Brazil: New Rules on Brazilian Financial Bills

On December 16, 2010, the Brazilian government announced two measures which deal with the issuance of Financial Bills (Letras Financeiras - LFs), created by means of article 39 of Law No. 12249, of June 11, 20101, and aims to foster long-term debt instruments which may be issued by certain financial institutions. The Brazilian Monetary Council (Conselho Monetário Nacional - CMN), by means of CMN Resolution No. 3836, of February 25, 2010, authorized the following financial institutions to issue LFs: multiservice, commercial and investment banks (bancos múltiplos, comerciais e de investimentos); savings banks (caixas econômicas); loan, finance and investment companies (sociedades de crédito, financiamento e investimento); mortgage companies (companhias hipotecárias) and real estate loan companies (sociedades de crédito imobiliário).

I. Like Other Brazilian Financial Institutions BNDES Can Also Issue Financial BNDES

CMN Resolution No. 3933, of December 16, 2010, authorized the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social – BNDES) to issue LFs, under the following conditions:

  1. the total aggregate amount to be issued is limited to the Capital Base (Patrimônio de Referência) value, level 1, of BNDES, which presently corresponds to BRL 40 billion; and
  2. preparation of a feasibility study, which should contain at least the economic and financial analysis on the use of the LF compared to other fund-raising alternatives and additional sources of funds available to BNDES, considering volume, term, fees, indexing, liabilities´ composition and other conditions of the issuance as well as the potential demand for long-term bonds and the planned destination for the proceeds.

II. The Public Offering of Financial Bills is Now Regulated

The Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM), by means of CVM Instruction No. 488, of December 16, 2010, amended the regulations on public offering distribution of securities established by CVM Instruction No. 400, of December 29, 2003, with the main purpose of also comprising the public offering distribution of LFs by multiservice, commercial and investment banks, development banks, savings banks and BNDES. These entities are now authorized to apply to CVM, at the Superintendency of Securities Registration (Superintendência de Registro de Valores Mobiliários - SRE), the registry of a Continuous Distribution Program (Programa de Distribuição Continuada - PDC).

The PDC must describe for each of the securities included in the program: (a) the main features; (b) the remuneration or criteria for determining it; (c) the estimated amount to be issued within the program; (d) the total estimated value of the issuance; (f) restrictions on movement, if any; (g) maturity or criteria for determining it; (h) restrictions imposed on the issuer regarding distribution of dividends, disposal of certain assets, contracting of new debt and issuing new securities; (l) conditions for changing the rights attributed to such securities; (j) other relevant characteristics; (k) designation of the markets in which the securities will be admitted for trading; (l) channels of distribution of securities; (m) any conditions applicable to the bids; (n) any other information that the issuer may deem relevant; and (o) the ISIN code, if any2.

According to CVM Instruction 488/2010, the above-mentioned entities may register automatically distributions of non-linked LFs, provided that they have previously registered a PDC and that they maintain such program duly updated under terms of the current regulations.

All these entities may register a PDC, regardless as to whether they are registered or not in the CVM as issuers of securities. Entities already registered as issuers of securities in any category (A or B)3 are not subject to any additional duty beyond the obligations that they are required to comply with as a result of their issuers´ registration status.

Non-registered issuers, however, are subject to a specific informational regime and they must place and maintain available to investors in its webpage and at its headquarters, quarterly financial information and financial statements audited year-end for the last three fiscal years and the current fiscal year, on the same date of delivery to the Central Bank of Brazil (Banco Central do Brasil - Bacen), and to observe the provisions regarding secrecy and restriction on trading, as set forth in specific rules on disclosure of material fact or act issued by CVM.

An important feature of the PDC is the authorization granted to the issuer to carry out several public offerings of the same type of LF. Thus, from time to time and depending on the market opportunities, the issuer may increase the volume of securities already issued by it in the past. With the adoption of this measure, CVM intends to encourage a more active secondary market for the LFs.

Instruction 488/2010 also promotes specific changes in CVM Instruction No. 476 of January 16, 2009, and in CVM Instruction No. 480 of December 7, 2009. CVM Instruction 476/2009 was amended in order to allow that LFs may also be distributed through a restricted tender offer. Since CVM Instruction 480/2009 was amended to exempt from registration the issuer of securities that will distribute publicly only LFs within a PDC.


1. The Financial Bill was created by Provisional Measure No. 472 of December 15, 2009, which was approved by the Brazilian Congress and converted into Law No. 12249, of June 11.2010.

2. ISO Norm 6166 or ISIN (International Securities Identification Number) has been created to standardize the codes of securities, assigning a unique international code which identifies each asset. BVMF is the Brazilian numbering agency, the only institution authorized to assign ISINs for securities in Brazil. The ISIN code provides a uniform structure to identify securities, contributing to the automatization of investors' activities and streamlining back office routines as well.

3. Under the rules of CVM Instruction No. 480, of December 7, 2009, there are two different categories of registry: (i) category A, which authorizes the trading of any types of securities; and (ii) category B, which excludes shares and share certificates of deposit as well as securities which attribute to the holder the right to acquire shares and share certificates of deposit as a result of the conversion or the exercise of inherent rights, provided that these securities are issued by the same issuer or by a company belonging to its economic group.

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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