By: André Jerusalem 

Derivatives can be used in a variety of ways and their use is widely known in the financial market. However, there are two most common forms of derivatives: hedging (hedge) or leverage (speculation). While protection against market risk can reduce the effects resulting from fluctuations in asset prices (e.g. dollar vs. real), they can also increase the potential return of a given investment through leverage of multiple times the contracted value, which may generate gains (or losses) directly related to such multiple. 

At the end of September, CMN resolution 4,948 was published, which provides for derivatives operations abroad by financial institutions located in Brazil.  

The resolution in force until then (CMN Resolution 3,312/05) did not support the contracting of “cross-border” derivatives, that is, those contracted outside Brazil, to protect against variations in any currency against the real. If an individual or legal entity wanted to protect itself against variations in the real against the dollar, it would have to contract in Brazil with a Brazilian correspondent abroad (the contractor must have local operations in the foreign country). 

Thus, with the enactment of CMN resolution 4,948, it is expected that there will be fewer obstacles in foreign exchange legislation and in the contracting of derivatives transactions, facilitating the use of this instrument by individuals and legal entities that wish to protect themselves from fluctuations. The resolution will come into effect on January 3, 2022.