/her analysis reports, clearly and with due prominence, statements: (i) certifying that the recommendations of the analysis reflect only personal views and were developed independently, including in relation to the person or institution to which he/she is bound, if any, and (ii) informing the investor where the analyst responsible or any of the analysts involved in preparing the analysis report is in a situation that may affect the impartiality of the report or that can represent or will constitute a conflict of interest. The situations of conflict of interest include but are not limited to the following cases: (a) any of the analysts involved in preparing the report has links with an individual who works for the issuer object of the analysis report, clarifying the nature of the relationship, (b) any of the analysts involved in preparing, his/her spouse or partner, either directly or indirectly, on behalf of himself/herself or others who hold securities object of the analysis report, (c) any of the analysts involved in preparing, his/her spouse or partner, whether directly or indirectly involved in the acquisition, sale or dealing of securities object the analysis report, (d) any of the analysts involved in preparing, his/her spouse or partner, directly or indirectly have any financial interest related to the issuer object of analysis report (except when it comes to trading with shares of investment funds), and (e) the remuneration of the securities analyst is directly or indirectly influenced by income from business and financial operations carried out by the person who he/she is bound. These restrictions do not apply in the case of meetings with one single client or investor or conference calls between the analyst and one single client or investor.

The distribution system institutions and the securities analyst companies are responsible for stating, where applicable, clearly and with due prominence in all the analysis reports they publish, disseminate or distribute, situations that may affect the impartiality of the report or analysis that can represent or will constitute a conflict of interest. Examples of conflict of interest are the situations in which any of these companies, their subsidiaries, controlling shareholders or companies under common control: (i) has equity interests in the relevant issuer object of the analysis report or the issuer, its subsidiaries, controlling shareholders or companies under common control have relevant stakes in the distribution system institution or securities analyst company, its subsidiaries, controlling shareholders or companies under common control; (ii) has financial and commercial interests in relation to the relevant issuer or the securities object of the analysis report; (iii) is engaged in the purchase, sale or dealing in the securities object of the analysis report; and (iv) receives compensation for services rendered to the issuer object of the analysis report or persons connected with the issuer.

The autonomous analysts, the distribution systems institutions and the securities analyst companies are responsible for: (i) sending the analysis reports to the accrediting entity within three business days from date in which such reports have been distributed; and (ii) keep the analysis reports filed for five years counted as from the date in which such reports have been distributed.

The person that distributes in Brazil analysis reports about securities traded or whereby there is a sales effort in the Brazilian territory, prepared by analysts resident or domiciled in other jurisdictions (i.e. outside Brazil), is responsible for obtaining the above-mentioned statements required by CVM Instruction 483/2010.

CVM is no longer responsible for the registration of the securities analysts and only self-regulator institutions duly authorized by CVM (accrediting entities) can accredit these professionals to engage in the activity of securities analyst. The new regulation establishes that the accreditation is mandatory for all the autonomous analysts and for any analyst responsible for the analysis report, when he/she is bound to any distribution system entity or securities analyst company.

Presently, the sole accredited entity authorized by CVM to render this type of service is the Investment Analysts and Professionals of the Capital Market Association (Associação dos Analistas e Profissionais de Investimento do Mercado de Capitais – APIMEC).

To be admitted by CVM as an accredited entity, the self-regulator institution must evidence that it has adequate structure and technical capacity to comply with the obligations foreseen in CVM Instruction 483/2010 as well as self-regulation structure with technical capacity and independence. Furthermore, the accredited institution must: (i) adopt a code of professional conduct; (ii) supervise the compliance of such code by the accredited analysts; (iii) punish any violation to the code committed by the accredited analysts; (iv) assess through tests of ethics and technical skills whether the candidates are able to exercise the activity of analyst; (v) establish a continuing education program; (vi) keep on file all documents proving the fulfillment of the requirements contained in CVM Instruction 483/2010 for five years; (vii) maintain updated records of all the accredited analysts; and (viii) disclose in its webpage a list of the accredited analysts. CVM must approve in advance the code of professional conduct and any amendments thereto, the content of the tests used by the accrediting entity to assess the candidates and the continuing education program.

The code of professional conduct must have at least provisions for: (i) potential conflicts of interest in the performance of the analyst activity; (ii) the commitment to search for reputable and reliable information for use in analysis, recommendations and presentations made by the analyst; (iii) the duty of independence of the analyst, including in relation to the person or institution that he/she is bound, when appropriate; (iv) the duty to comply with CVM Instruction 483/2010 and other rules issued by CVM; and (v) the penalties for any violation to the code.

To grant accreditation, the accrediting entity must require the applicant to meet the following minimum requirements: (a) undergraduate course at higher level, (b) approval of technical skills in tests approved by CVM, and (c) unconditional adherence to the code of professional conduct.

On the same occasion CVM announced CVM Deliberation No 633, also dated July 6, 2010, whose objective is the adoption of tests for verification of technical qualification in the process of accreditation of securities analysts, pursuant to the terms of CVM Instruction 483/2010. As from October 1st, 2010, the accredited entity must apply to the candidates the following tests: (i) Exam 1 of Foundation Level of the program of international certification for investment professionals organized by any of the members of the Association of Certified International Investment Analysts – ACIIA; (ii) Levels I and II of the Chartered Financial Analyst – CFA certification program organized by the CFA Institute; (iii) Series 86 of the qualification program of analysts organized by the Financial Industry Regulatory Authority; (iv) other exams to assess his/her knowledge about the market and the national legislation.

The end of the need to register the securities analysts with CVM will contribute to the reduction of the inherent costs to exercise this type of activity in Brazil, since the persons interested in assuming such role will only have to be certified (accredited) by an accrediting entity. With the new regime, the securities analysts will be exempt from the inspection fee (taxa de fiscalização) which is charged by CVM from all the persons and entities that are subject to the registration with CVM. Therefore, the costs of the securities analysts will be limited to the affiliation fee charged by the accrediting entity. Although the everyday interaction of the securities analysts tends to be with the accrediting entity, CVM will continue to regulate and supervise the securities analysts, as contemplated by Law No. 6.385, of December 7, 1976, which disciplines the Brazilian securities market and created the regulator (CVM).


1. The securities analyst must be an individual but a securities analyst company is also deemed to be a securities analyst.

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.

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Walter Stuber
Adriana Maria Gödel Stuber
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