The Brazilian Structured Operations Certificate (COE)

On September 5, 2013, the Brazilian Monetary Council (Conselho Monetário Nacional - CMN) approved CMN Resolution No. 4,623 (CMN Res. 4,623/2013), which regulates the conditions for the issuance of Structured Operations Certificates (Certificados de Operações Estruturadas - COEs), created by Law No. 12,249, of June 11, 2010.

The COE is similar to the structured note as adopted in the international market, which is a hybrid security that includes several financial products, typically a stock or bond plus a derivative, and allows to offer different investments to the client who seeks a mix between fixed income and variable income within a single instrument.

1. General Features and Authorized Issuers

   Pursuant to CMN Res. 4,623/2013, the COE is a certificate issued against an initial investment, representative of a single and indivisible set of rights and obligations, with profitability structure that has characteristics of derivative financial instruments. This initial investment should be significantly superior to most likely results of the certificate at the time of its issue, according to and in the form of the criteria established by the Central Bank of Brazil (Banco Central do Brasil - Bacen).

   Only multiple banks, commercial banks, investment banks and savings banks are authorized to issue COEs. These institutions must indicate a Director responsible for issuing, distribution or negotiation trading of the COE. For purposes of this responsibility, the appointed Director may play other roles in the institution, except those relating to third-party resources administration and risk management, which will have to be completely segregated.

2. Registration

   This certificate must be issued exclusively in book-entry form, through the registration in a registry and financial settlement of assets system authorized by Bacen or CVM (the "Authorized System")1. This registration must allow the calculation and parameterization of the income structure and flow of payments of the COE, containing at least the following information: (i) the name in Portuguese Certificado de Operações Estruturadas; (ii) the name of the issuer (i.e. the financial institution issuing the certificate); (iii) the name of the holder; (iv) the order number and the place and date of issuance; (v) the par value; (vi) the initial date of its remuneration; (vii) the maturity dates; (viii) the date for early settlement or the conditions for its occurrence, if applicable; (ix) the underlying assets used as benchmarks; (x) the conditions for its remuneration; (xi) the rights and obligations of the holder and the issuer which can influence the conditions of remuneration must be specified; (xii) the conditions of the periodic payment of the income, if any; (xiii) the COE mode, including the portion of the protected par value; (xiv) the prediction of physical delivery of the underlying asset, if applicable; (xv) the registration code in the Authorized System; and (xvi) the conditions for repurchase or redemption before the agreed maturity.

   The transfer of ownership of the...