According to the unanimous decision of the Board: • “At least in theory, evidencing an effective segregation of activities and information, by means of practices known as “Chinese Wall”, could prevent any liability for insider trading;

To achieve this, it is not enough to simply claim the existence of Chinese Wall procedures;

On the contrary, it is necessary to show the effective use of these procedures;

According to the Board, the CVM decides on insider trading cases based on the aggregate set of evidences presented to it and, if in this set there are evidences that uphold the accusation of insider trading, the mere claim as to the existence of the Chinese Wall procedures, presenting existing manuals and guidelines, is not enough.

On the contrary, the accused party must demonstrate how the Chinese Wall rules and procedures are implemented in practice and, most important, how they were used in the underlying case to control the flow of information.

This decision of the CVM is certainly most relevant to financial institutions, since it confirmed that Chinese Wall procedures may acquit charges of insider trading. At the same time, it imposes a great burden upon these market players, forcing them to substantiate to the CVM the effective application of segregation rules and procedures in the underlying case, as the only way to make a Chinese Wall defense effective.

We therefore recommend to our clients the careful review of their Chinese Wall rules and procedures to determine how best their effective use can be documented. As to each transaction involving listed companies, we recommend that our clients keep detailed written records of the measures that have been effectively taken to comply with Chinese Wall rules and procedures, including the names of the individuals who had access to privileged information; the moment in which they acquired said information (i.e., when they got involved in the project), and which internal communications monitoring procedures were effectively employed (among others).