OPERATING RULES OF THE CLEARING FACILITY AND CENTRAL SECURITIES DEPOSITORY FOR BOVESPA MARKETS ( CBLC )

Transcription

1 This is a free translation offered only as a convenience for English language readers. Any questions arising from the text should be clarified by consulting the original in Portuguese. OPERATING RULES OF THE CLEARING FACILITY AND CENTRAL SECURITIES DEPOSITORY FOR BOVESPA MARKETS ( CBLC ) TITLE I PURPOSE TITLE II DEFINITIONS TITLE III PARTICIPANT ACCESS CHAPTER I CBLC PARTICIPANTS CHAPTER II CLEARING AGENTS SECTION I CLASSIFICATION SECTION II ELIGIBILITY SECTION III ACCESS AUTHORIZATION SECTION IV CAPITAL REQUIREMENTS SECTION V TECHNOLOGY AND OPERATIONAL REQUIREMENTS SECTION VI CONTRIBUTIONS TO THE SETTLEMENT FUND SECTION VII CONTRACTUAL UNDERTAKINGS SECTION VIII PERMIT WAIVER OR WITHDRAWAL CHAPTER III CUSTODIAN AGENTS SECTION I CLASSIFICATION SECTION II ELIGIBILITY SECTION III ACCESS AUTHORIZATION SECTION IV CAPITAL REQUIREMENTS AND CUSTODY LIMITS SECTION V TECHNOLOGY AND OPERATIONAL REQUIREMENTS SECTION VI CONTRACTUAL UNDERTAKINGS SECTION VII PERMIT WAIVER OR WITHDRAWAL CHAPTER IV GROSS SETTLEMENT AGENTS SECTION I ELIGIBILITY SECTION II ACCESS AUTHORIZATION SECTION IV TECHNOLOGY AND OPERATIONAL REQUIREMENTS SECTION V CONTRACTUAL UNDERTAKINGS SECTION VI PERMIT WAIVER OR WITHDRAWAL CHAPTER V QUALIFIED INVESTORS SECTION I ELIGIBILITY SECTION II ACCREDITATION WAIVER OR WITHDRAWAL TITLE IV CBLC: NATURE OF ACTIVITIES AND OPERATING DISCIPLINE 1

2 CHAPTER I LEGAL NATURE CHAPTER II TRANSACTION REGISTRATION AND ACCEPTANCE CHAPTER III CLEARING AND SETTLEMENT SECTION I MULTILATERAL CLEARING SECTION II SETTLEMENT CHAPTER IV RISK MANAGEMENT SECTION I NATURE; SCOPE SECTION II CREDIT RISK ON SETTLEMENT SECTION III LIQUIDITY RISK ON SETTLEMENT SECTION IV SETTLEMENT FUND SECTION V SEGREGATED ASSETS CHAPTER V GROSS SETTLEMENT SERVICES CHAPTER VI CENTRAL SECURITIES DEPOSITORY SECTION I CUSTODY ACCOUNT STRUCTURE SECTION II DEPOSIT, WITHDRAWAL, TRANSFERS OF SECURITIES SECTION III CUSTODY LIMITS; LIMIT MONITORING SECTION IV TREATMENT OF CORPORATE ACTIONS CHAPTER VII FEES CHAPTER VIII INTERNAL CONTROLS TITLE V RIGHTS AND RESPONSIBILITIES OF CBLC AND CBLC PARTICIPANTS CHAPTER I RIGHTS AND RESPONSIBILITIES OF CBLC SECTION I CBLC RIGHTS SECTION II CBLC RESPONSIBILITIES CHAPTER II RIGHTS AND RESPONSIBILITIES OF CLEARING AGENTS SECTION I RESPONSIBILITIES OF CLEARING AGENTS SECTION II RIGHTS OF CLEARING AGENTS CHAPTER III RIGHTS AND RESPONSIBILITIES OF CUSTODIAN AGENTS SECTION I RESPONSIBILITIES OF CUSTODIAN AGENTS SECTION II RIGHTS OF CUSTODIAN AGENTS CHAPTER IV RIGHTS AND RESPONSIBILITIES OF GROSS SETTLEMENT AGENTS SECTION I RESPONSIBILITIES OF GROSS SETTLEMENT AGENTS SECTION II RIGHTS OF GROSS SETTLEMENT AGENTS CHAPTER V RIGHTS AND RESPONSIBILITIES OF QUALIFIED INVESTORS SECTION I RESPONSIBILITIES OF QUALIFIED INVESTORS SECTION II RIGHTS OF QUALIFIED INVESTORS CHAPTER VI RIGHTS AND RESPONSIBILITIES OF TRADING PARTICIPANTS SECTION I RESPONSIBILITIES OF TRADING PARTICIPANTS SECTION II RIGHTS OF TRADING PARTICIPANTS CHAPTER VII RIGHTS AND RESPONSIBILITIES OF INVESTORS 2

3 SECTION I RESPONSIBILITIES OF INVESTORS SECTION II RIGHTS OF INVESTORS CHAPTER VIII RIGHTS AND RESPONSIBILITIES OF SETTLEMENT BANKS SECTION I RESPONSIBILITIES OF SETTLEMENT BANKS SECTION II RIGHTS OF SETTLEMENT BANKS TITLE VI CHAIN OF RESPONSIBILITIES CHAPTER I RESPONSIBILITIES RELATED TO CLEARING AND SETTLEMENT ACTIVITIES CHAPTER II RESPONSIBILITIES RELATED TO THE CENTRAL SECURITIES DEPOSITORY CHAPTER III BM&FBOVESPA: EXEMPTIONS AND LIMITATION OF LIABILITY TITLE VII STATE OF ARREARS AND DEFAULT CHAPTER I TYPIFICATION CHAPTER II EFFECTS OF DEFAULT CHAPTER III DEFAULT REPORTING PROCESS CHAPTER IV COLLATERAL TREATMENT AND EXECUTION TITLE VIII SETTLEMENT FUND CHAPTER I LEGAL SYSTEM, ADMINISTRATIVE STRUCTURE; ASSET SEGREGATION CHAPTER II PURPOSE CHAPTER III FUND MAGNITUDE AND COMPOSITION CHAPTER IV WITHDRAWAL FROM THE FUND CHAPTER V CONTRIBUTIONS REVIEW; REPLENISHMENT MECHANISM TITLE IX SANCTIONS TITLE X TECHNOLOGY INFRASTRUCUTRE AND RECOVERY BACK UP PROCESSES TITLE XI EMERGENCY ACTIONS TITLE XII ARBITRATION TITLE XIII FINAL PROVISIONS CHAPTER I OPERATING AGREEMENTS CHAPTER II SPECIAL PROVISIONS CHAPTER III SUPPLEMENTARY RULES 3

4 T I T L E I - P U R P O S E 1 In accordance with applicable legislation and regulations, the purpose of these Operating Rules is to establish the discipline, standards and rules that will govern BM&FBOVESPA activities performed in the capacity of clearing facility and provider of net deferred settlement systems, in addition to central securities depository and related services. The discipline, standards and rules set forth herein also apply to, and are binding on persons with whom BM&FBOVESPA may establish legal relationship either under contract or by virtue of the nature of said persons operations. 2 The details and practices regarding the activities governed by these Rules are set forth in a set of standards and rules of an operational nature issued under the name of CBLC Operating Rules and Operating Procedures, known as Operating Procedures, which are incorporated herein by reference, in addition to official letters and circular letters issued from time to time by BM&FBOVESPA. T I T L E I I - D E F I N I T I O N S 3 As used herein, in either plural or singular form, the following terms shall have the meanings set forth hereinbelow, whereas giving regard to the context provided by the headings hereof. 3.1 Acceptance means the process by which CBLC undertakes to act as Counterparty for the Settlement of registered Transactions. 3.2 Clearing Agent means an institution that, acting as Counterparty to its clients and CBLC, undertakes responsibility for clearing and settling Transactions and providing margin for proprietary and/or customer Transactions, and which as a participant in clearing and settlement activities may qualify as Full Clearing Agent or Proprietary Clearing Agent or Special Clearing Agent. 3.3 Custodian Agent means an institution that, acting for itself or their customers, undertakes to manage proprietary or customer Custody Accounts held at the Central Securities Depository operated by CBLC, and which as a participant may qualify as Full Custodian Agent or Proprietary Custodian Agent or Special Custodian Agent. 3.4 Gross Settlement Agent means an institution that, acting for itself or their customers before CBLC, undertakes responsibility for the Gross Settlement of proprietary or customer Transactions. 3.5 Trading Environment means each of the stock market, the organized over-the-counter market and the non-organized over-the-counter market on which Transactions in Securities are carried out. 3.6 Securities stocks and other securities, including securities representing rights and other equity-based securities, financial contracts and other financial instruments, in addition to private or government bonds and debt securities. 4

5 3.7 Settlement Bank means an institution holding a banking reserve account with the Central Bank for the passing through of money in the name and for the account of Clearing Agents, Custodian Agents and Gross Settlement Agents. 3.8 Block for Sale means the action by which a market participant that qualifies as Trading Participant indicates the securities underlying any given selling Transaction executed for a customer Investor have been committed to ensure a particular trade is consummated and performed through Delivery of the Securities in the Clearing and Settlement process. 3.9 BM&FBOVESPA means BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros, the Brazilian Securities, Commodities and Futures Exchange, operator and manager of organized securities markets, whose primary purpose is to provide trading, auction and related systems suitable for execution or registration of Transactions in Securities and certain special Transactions, in addition to operating and managing clearing and settlement systems, a central securities depository and safe custody of securities BSM means BM&FBOVESPA Supervisão de Mercados, a mutualized not-for-profit entity whose purpose is to perform market oversight ensuring trading is orderly, and to monitor the activities of the market operator (BM&FBOVESPA), the Clearing Agents, the Gross Settlement Agents and Custodian Agents CBLC means the clearing facility and central securities depository operated by BM&FBOVESPA, whose primary functions include providing clearing, settlement and risk management services within the scope of Bovespa Markets, and providing central depository and safe custody services for Securities traded in markets comprising the Bovespa Segment of BM&FBOVESPA (as defined below). CBLC is an acronym commonly used in local capital markets in reference to the equities clearinghouse and central securities depository of BM&FBOVESPA. References herein to CBLC are to BM&FBOVESPA and vice-versa, interchangeably Settlement Cycle means the time periods established by CBLC in terms of number of days and business hours, during which assets are delivered, payments settled and the obligations arising for buyers and sellers to Transactions carried out on Bovespa Markets are discharged Clearinghouse means the department and facilities of BM&FBOVESPA whose primary function is to operate and manage clearing, settlement and risk management systems and services Clearing means the process of calculating the mutual obligations of counterparty market participants, on a net basis, for the exchange of Securities and money by way of Settlement of mutual net settlement obligations Custody Account means any individual or collective account for Securities deposited at the Central Securities Depository of CBLC or with other depositories Omnibus Account means a collective Custody Account to record ownership and of 5

6 Securities held by customers that are natural and/or legal persons, including funds and other collective investment schemes, any of which qualifies as non-resident of Brazil Margin Account means an account sets up to register the movement of pledged Collateral Passenger Account means an individual Custody Account, which is set up to record ownership of Securities held by natural and/or legal persons, including funds and other collective investment schemes qualifying as non-residents of Brazil Settlement Account means an account that CBLC, as a provider of settlement services, holds with the Central Bank s STR (as defined below) for the passing through of funds for Settlement, and a securities settlement account that CBLC, as a provider of clearing and safe custody services, holds at its Central Securities Depository and at other depositories for the movement of Securities during Clearing and Settlement processes; 3.20 Counterparty, as used herein in connection with clearing and settlement processes, means the institutions that appear opposite each other for a Transaction to go through; 3.21 Central Counterparty, or CCP, means CBLC acting as central counterparty to Clearing Agents that represent transacting parties, thereby interposing itself between buyers and sellers to facilitate trading by ensuring execution of Clearing and Settlement processes after Acceptance of each particular Transaction; 3.22 Global Custodian means a foreign institution licensed in its home jurisdiction to manage Custody Accounts, whether proprietary or customer accounts; 3.23 Central Securities Depository, or CSD, means the department and facilities of BM&FBOVESPA responsible for providing custodial services and central securities and depository for assets; 3.24 Deposit means placing Securities with the Central Securities Depository of CBLC, with an entry record made in the relevant Investor Custody Account; 3.25 Issuer means a company undertaking the obligations of the issue; 3.26 Delivery, as used herein, means the movement of Securities through a Settlement Account CBLC holds at the Central Securities Depository and other depositories for conveyance of ownership rights as part of Clearing and Settlement processes; 3.27 Transaction Specifications means the process by which a market participant that qualifies as Trading Participant supplies data to CBLC identifying the customer Investor that is a party to a Transaction entering the Clearing and Settlement process; 3.28 Corporate Actionsmeans events correlated redemption or amortization (including as to the principal and interest) by an Issuer in connection with Securities held under custody at CBLC; 6

7 3.29 Settlement Fund means a dedicated fund established as safeguard against losses that exceeds the pledged collateral in cases of default by Clearing Agents; ] 3.30 Collateral means cash, bonds, securities, rights underlying securities, financial contracts and other financial instruments pledged to CBLC as margin or security for obligations underlying Transactions; 3.31 Risk Management means the set of better recommended and established activities, techniques, models and systems for identification, assessment, monitoring, and control risk exposures, aimed to mitigate risk inherent in Clearing and Settlement processes and in activities performed by the Central Securities Depository; 3.32 Default means a failure to pay or perform an obligation at the agreed time and place and in the agreed manner; 3.33 Investor means a natural or legal person or entity, including collective investment schemes, which uses the services of market participants that qualify as Trading Participants to transact in any Trading Environment or uses the services of a Custodian Agent for the custody of their Securities; 3.34 Non-Resident Investor means a natural or legal person or entity, including collective investment schemes, which for residing or being based in a cross-border jurisdiction qualifies as non-resident of Brazil; 3.35 Qualified Investor means an accredited Investor so designated, which is licensed to settle Transactions directly, through one or more Full Clearing Agents, irrespective of the market participant (Trading Participant) through which his orders may have been executed; 3.36 Settlement Window means the interval of time that starts with the closing of the window for receipt of financial resources by CBLC and ends at the time CBLC transfers funds in the Central Bank s STR (as defined below) for Settlement of its obligations as Central Counterparty Clearinghouse; 3.37 Operating Limit means an operating cap CBLC assigns to a Clearing Agent, and the latter to its customers, as part of the process to control risk exposure associated with its activities as Central Counterparty to Clearing and Settlement processes; 3.38 Custody Limit means the operating limit CBLC assigns to a Custodian Agent, which is set as the aggregate value of securities held in Custody Accounts; 3.39 Settlement means the completion of Transactions through the exchange of Securities and money for satisfaction and release of the counterparties mutual rights and obligations; 3.40 Gross Settlement means a transfer system in which transfer orders (of money for Settlement or Securities for Delivery) are processed so Transactions are settled on one to one basis; 7

8 3.41 Market means a center or exchange for buying and selling Securities of similar characteristics, such as the stock market, fixed income market, and so forth State of Arrears means protracted failure to pay debt which was expected to be paid at a previously agreed or arranged time and place, as previously agreed or arranged; however, under circumstances that signal possibility of late payment through enforcement of Collateral or usage of other liquidity mechanism; 3.43 Transaction means a trade in securities and their derivatives, including trades carried out pursuant to securities lending arrangements, which CBLC may accept for clearing and settlement in the capacity of Central Counterparty Clearinghouse; 3.44 Payment, as used herein, means the passing of funds through a Settlement Account CBLC holds at the Central Bank s STR for the Settlement of net obligations underlying Transactions, and obligations related to Collateral, or to Corporate actions or fees payable to CBLC; 3.45 Participant means a market participant, whether a natural or legal person, that establishes a direct or indirect relationship with CBLC while acting (whether or not cumulatively) in the capacity of Clearing Agent, Gross Settlement Agent, Custodian Agent, Trading Participant, Settlement Bank, Investor or QualifiedInvestor; 3.46 Trading Participant means a brokerage firm or other institution licensed to engage in proprietary trading or to provide execution services by transacting for the account and order of a customer on any Trading Market, or to enter into transactions within the scope of the Securities Lending Service operated by CBLC; 3.47 Withdrawal means removing Securities from the Central Securities Depository, with an exit record being made in the relevant Investor Custody Account; 3.48 Bovespa Segment or Bovespa Markets means the business segment comprising the stock exchange and organized markets for options, forwards and futures, which are operated and managed by BM&FBOVESPA for the trading of equities and equity-based securities and derivatives; 3.49 SELIC means the Special Settlement and Custody System administered by the Central Bank of Brazil; 3.50 Central Depository Service means central depository and safe custody services for fungible and non-fungible Securities, which is operated by CBLC; 3.51 Securities Lending Service serviced offered by CBLC which allows the lending and borrowing of securities, which is operated and managed by CBLC; 3.52 Trading System means the technological and operational facilities which allows the trading of Securities on TradingEnvironment; 3.53 STR means the Reserves Transfer System managed by the Central Bank of Brazil; 8

9 3.54 Transfer means free of payment movement of Securities among Custody Accounts within the scope of the activities of the Central Security Depository. T I T L E III P A R T I C I P A N T A C C E S S CHAPTER I CBLC PARTICIPANTS 4 CBLC performs activities as a Clearinghouse for the Clearing and Settlement of Securities, and as Central Securities Depository, in addition to managing a Gross Settlement System. 5 Acting in the capacity of Clearinghouse, CBLC licenses Participants in any of the following three (3) categories: Full Clearing Agent, Proprietary Clearing Agent and Special Clearing Agent. 6 Acting in the capacity as Central Securities Depository, CBLC licenses Participants in any of the following three (3) categories: Full Custodian Agent, Proprietary Custodian Agent and Special Custodian Agent. 7 Acting in the capacity of manager of a Gross Settlement System, CBLC licenses just one category of Participants, i.e., Gross Settlement Agents. 8 Institutions that wish to act as Clearing Agent, Custodian Agent or Gross Settlement Agent are required to file permit application and attach the documentation set forth in Appendix I of the Operating Procedures, following which CBLC will conduct the granting process foreseen in the Rules for Access to BM&FBOVESPA Markets and Systems. 9 CBLC will analyze the documents attached to the application and advise the board of directors of BM&FBOVESPA, which will consider the application and decide on whether to grant the Access authorization under the relevant Participant category, communicating this decision to CBLC. 9.1 In the event of a decision to reject the application, a candidate participant may appeal to the shareholders meeting of BM&FBOVESPA. On receiving the appeal, the board of directors will first review the arguments and may elect to reconsider its former decision. 9.2 The deadlines and procedures assigned for the decision and the appeal are set forth in the Rules for Access to BM&FBOVESPA Markets and Systems. CHAPTER II CLEARING AGENTS Section I Classification 9

10 10 Clearing Agents are classified pursuant to the following categories: 10.1 Full Clearing Agents these are institutions licensed to settle Transactions they execute as principal in the course of proprietary trading and their customers, Trading Participant or QualifiedInvestors Proprietary Clearing Agents these are institutions licensed to settle Transactions: which they execute as principal in the course of proprietary trading, or for its customers; which are executed through intermediation of a company belonging to the same economic group; where the principal is a company belonging to the same economicgroup, but which are executed through a third-party broker; and where the principal is a collective investment scheme managed by them or by a company belonging to the same economic conglomerate, irrespective of who acts as broker Special Clearing Agents these are institutions licensed only to settle Transactions in fixed-income Securities from non-financial private issuers whose securities are listed to trade on a Trading Market, and in addition are Transactions: which they execute in the course of proprietary trading or acting for its customers; which are executed through intermediation of a company belonging to the same economic group ; where the principal is a company belonging to the same economic group, but which are executed through a third-party broker; and where the principal is a collective investment scheme managed by them or by a company belonging to the same economic conglomerate, irrespective of who acts as broker. Section II Eligibility 11 Brokerage houses, broker-dealers, multi-service banks, commercial banks, investment banks, and other institutions, in the discretion of CBLC, are eligible to qualify as Clearing Agents. Section III Access Authorization 12 The granting of Access authorizations by CBLC is contingent on a candidate meeting certain requirements, including the essential requirements set forth below in connection with the role of a Clearing Agent: 10

11 12.1 formal adherence to CBLC Operating Rules and Operating Procedures and other applicable regulatory and operating rules adopted by CBLC, by entering into a Clearing Service Agreement with CBLC; 12.2 contributing to the Settlement Fund by making the minimum fixed contribution and the variable contribution established by BM&FBOVESPA; 12.3 having recognized knowledge and experience in credit and finance risk analysis, and risk management activities; 12.4 having recognized organizational and operating capabilities, in particular as correlated with clearing and settlement processes; 12.5 presenting financial position consistent with the nature of the activities of a Clearing Agent, in particular capital structure that allows for adequate capitalization, liquidity and indebtedness positions, such as foreseen in the Operating Procedures; 12.6 presenting adequate profitability, consistent with the levels of business and capitalization; 12.7 having been licensed by CBLC to perform activities as a Custodian Agent; 12.8 having as directors and officers persons of good repute, including good ethical, professional and credit repute; 12.9 meeting the requirements set out in the basic audit guide of the operational qualification program (PQO) established by BM&FBOVESPA; and formal adherence to the rules and regulations established by BSM and the Market Arbitration Chamber by entering into a Clearing Service Agreement with CBLC. Section IV Capital Requirements 13. From a financial standpoint, a Clearing Agent must also meet the minimum capital, riskweighted assets and liquidity requirements, in addition to other requirements of a financial nature established by CBLC. 14. Minimum capital adequacy requirements differ by category of Access authorization for which a candidate may apply and are set forth in Appendix 1 of the Operating Procedures. 15. The minimum capital requirements may change at any time in the discretion of CBLC. 16. On evaluating an application for access authorization, and from time to time thereafter, CBLC will verify compliance with minimum capital requirements in order to ensure Clearing Agents meet them on a continuing basis. 11

12 Section V Technology and Operating Requirements 17. From a technology and operating standpoint, Clearing Agents must meet the requirements set forth below irrespective of the category of access authorization: 17.1 having been granted access to CBLC systems and the functionalities required by the activities of a Clearing Agent; 17.2 having hired a Settlement Bank licensed by the Central Bank and duly registered at CBLC on the basis of the documentation listed in Appendix 1 of the Operating Procedures; 17.3 having a designated officer responsible for risk management activities; 17.4 providing documents describing the main features of the technology structure and operating systems employed in the provision of clearing and settlement services, including summary allocation of the systems intrinsic and extrinsic operating routines and related procedures and internal controls; 17.5 providing an organizational chart that indicates the department or division responsible for clearing and settlement processes, and explains the Chinese wall or segregation of duties arrangements to separate risk management activities from other asset management activities (for Trading Participants and QualifiedInvestors). 18. A Clearing Agent must further meet minimum adequacy standards related to technology infrastructure and contingency/disaster recovery plans, as set forth under Title X ( Technology Infrastructure and Recovery Processes ) of these Rules and in special additional rules issued by CBLC. Section VI Contributions to the Settlement Fund 19. Contributing to the Settlement Fund of CBLC constitutes an essential requirement for performance of activities as a Clearing Agent. 20. The Settlement Fund is a pool of funds composed of minimum fixed contributions established by category of Clearing Agent, and a variable contribution required from each Clearing Agent in correlation to its share of CBLC overall risk exposure, as measured through stress testing Each of the minimum fixed contributions and the variable contributions may be made in the form of money or Brazilian government bonds and debt securities Variable contributions to the fund may be required in the form of daily payments. 12

13 Section VII Contractual Undertakings 21. Clearing Agents are required to enter into proper instruments giving effect to the contractual undertakings set forth below Formal adherence to these Rules, in addition to representations and commitments as follows: representation that the Clearing Agent has knowledge of the rules and standards governing the activities of Clearing Agents; Clearing Agents are to assume liability towards BM&FBOVESPA for transferring funds for Settlement if the hired Settlement Bank were to default on pass-through obligations related to the Settlement of Transactions; Clearing Agents are to exempt BM&FBOVESPA from liability if the hired Settlement Bank were to default on pass-through obligations related to funds received from BM&FBOVESPA in the course of Settlement processes Clearing Agents are to enter into clearing and settlement service agreements with customers, which at a minimum should contain provisions addressing the following: customers are to take full responsibility for the decision to hire the Clearing Agent and for the actions of the Clearing Agent in the course of rendering services; customers are to exempt BM&FBOVESPA from liability in case the Clearing Agent were to default on its obligations towards the customer, regardless of the circumstances leading to default; customers are to acknowledge awareness of, and expressly adhere to the terms and conditions of these Rules, without reservation or qualification; Clearing Agents are to commit to give the customer prior notice of intent to discontinue clearing and settlement activities or to terminate the service provision, such as the Operating Procedures require; customers are to acknowledge that sanctions and penalties that BM&FBOVESPA imposes on the Clearing Agent due to illegal or irregular actions of the customer may also extend to, and be imposed on such customer; where a Qualified Investor is the customer, the institution vouching for the record information related to the Qualified Investoris to assume liability for the accuracy and truthfulness of said information; and a provision should state the commencement date of the services. 13

14 21.3 Clearing Agents are to enter into a service agreement with the hired Settlement Bank stating the terms and conditions of settlement services, in particular as related to the Settlement Bank s obligation of passing funds through in the name and for the account of the Clearing Agent. 22. For due legal purposes, the contractual undertakings set forth in paragraph 21.2 will be deemed to have been made and assumed, even in the absence of a proper instrument, starting from any first direct or intermediated Delivery of Securities or transfer of money for Settlement or Collateral posting with the Clearing Agent. Section VIII Permit Waiver or Withdrawal 23. Clearing Agents may at any time elect to waive the Access authorization and terminate the provision of clearing and settlement services, provided they are required to give the Management of BM&FBOVESPA three (3) days prior written notice of the decision, in addition to giving prior notice to customers in accordance with the provisions of the Operating Procedures. 24 In the event of a permit waiver, Clearing Agents shall be required to carry through any pending Settlements and other obligations previously assumed towards a customer or related to proprietary portfolios. 25. Pursuant to the provisions under Title IX ( Sanctions ) and Title XI ( Emergency Actions ) of these Rules, CBLC shall have the prerogative of withdrawing access authorization granted to Clearing Agents. CHAPTER III CUSTODIAN AGENTS Section I Classification 26. Custodian Agents are classified pursuant to the following categories: 26.1 Full Custodian Agents these are institutions licensed to manage proprietary Custody Accounts and those of companies belonging to the same economic conglomerate, in addition to the Custody Accounts of non-institutional investors, investment clubs, institutional investors and Non-Resident Investors Proprietary Custodian Agents these are institutions licensed to manage proprietary Custody Accounts and those of companies belonging to the same economic conglomerate, in addition to the Custody Accounts of institutional and non-institutional investors, and investment clubs, whereas giving regard to limits established by CBLC Special Custodian Agents - these are institutions licensed only to manage their proprietary Custody Accounts. 14

15 Section II Eligibility 27. Brokerage houses, broker-dealers, multi-service banks, commercial banks, investment banks, and other institutions, in the discretion of CBLC, are eligible to qualify as Custodian Agents. 28. Closed-end pension funds licensed by the Brazilian Office for Supplementary Pension (Secretaria da Previdência Complementar), or SPC, as well as insurance companies and open-end pension funds licensed by the Brazilian Private Insurance Superintendency (Superintendência de Seguros Privados), or SUSEP, and other institutions, in the discretion of CBLC, are eligible to apply for permits to operate as Special Custodian Agents. Section III Access Authorization 29. The granting of Access authorizations by CBLC is contingent on a candidate meeting certain requirements, including the essential requirements set forth below in connection with the role of a Custodian Agent: 29.1 formal adherence to CBLC Operating Rules and Operating Procedures and other applicable regulatory and operating rules adopted by CBLC by entering into a Custody Service Agreement with CBLC having recognized organizational and operating capabilities, in particular as correlated with custody of Securities presenting financial position, in addition to technology and operational infrastructures consistent with the nature of the activities of a Custodian Agent having as directors and officers persons of good repute, including good ethical, professional and credit repute meeting the requirements set out in the basic audit guide of the Operational Qualification Program (PQO) established by BM&FBOVESPA formal adherence to the rules and regulations established by BSM and the Market Arbitration Panel by entering into a Custody Service Agreement with CBLC. Section IV Capital Requirements and Custody Limits 30. a Custody Agent will also meet the minimum capital adequacy and other requirements of a financial nature, established by CBLC. 31. Minimum capital requirements and Custody Limits differ by category of custodian access authorization. 15

16 32. The minimum capital requirements and Custody Limits may change at any time in the discretion of CBLC. 33. On evaluating an application for access authorization, and from time to time thereafter, CBLC will verify compliance with minimum capital adequacy requirements and adherence to Custody Limits in order to ensure Custodian Agents meet them on a continuing basis. Section V Technology and Operational Requirements 34. Custodian Agents must meet the requirements set forth below irrespective of the category of Access authorization; 34.1 having been granted access to CBLC systems and the functionalities required by the activities of a Custodian Agent; 34.2 carrying out daily reconciliation of Custody Account balances regarding Securities deposited with CBLC for which the relevant Custodian Agent is responsible; 34.3 allocating to perform custodial activities a minimum of two (2) employees that successfully completed the CBLC qualification and certification program; 34.4 hiring a Settlement Bank licensed by the Central Bank and duly registered at CBLC on the basis of the documentation listed in Appendix 1 of the Operating Procedures, which Settlement Bank will be responsible for passing funds through on behalf of the Custodian Agent as relating to thecorporate Actions; 34.5 providing customers with statements of their Custody Accounts; 34.6 establishing a proprietary or outsourced custody control system; 34.7 having a designated officer responsible for custodial activities; and 34.8 keeping documents describing the main features of the technology structure and operating systems employed in the provision of custody services, including summary allocation of the systems intrinsic and extrinsic operating routines and related procedures and internal controls. 35. Further to the provisions of paragraph 34 above, Full Custodian Agents will be required to meet the additional requirements set forth below: 35.1 providing an organizational chart that indicates the department or division responsible for the custodial services, and explains the Chinese wall or segregation of duties arrangements to separate custodial activities performed for customers from asset management activities; and 16

17 35.2 providing detailed audit reports concerning the custodial operations, issued by an independent auditing firm hired to assess the accuracy of information provided in the course of custodial activities, and the effectiveness, quality and security of the Custodian Agent s system operating routines. 36. A Custodian Agent (including Special Custodian Agents) are further required to meet minimum adequacy standards related to technology infrastructure and contingency/disaster recovery plans, as set forth under Title X ( Technology Infrastructure and Recovery Processes ) of these Rules and in special additional rules issued by CBLC. Section VI Contractual Undertakings 37. Custodian Agents are required to enter into proper instruments giving effect to the contractual undertakings set forth below Custodian Agents are to execute with CBLC the required Custody Service Agreement Custody Agents will further enter into securities custody service agreements with customers, which at a minimum should contain provisions addressing the following: customers are to take full responsibility for the decision to hire the Custodian Agent; customers are to exempt BM&FBOVESPA from liability in case the Custodian Agent were to default on its obligations towards the customer regardless of the circumstances leading to default customers are to acknowledge awareness of: the terms and conditions of these Operating Rules, and adhere to the same without reservation or qualification; and the terms and conditions of the Custody Service Agreement executed with BM&FBOVESPA Custodian Agents are to commit to giving customers prior notice of intent to discontinue custodial activities or to terminate the service provision, such as the Operating Procedures require customers are to acknowledge that sanctions and penalties BM&FBOVESPA imposes on the Custodian Agent due to illegal or irregular actions of the customer may also extend to, and be imposed on such customer A provision should state the commencement date of the custodial services Customers are to consent to the Custodian Agent implementing a Block for Sale, if so required. 17

18 37.3 Pursuant to applicable legislation, where a Custodian Agent is to make use of simplified record information for a Non-Resident Investor, said Custodian Agent and the related Global Custodian (or Omnibus Account holder) will be required to enter into a written custody agreement with provisions at a minimum addressing the following: a provision to the effect that the agreement and the Global Custodian (or Omnibus Account holder) will be subject to the governing law and jurisdiction of the Federative Republic of Brazil, including the regulations issued by local oversight, regulatory and self-regulatory agencies and entities; a provision to the effect that the Global Custodian (or Omnibus Account holder) undertakes to give notice upfront making customers aware of the requirements of Brazilian capital markets legislation by furnishing copy of the same or designating the place at which such information can be accessed; a provision to the effect that the local operations of the Global Custodian (or Omnibus Account holder) are subject to the Brazilian capital markets legislation; a provision to the effect that the Custodian Agent undertakes to provide the Global Custodian (or Omnibus Account holder) with copies of Brazilian laws, statutes, codes, regulations, rules and requirements applicable in the domestic capital markets, as enacted and issued by the Brazilian government and oversight, regulatory and self-regulatory agencies and entities; a provision to the effect that the Global Custodian (or Omnibus Account holder) undertakes to settle disputes related to the custody service agreement before the Brazilian courts or the Market Arbitration Chamber; a provision to the effect that the Global Custodian (or Omnibus Account holder) grants powers to a delegate in Brazil for him to act in the name and on behalf of the grantor for the purpose of receiving service of process and judicial or extrajudicial notifications issued by any Brazilian court, administrative authority or local oversight or regulatory or self-regulatory agencies or entities in connection with the operations contemplated in the relevant custody service agreement; a provision to the effect that the Global Custodian (or Omnibus Account holder) undertakes liability for keeping current information and documentation for proper identification of Non-Resident Investors, doing so for as long as required by Brazilian law, and to make said information available promptly upon request of the Custodian Agent, as may be necessary for operating or regulatory purposes, in the latter case giving due regard to deadlines assigned by the relevant authority, agency or entity, each acting within its sphere of authority; a provision to the effect that the Global Custodian (or Omnibus Account holder) undertakes liability for properly identifying customers, and for diligently fulfilling know your customer (KYC) requirements and applying better recommended anti-money laundering standards and processes; 18

19 a provision requiring the agreement to be terminated in the event of noncompliance with contractual obligations and, in particular violation of the rules governing the operations and investments of Non-Resident Investors in the Brazilian financial and capital markets; a provision to the effect that the Global Custodian (or Omnibus Account holder) undertakes to designate an employee or department responsible for keeping current record information on Non-Resident Investors and for promptly communicating any changes thereto. 38 Pursuant to applicable legislation, in the event of noncompliance with any provision under paragraph 37.3 above, the Custodian Agent will be required to make prompt use of the complete record information for the relevant Non-Resident Investors Upon receiving notice from regulatory agencies or entities that any particular Global Custodian (or Omnibus Account holder) has failed to provide information required to be provided, BM&FBOVESPA will promptly give notice thereof to every Custodian Agent having contractual dealings with such Global Custodian (or Omnibus Account holder) Upon receiving the notice foreseen in the preceding paragraph, Custodian Agents will promptly adopt the complete record information form for the relevant Non-Resident Investors in any transactions carried out on Brazilian financial and capital markets. 39 In certain events specifically contemplated in the Operating Procedures, the Custodian Agents may hire a Full Clearing Agent and agree a joint liability arrangement for Deposits of certain Securities with the Central Securities Depository. Section VII Permit Waiver or Withdrawal 40. Custodian Agents may at any time elect to waive the Access authorization and terminate the provision of custody services, provided they are required to give the Management of BM&FBOVESPA fifteen (15) day prior written notice of the decision, in addition to giving prior notice to customers in accordance with the provisions of the Operating Procedures. 41 Pursuant to the provisions under Title IX ( Sanctions ) and Title XI ( Emergency Actions ) of these Rules, CBLC shall have the prerogative of withdrawing access authorization granted to Custodian Agents CHAPTER IV GROSS SETTLEMENT AGENTS Section I Eligibility 19

20 42 Brokerage houses, broker-dealers, multi-service banks, commercial banks, investment banks, and other institutions, in the discretion of CBLC, are eligible to qualify as Gross Settlement Agents. Section II Access authorizations 43 Set forth below are the essential requirements applicable to Gross Settlement Agents Formal adherence to CBLC Operating Rules and Operating Procedures and other applicable regulatory and operating rules adopted by CBLC by entering into a Gross Settlement Service Agreement with CBLC Having recognized organizational and operating capabilities, in particular as correlated with Settlement of Transactions Presenting financial position consistent with the nature of the activities of a Gross Settlement Agent, in particular capital structure that allows for adequate capitalization, liquidity and indebtedness positions Presenting adequate profitability, consistent with the levels of business and capitalization Having been licensed by CBLC to perform activities as a Custodian Agent Having as directors and officers persons of good repute, including good ethical, professional and credit repute Meeting the requirements set out in the basic audit guide of the Operational Qualification Program (PQO) established by BM&FBOVESPA Formal adherence to the rules and regulations established by BSM and the Market Arbitration Chamber by entering into a Gross Settlement Service Agreement with CBLC. Section III Capital Requirements 44 From a financial standpoint, a Gross Settlement Agent will also meet the minimum capital risk-weighted assets and liquidity requirements, in addition to other requirements of a financial nature established by CBLC taking into account the industry in which it operates. Section IV Technical and Operating Requirements 45 Gross Settlement Agents must meet the requirements set forth below Access to the systems and functionalities required by the activities of a Gross Settlement Agent. 20

21 45.2 Hire a Settlement Bank licensed by the Central Bank and duly registered at CBLC, presenting the documentation listed in Appendix 1 of the Operating Procedures Allocate at least two (2) employees to settlement activities that have successfully completed the CBLC qualification and certification program Indicate the officer responsible for Settlement activities; 45.5 Keep documents describing the main features of the technology structure and operating systems employed in the provision of settlement services, including allocation of the systems intrinsic and extrinsic operating routines and related procedures and internal controls. 46 Gross Settlement Agents must further meet minimum adequacy standards related to technology infrastructure and contingency/disaster recovery plans, as set forth under Title X ( Technology Infrastructure and Recovery Processes ) of these Rules and in special additional rules issued by CBLC. Section V Contractual Undertakings 47 Gross Settlement Agents are required to enter into proper instruments giving effect to the contractual undertakings set forth below Formal adherence to these Operating Rules of BM&FBOVESPA, in addition to representations and commitments as follows: acknowledgement of awareness of the rules governing its activities; acknowledgement that CBLC will neither act as Central Counterparty for Markets in which the Gross Settlement Agent will operate, nor for the Transactions it will settle, such that CBLC s role in these cases will be one of facilitating delivery versus payment; Gross Settlement Agents will exempt BM&FBOVESPA from liability if the hired Settlement Bank defaults on pass-through obligations related to the settlement of Transactions received by BM&FBOVESPA 47.2 Before the hired Settlement Banks, Gross Settlement Agents: are to enter into an agreement regulating the terms and conditions of settlement services, in particular as related to the Settlement Bank s obligation of passing funds through in the name and for the account of the Gross Settlement Agent are to enter into service agreements with customers, which at a minimum should contain provisions that address the following: 21

22 Customers are to take full responsibility for the decision to hire the Gross Settlement Agent and for the actions of the Gross Settlement Agent in the course of rendering services; Customers are to exempt BM&FBOVESPA from liability in case the Gross Settlement Agent were to default on its obligations towards the customer regardless of the circumstances leading to default; Customers are to acknowledge awareness of, and expressly adhere to the terms and conditions of these Operating Rules without reservation or qualification; Gross Settlement Agents are to commit to give the customers prior notice of intent to discontinue gross settlement activities or to terminate the service provision; customers are to acknowledge that sanctions and penalties BM&FBOVESPA imposes on the Gross Settlement Agent due to illegal or irregular actions of the customer may also extend to, and be imposed on such customer; a provision should state the commencement date of the services. Section VI Permit Waiver or Withdrawal 48 Gross Settlement Agents may at any time elect to terminate the provision of gross settlement services, as long as the management of BM&FBOVESPA is informed at least three (3) days prior written notice of the decision, in addition to giving prior notice to customers in accordance with the provisions of the Operating Procedures In the event of a permit waiver, Gross Settlement Agents will be required to carry through any pending Settlements and other obligations previously assumed towards a customer or related to their proprietary portfolios. 49 Pursuant to the provisions under Title IX ( Sanctions ) and Title XI ( Emergency Actions ) of these Rules, CBLC shall have the prerogative of withdrawing access authorizations granted to Gross Settlement Agents. CHAPTER V QUALIFIED INVESTORS Section I Eligibility 50 Any of the following parties is eligible for accreditation under the designation of Qualified Investor: 50.1 Commercial banks, multi-service banks, investment banks; 22

23 50.2 Closed-end pension funds licensed by the Brazilian Office for Supplementary Pension (Secretaria da Previdência Complementar), or SPC; 50.3 Insurance companies and open-end pension funds licensed by the Brazilian Private Insurance Superintendency (Superintendência de Seguros Privados), or SUSEP; 50.4 Mutual funds licensed to operate by the Brazilian Securities Commission (Comissão de Valores Mobiliários), or CVM, or by the Central Bank of Brazil; 50.5 Legal persons not subject to legal or regulatory restrictions; 50.6 Non-Resident Investors registered pursuant to applicable regulatory requirements; and 50.7 Other natural or legal persons, in the discretion of CBLC. 51 In the discretion of CBLC, a legal representative may authorize its Investors to be designated as Qualified Investors. Section II Accreditation Waiver or Withdrawal 52 A Qualified Investor may at any time submit formal waiver of the accreditation as Qualified Investor by forwarding written application to the Clearing Agent or CBLC. 53 Under certain circumstances foreseen in the Operating Procedures, CBLC acting on its own initiative or on application of a Clearing Agent may decide to withdraw the accreditation as Qualified Investor. T I T L E I V C B L C : N A T U R E O F A C T I V I T I E S A N D O P E R A T I N G D I S C I P L I N E CHAPTER I LEGAL NATURE 54 As clearing facility and provider of net deferred settlement systems for Securities, CBLC in accordance with applicable legislation and regulations acts as Central Counterparty to facilitate trading and ensure execution of Clearing and Settlement processes following Acceptance of Transactions for Settlement. 55 Acting in the capacity of clearing facility and provider of gross settlement systems for Securities, CBLC in accordance with applicable regulatory rules abstains from acting as central counterparty to Gross Settlement Agents. 56 Acting in the capacity of manager of net deferred settlement and gross settlement systems, CBLC coordinates Settlement on a delivery versus payment basis. 57 As Central Counterparty, CBLC also undertakes responsibility for ensuring final Settlement of securities lending agreements registered in the Securities Lending Service. 23