Brazilian Pension Funds And Millionaire Investors Can Now Purchase BRDs

Brazilian Depositary Receipts (BDRs) are certificates issued by a depositary institution in Brazil that represent securities (stocks) issued by publicly-held corporations with headquarters overseas1.

On March 15, 2011 the Board of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM) decided to include Brazilian Pension Funds (Entidades Fechadas de Previdência Complementar - EFPCs)2 and individuals and legal entities with financial investments exceeding R$ 1 million in the list of investors that are authorized to purchase certain BDRs listed on the Brazilian Exchange's (BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros - BVMF) regulated over-the-counter (OTC) market, under the International Market segment, and traded in the Mega Bolsa3.

The above-me mentioned inclusion in the list of authorized investors has been made by means of CVM Instruction No. 493, of March 24, 2011, which amends the wording of article 3 of CVM Instruction No. 332, of April 4, 2000 that regulates the issuance and trading of BDRs in Brazil.

According to the current CVM regulation, there are three types of BDRs for trading: Level I, II or III.

BDR Level I4 can be Sponsored or Unsponsored. Sponsored BDRs are issued by a depositary institution that has an agreement with the foreign issuer (the foreign company that issues the stocks) and can only be Level II5 and III6. Unsponsored BDRs can only be Level I and to not involve the foreign issuer7.

From now on, the investors authorized to acquire BDRs Level I8 comprise: (i) financial institutions; (ii) investment funds; (iii) portfolio managers and consultants previously authorized by CVM, regarding their own resources; (iv) employees of the sponsored company or of any other company of the same economic group; (v) EFPCs; and (vi) individuals and legal entities with financial investments exceeding R$ 1 million.

Therefore, individuals and legal entities with financial investments of less than R$ 1 million can only participate indirectly of the acquisition BDRs Level I, Sponsored or Unsponsored, through investment funds.

Only companies headquartered in countries whose regulatory agencies have a cooperation agreement with CVM and are members of the International Organization of Securities Commission (Organização Internacional das Comissões de Valores - OICV) are allowed to issue BDRs Level I.

For portfolio composition, the acquisition of BDRs Level I is considered a foreign investment.

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