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Non-resident investors according to CMN Resolution 2689/2000
The CMN Resolution 2689/2000 enables the non-resident investors (individuals or collective parties, individuals or legal entities, funds or other collective investment entities) the same access to the Brazilian financial and capital markets granted to resident investors.
Thus, the "2689 investors" may, for example, invest on commodities- and futures markets, stock markets and investment funds regulated by the CVM.
1. Phases so that the Non-Resident Investor may Invest in Brazil Based on CMN Resolution 2689/2000
To be able to invest on Brazil, the "2689 investor" must undergo the following phases:
To incorporate one or more Legal Representatives in Brazil
The formalization of this agreement before the Securities and Exchange Commission (CVM) is done through the sending of the form attached to the Resolution 2689, duly filled out and signed by the non-resident investor and his legal representative. When this representative is an individual or a non-financial legal entity, the investor must appoint an authorized institution to operate through the Central Bank of Brazil as the co-responsible party for the compliance with the representative's obligations. Furthermore, even though this representative is not to be necessarily confused with the one required by the tax legislation, in reality it usually is.
Request Registration in the CVM
After the filling out and signature of the form, the representative must request before the CVM the "CVM Operational Code" (or "CVM Registration Number") of the non-resident investor. The request will have to be sent electronically, through the CVM web page on the Internet.
The CVM will reply to the request within up to 24 hours from the time in which the representative has sent the necessary information.
Select a Custodian in Brazil
The non-resident investor, directly or through his legal representative, will have to sign an agreement with a local custodian in Brazil which must be an institution or entity authorized by the Central Bank of Brazil or by the Securities and Exchange Commission to provide those services.
Select an Authorized Brazilian Bank to Operate in the Foreign Currency Exchange Market
He will also have to sign an agreement with a Brazilian bank authorized to operate in the foreign currency exchange market. This bank will register the investor in the Central Bank of Brazil (BCB). At each currency exchange operation made by the non-resident investor for the internalization of resources in Brazil will generate an Electronic Declaratory Registration (RDE), which must also be on the sending registration of those resources to foreign countries.
Observe the remaining Rules and Regulations Established by the Institution where he will Operate or Register his Operations
Finally, the non-resident investor will have to observe the specific rules and regulations of institutions where he intents to operate or register his operations. It is worth highlighting that the operations of non-resident investors may only be carried out or registered in institutions authorized by the CVM and/or the BCB, depending upon each case.
Non-resident investors according to CMN Resolution 2687/2000
The CMN Resolution 2687/2000 enables non-resident investors (individuals or collective parties, individuals or legal entities, collective investment funds or other entities) to carry out operations in the commodities- and futures markets involving term agreements, future agreements and option agreements referenced in farming and cattle raising products, without the need to internalize the financial resources in Brazil. However, it is prohibited the carrying out of operational strategies that may result in pre-determined earnings, except when expressly authorized by the Central Bank of Brazil.
Thus, the "2687 investors" financially clear their operations and invest guarantees abroad in accounts opened through commodities- and futures markets exclusively for such purpose. Additionally, those markets are responsible for the hiring of currency exchange services related to the operations of those investors and for the collection of taxes related to their investments, being exempt from taxation all non-resident investors that cannot be framed in the differentiated taxation situation according to what is indicated in section 2.2. (The percentage of tax rate is of 15% for non-resident investors, upon which the differentiated taxation situation applies).
The client registration in the BM&F is done through an associated brokerage firm. The BM&F may request, at any time, documents that prove the data reported by the investor in the adhesion term, therefore it is the brokerage firm's duty to keep such documents in its files.
The client registration will have to be approved by the BM&F, to whom, after approval and registration in its internal systems will the brokerage firm inform the client's code indicating that he is eligible to operate. At the time of the client's registration, the BM&F verifies the country of origin of the investor for tax treatment purposes.
Due to the need to verify the amount to be cleared in US dollars on the same day of operation, the BM&F begins, immediately after the closing of the trading day, the updating process of positions and calculation of the daily adjustment. Thus, the grantors specification must be performed until 5:30 p.m. of the trading day. The grantor specification system is the same used for all other clients.
Supported by resolution 2687, the BM&F maintains in its Clearing- Bank, in New York, many accounts so that the liquidation and investment of guarantees would be done: receiving of the daily adjustment, receiving of margin paid in cash and receiving of margin through stocks.
The process of financial clearing- is carried out in the following manner:
The Operation Day
The Brokerage firms specify the deals for the clients until the due dates established by the BM&F;
After the closing of the specification process, the BM&F verifies the financial clearing- of these clients (creditor/debtor general total), with exception of the brokerage services and exchange market's fees that endured distinguished treatment;
The BM&F contracts the currency operation with its Clearing- Bank for the transactions of the clearing- amounts, using as closing quotation the BM&F referential currency exchange rate of one (1) day. The BM&F closes two types of currency exchange rates for the financial transactions; one for the General Debtor/Number Entry Total (Type 3) and the other for the General Creditor/Number Remittance Total (type 4).
The referential currency exchange rate is verified by the BM&F based on its own methodology, supported by the average price calculation verified based on the dollar purchase and sale rates, for clearing- in 2 days, daily collected at the best positioned institutions in the market. Discarding the greatest two and the lowest two average prices, a simple arithmetic average of the remaining prices is checked, given that the 2-day rate adjusted to the following day through the increase or decrease of the compensation cost, in dollar, based on the Libor·, and the bank reserve cost in brazilian currency (BRL), through the CDI· Rate.
The Clearing- Bank registers the currency contracts and the BM&F receives the same registrations through a printer connected to the Sisbacen.
Currency Exchange Contract Clearing-
The Day after the Operation
The BM&F clears the currency contracts in its Clearing- Bank through the netting of the contracts, what means, the clearing- in BRL through the Brazilian Payment System (SPB) by the netting of the contracts in BRL and clearing- in dollars in New York through the netting of contracts in dollar.
To speed up the clearing- process of the currency contracts, the BM&F adopts, alongside its Clearing- Bank, the digital signature procedure of the contracts.
Financial Clearing- with the Client
The Day After the Operation
The BM&F makes available several financial reports for participants responsible for those clients to follow up on on the financial clearing- as well as the brokerage invoice in English to be sent to clients;
The BM&F's clearing- is directly performed with the client, what means, it performs the payment to creditor clients and receives the payment from debtor clients through the BM&F account for clearing- of adjustments. The bank data informed by the client in his registration are used at this time for the financial clearing-.
In case of eventual problems in the bank transference system that would render impossible the necessary financial transactions, the BM&F adopts some contingency procedures.
The financial clearing- must comply with a time schedule scale, given that if the client does not make the payment within the established deadline, the BM&F will debits the accountable Brokerage Firm/Compensation Member.
The brokerage fees and the market fees are accumulated up to the first working day of each month when are then repatriated through specific currency exchange contracts and the amounts in BRL are sent to the respective participants.
When there is a holiday in New York, the clearing- of the farming and cattle raising markets is transferred to the next working day.
The client from "tax heavens" endures similar taxation as the non-resident client in the country, given that, the monthly verification of the tax amount and its respective collection are under the BM&F's accountability.
Deposit of Guarantees
The BM&F makes available to the Brokerage firms, in the day after the operation, reports with margin amounts required from each client. The Brokerage firm informs the client about the amount to be deposited, which in turn must cover the amount required in North-American dollars or in T-Bills (North-American Treasury Bonds).
Margin Coverage in Cash
The deposits and collection of margins in cash are performed in the specific BM&F Account for that procedure. The bank data informed by the client in its registration are used at this time for the financial transaction.
Execution of Guarantees
The Brokerage firm informs to the Chamber the client's lack of payment, arranging therefore for the compulsory clearing- of the open positions.
The Chamber begins the execution process of the client's guarantees in the following fashion:
- Guarantee in cash: the Chamber transfers the amount deposited in the margin account to the account for clearing- adjustments and repatriates these resources through a currency exchange contract.
- Guarantee in stocks: the Chamber, through its Clearing- Bank, exchanges the deposited stocks (at market value), transfers the resources to the account for clearing- adjustments and proceeds to the repatriation through a currency exchange contract.
Compensation Member Responsibilities
The Compensation Members are responsible, before the Chamber, for the correct clearing- of all and any operation attributed to them by registration, compensation and clearing-, as well as for delivery, receiving, authenticity and legitimacy of all and any stock, document, securities and guarantees related to those operations.