By André Jerusalmy and Fernanda Lazzarini

On August 11, the Brazilian Securities and Exchange Commission (“CVM”) issued CVM Resolution 3 (“Resolution 3”), which amends CVM Normative Instructions No. 332, 359, 480 and 555, as it brings in its text the update of material regarding Brazilian Depositary Receipts (“BDR”).

In short, BDRs are share deposit certificates traded in Brazil and backed by securities issued by foreign companies. Until the enactment of Resolution 3, only shares issued by publicly-held companies or similar companies, with headquarters and assets predominantly located abroad, could serve as backing for securities traded in Brazil.

The BDR has its programs structured in levels (I, II and III), with the first having fewer regulatory requirements on issuers, but greater restrictions on access for non-qualified investors, and the third having a greater range of information made available by issuers and a corresponding flexibility for investment by a larger group of investors.

In the interest of diversifying the portfolio of Brazilian investors, the new Resolution preserves this level structure, however, what was previously reserved only for qualified investors (those with more than R$1 million in financial investments), has now been extended so that any investor can directly purchase the product, without depending on investment funds, especially with regard to Level I BDRs.

Other changes established by the Resolution are:

• Permission for BDRs to be backed (i) by shares issued by foreign issuers with assets or revenues in Brazil or (ii) by debt securities, including those issued by Brazilian publicly-held companies;
• Forecast for the issuance of BDRs backed by shares of index funds admitted to trading abroad.