Brazil: Abrasca Launches Manual For Control

On July 4, 2007, the Brazilian Association of Public Companies (Associação Brasileira de Companhias Abertas – Abrasca) launched its manual on the control and disclosure of material information ("Manual de Controle e Divulgação de Informações Relevantes"), containing recommendations to public companies on how to prevent leakage of confidential information (for example, material facts that have not yet been disclosed to the market) and combat insider trading.

There has, of course, been a growing emphasis on combating insider trading in Brazil in recent years, seen in the Brazilian Securities Commission’s increasingly vigorous actions to detect and sanction this illegal conduct, and in changes to the legislation and regulations. In 2001, for example, Law 10,303 amended Law 6,404/76 (the Brazilian Corporations Law) to include a new provision in art. 155 that prohibits the use of privileged information by anyone who has had access to it (and not just officers and directors), as well as Law 6,385/76, to include insider trading in the list of crimes against the capital market. The rules issued by the Brazilian Securities Commission (Comissão de Valores Mobiliários – CVM) on the subject (CVM Instruction 358/2002) was recently amended by CVM Instruction 449/2007, which enhanced the rules on reporting of trading in securities by officers, members of boards of directors, members of advisory bodies and committees and persons related to the issuer company. Aside from administrative and criminal sanctions, both injured investors and the Public Ministry (by means of a public civil action) can bring action to recover damages for losses suffered.

With its recently-launched Manual, Abrasca brings selfregulating measures into the fight against insider trading.

As a starting point, the Manual reproduces CVM Instruction 358/2002, and then goes on to make a number practical recommendations for controlling confidential information within companies.

The Manual’s most significant suggestion is that public companies create a committee specifically for the internal control of information (although the function can also be assumed by an existing body within the organization), composed of the company’s investor relations officer, its investor relations manager and an executive who has responsibility for internal auditing, corporate governance or compliance.

The primary responsibilities of the internal control of information committee are to (i) map dissemination of confidential informational, (ii) maintain records of persons, departments and entities that have access to such information, and (iii) classify information according to its degree of confidentiality or sensitivity.

The internal control of information committee also has an educational function, and would be responsible for training officers and employees on the laws and regulations in force on insider trading and treatment within the company of sensitive information, with practical guidance on the use of means of communication, the transfer of data and the printing of documents, as well as the creation and use of filters and other security mechanisms such as passwords, encrypted files and identification codes.

Another of the committee’s duties is to guide and monitor the company’s policy on insider trading, by ensuring awareness of the consequences of failure to comply with the policy and reminding management and employees of the deadlines and procedures for reporting trades in the company’s securities.

The last of the internal control of information committee functions is to ensure compliance with the company’s policies, recommending to management measures for improvement and correction where needed.

Companies that adopt the principles and recommendations contained in the Manual can sign an instrument of adherence with Abrasca, which is made public by registration in a notarial office. Adhering companies then receive the Abrasca seal of quality.

Abrasca has established a Committee for Control of Disclosure of Material Information to supervise companies that adopt the Manual. The Committee has powers to make recommendations to adhering companies, commence proceedings to investigate non-compliance with the Manual, and issue decisions in such procedures. The penalties for non-compliance are: (i) a warning, accompanied by private communication of recommended changes issued by the Committee; (ii) a public warning communicated through Abrasca’s public channels of communication; and (iii) temporary suspension of the right to use Abrasca’s seal of quality, again disclosed through Abrasca’s public channels of communication.

The market’s initial reaction to the Abrasca Manual appears to be good. According to the press, eight companies have already adopted the Manual: Banco Itaú, Perdigão, Souza Cruz, Suzano Petroquímica, Banco Bradesco, Tegma and Tovs. Abrasca’s seal is expected to give greater credibility to participating institutions, following the example of the success of the seal of quality conferred by the Brazilian Association of Investment Banks (ANBID).

*The full text of the Manual is available at

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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