By Walter Douglas Stuber*
Commodities brokerage houses (Corretoras de Mercadorias) are subject to the control and monitoring of the Brazilian Securities and Exchange Commission (CVM) and of the futures and commodities exchanges where they are listed as members, in addition to being members of the Brazilian securities distribution system1. Rules and procedures to organize and operate a commodities brokerage house have been recently established by Instruction CVM nº 402, of January 27, 20042.
According to Instruction CVM nº 402/2004, "commodities brokerage house" is a corporation accredited to trade in or list transactions with securities and stock on a futures and commodities exchange3. In order to operate, a commodities brokerage house will need a prior registration with the CVM 4 and must meet the following requirements: (i) be a corporation (sociedade por ações) or a limited liability company (sociedade limitada); (ii) be admitted as member of futures and commodities exchange5; (iii) inform CVM the name of a technically qualified officer appointed in the by-laws/articles of incorporation or of a managing partner, with experience in the securities, commodities and futures exchange6; and (iv) add to its corporate name the expression "commodities brokerage house". A commodities brokerage house must additionally show equity and financial adequacy, as determined by the futures and commodities exchange in question.
Commodities brokers may also be organized as securities broker or dealer, investment or multi-service bank with an investment portfolio, and, in any of case, will be governed by the rules applicable to financial institutions.
Upon admittance in a given futures and commodities exchange, a commodities brokerage house must pledge real guarantee7 of seat (título patrimonial) or stock issued by the exchange it holds, to guarantee, on a priority basis, the debts to the exchange of which it is a member, pursuant to the exchange's regulations and conditions.
In transactions made in futures and commodities exchange, the commodities brokerage house will be liable to customers, also known as principal (comitente)8, or other intermediaries on behalf of which it may have operated or has been operating, and to the exchange itself: (a) for their proper and effective settlement; (b) for the legitimacy of securities delivered for any purpose and for their adequate acceptance and delivery, endorsement or transfer; (c) arrangements with respect to registration, in the names of principals (comitentes) connected thereto and as per instructions thereof; (d) for the legitimacy of the power-of-attorney and other documentation required to transfer the securities; and (e) for the compliance with and adherence to the high standards of creditworthiness and ethics.
It is incumbent on commodities brokerage houses to keep transactions and services in secrecy, including the names of the principals (comitentes). This information may only be disclosed upon authorization given by such principals (comitentes) or under the terms of the laws and regulations in force9. However, if a principal (comitente) fails to adhere to or violates applicable legal rules or regulations, irrespective of any actions in court or out of court, the commodities brokerage house shall report it to the futures and commodities exchange, asking, if applicable, that the arrangements be taken to enforce the guarantees pledged by the principal (comitente) in...