Brazil: Depositary Receipt Programs In Brazil

Last Updated: 7 April 2015
Article by Walter Stuber

The Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) issued CVM Instruction No. 559, of March 27, 2015 (CVM Inst. 559/2015), which updates the rules on the approval of programs of Depositary Receipts (DR) to be traded abroad (i.e. outside Brazil) and came in full force and effect on March 30, 2015, date of its publication in the Official Gazette of the Union (Diário Oficial da União – DOU).

For the purpose of CVM Instr. 559/2015, the following terms are defined:

  1. DR means the certificates issued abroad by a depository institution representing assets authorized in specific regulations enacted by the Brazilian Monetary Council (Conselho Monetário Nacional – CMN), hereinafter referred to as "authorized assets", deposited in specific custody in Brazil;
  2. custodian institution means the institution authorized by CVM to provide custody services;
  3. depository institution means the institution abroad that issues the corresponding DR based on the authorized assets; and
  4. sponsoring company means the issuer of the authorized assets which are object of the DR program, which must be a company headquartered in Brazil, and it is the signatory of the specific contract entered into with the depository institution to govern the issuance of DR.

Regarding its authorization, the DR program requires the approval of CVM and can be ballasted on authorized assets, according to the registration category in which the issuer of securities is registered with CVM1. The approval of DR program can be requested by (i) the custodian institution; or (ii) the sponsoring company.

The DR program can be sponsored or non-sponsored. Sponsored is the program established by a single depository institution hired by the issuer of the assets constituting the ballast of the DR. Non-sponsored is the program established at the initiative of one or more depository institutions and in this case the manifestation of no objection from the issuer of the assets constituting the ballast of the DR will have to be presented.

The CVM approval for the DR program will be granted automatically. The application of automatic approval must be forwarded to the Securities Registration Superintendence (Superintendência de Registro de Valores Mobiliários - SRE) and will be accompanied by the following documents: (i) the contract between the custodian institution and the depository institution; (ii) the agreement (convênio) entered into between the administrator entities of the Brazilian and foreign organized markets providing for the trading of securities involved in the DR program, whereby the receipts are intended for trading on an organized market abroad; (iii) the authorization of the Central Bank of Brazil (Banco Central do Brasil – Bacen), whenever the ballast of the DR program is constituted by assets issued by a financial institution headquartered in Brazil; and (iv) a statement signed by a statutory director of the custodian institution, confirming the validity and regularity of the documents listed in items (i) to (iii) herein.

If the DR program is sponsored, the application of automatic approval must be accompanied by the following additional documents: (i) the contract between the sponsoring company and the depository institution; and (ii) a statement signed by the statutory director of the issuer of the assets that constitute the ballast of the DR, confirming the validity of the regularity of the documents listed in items (i) to (iii) of the previous paragraph and the document mentioned in item (i) herein.

Should the DR program be non-sponsored, the application of automatic approval must also be accompanied by the manifestation of no objection from the issuer of the assets constituting the ballast of the DR.

The documents written in a foreign language (English, for example) must be submitted together with their respective sworn Portuguese translations in order to be valid in Brazil.

The application of automatic approval will produce effects within five business days as of the date of filing of the application with CVM.

The application for modification of the terms and conditions of the DR program must also be forwarded to SRE and will follow the same parameters outlined above.

The issuer of shares that constitute the ballast of the sponsored DR program must convene a general shareholders' meeting with a minimum of 30 days in advance. Compliance with this deadline is waived in cases where the species or class of shares that constitutes the ballast of the DR is not entitled to vote in any of the matters listed in the agenda of the meeting2.

The voting rights of the shares constituting the ballast of the DR must be exercised by the depository institutions in the manner instructed by the DR holders whenever the contracts for the program so permit, or in the best interest of the DR holders, when such contracts prevent voting as per their instructions.

1 According to 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.

2 The provisions mentioned in this paragraph will only be applied 90 days after the date of publication of CVM Inst. 559/2015 in the DOU.

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
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