New Rules For The Brazilian Structured Operations Certificate (COE)

On November 20, 2013, the Board of the Central Bank of Brazil (Banco Central do Brasil - Bacen) issued the two Circulars mentioned herein, about certain issues of the Structured Operations Certificates (Certificados de Operações Estruturadas - COEs), created by Law No. 12,249, of June 11, 2010, and regulated by the Brazilian Monetary Council (Conselho Monetário Nacional - CMN) Resolution No. 4,623, of September 5, 2013: (a) Bacen Circular No. 3,684 - that establishes standardized methodology for performing sensitivity analysis of the market value of the COE, for information purposes to the registry system administrator; and (b) Bacen Circular No. 3,685 - that establishes criteria for evaluation of the relationship between the initial investment in COE and their potential results.

For the purposes of performing such sensitivity analysis, the financial institution issuer of the COE must estimate the percentage variation in the market value of the certificate, corresponding to: (i) parallel shocks of 50 basis points (negative) and 200 basis points (positive), in terms of annual fees for the underlying asset represented by interest rates and price indices; and (ii) shocks of 5% (negative) and 20% (positive) on the value of the underlying asset, for the other cases. In addition to these values, the issuer must inform the registry system administrator about the underlying asset of the certificate used in the sensitivity analysis. In the case of a COE benchmarked in more than one underlying asset, only the results from shocks performed on its main underlying asset must be informed.

Such information must be forwarded to the registry system administrator until the third business day following the last day of the month. The procedures used in the sensitivity analysis must be consistent, subject to verification and documented. The same information will have also to remain at the disposal of Bacen for a period of at least 10 years, counted from the maturity date of the COE.

The criteria for evaluation of the relationship between the initial investment in COE and their potential results are the following: (i) the issuance of the COE must have as main characteristic the fundraising on the part of the issuer; (ii) the issuance of the COE cannot work at any time in the issuer exposure to the credit risk of the holder of the certificate...