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BRAZIL: CVM WILL REGULATE RATING AGENCIES, BUT WHO WILL REGULATE THE CVM??
Dr. Édison Freitas de Siqueira

As it was released by the end of August, 2011, by the President of CVM – Comissão de Valores Mobiliários -, it is a project to make the institution’s criteria for classification of risks more transparent, as well as regulate, in a more specific way, the operation and certification of agencies, operating in Brazil, that evaluate risk level.

Internationally, the institutions that one wants to control are called "Rating Agencies", private companies that are hired or accredited by the markets, to issue opinions on the credibility of the market, assessment of economic potential and liquidity of companies, the issuing and marketing of shares, debentures, and other market assets. They also evaluate the operations of stock exchanges, issue and trading of securities representing debts public and private, for example.

In Brazil, it is up to CVM, as well as the Central Bank, to regulate and inspect the Securities and Financial Market. In the U.S., Canada, Japan, Hong Kong, and in almost all European countries, that is done through the prevailing international operating agreement, known as the "current system in the NYSE - New York Stock Exchange," in which the agencies overseeing the Rating Agencies, in general, follow the guidelines of the SEC - Securities and Exchange Commission -, which follows and enforces the standards and requirements in three consolidated North American acts: (1) Securities and Exchange Act, (2) Sarbanes Oxley Act and more recently, the (3) Dodd-Frank Act.

It happens that the CVM in Brazil, contrary to what happens in the other cases mentioned above, is not an independent organ. CVM has its president and directors chosen, sworn, kept in office and / or dismissed by the same center of power that chooses presidents and directors of the largest private players operating within the Financial and Securities Brazilian Markets, and very strongly, even among other important countries. Namely, it is noteworthy, 06 examples demonstrate that the CVM acts 100% of the time, in full "Conflict of Interest."

The power that nominates the directors of the CVM is the same center of power that nominates directors and presidents, for example, (1) of the 36 largest private pension funds in Latin America (which administrate investments, over 200 billion dollars, in cash, in Brazil and in the rest of the world), (2) of Bank of Brazil (whose stock investment funds managed by the bank, have the resources of its clients close to US$ 140 billion), (3) of Caixa Econômica Federal (which manages investment funds of 80 billion dollars  of its clients, that are - normally- applied in stocks of companies linked to that same center of power, along with resources of more than $ 100 billion, related to the use of the Guarantee Fund for Time of Service brazilian employee-owned), (4) of BNDES and BNDESPAR (whose budgets and resources of hundreds of billions of dollars are managed directly or indirectly - through private funds equity - alongside private pension funds to finance the looming international and the choice of directors and the Group AMBEV / Interbrew, VALE, Hi-Brazil Telecom, BRASIL FOODS , EMBRAER, among other giants in the main sectors of world economy), (5) of the 22 private companies that make up the Mega Group PETROBRAS and (6) of the 18 private companies that make up the Mega Group ELETROBRAS.

For this simple objective evaluation, it is correct to conclude that there is a significant casual directioning - or perhaps deliberately of most of the trades that occurred in BOVESPA, because the two other major banks that exist in Brazil, namely Banco Bradesco and Banco Itaú / Unibanco, are hired, almost 100% of the time, by the companies already mentioned, as its agents, emitting billions of dollars in ADRs, or simply as trustees of the issuance of stocks, bonds, Bills of Exchange, eurobonds and other bonds .

Therefore, if registration, liberty to publicize and even the way the Risk Assessment Agencies establish the evaluation criteria  also happens to be subject to the command of CVM, certainly it will be the last of muzzling independent tools, whose performance has guaranteed the market, at least in part, a free evaluation regarding the truth of business that happens in of Brazil.

If this occurs, it is important to answer the following question: who will control the CVM and the Center of Power that, with the absence of transparency, controls all Financial and Securities Market and it is plagued by conflicts of interest?

In times of crisis, "the worst blind is the one who does not want to see"!



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Édison Freitas de Siqueira Advogados Associados S/S - OAB/RS 22.136 - OAB/SC 22.281-A - OAB/GO 28.659-A - OAB/MG 92.047 - OAB/RJ 2.541-A - OAB/SP 17.2838-A - OAB/DF 2.074-A - OAB/MT 10.305-A - OAB/BA 23.016
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