Circular Letter CVM/SIN 01/21

SECURITY AND EXCHANGE COMMISSION OF BRAZIL
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Circular Letter No. 1/2021/CVM/SIN
Rio de Janeiro, February 18, 2021

To

Administrators and Managers of Investment Funds regulated by CVM Instruction No. 555 ("Instruction")

Subject: Interpretation of Article 2, VI, of the Instruction.

Dear Sirs,

This Circular Letter aims to clarify the interpretation of this technical area regarding the definition of an asset as domestic or foreign, specifically for the purposes of the application and diversification limits set forth in the Instruction.

In this regard, we clarify that it is Article 2, VI, of the Instruction that establishes the criterion for characterizing an asset as foreign, providing that "for the purposes of this Instruction, it is understood that (...) foreign financial assets" are those "financial assets traded abroad that have the same economic nature as financial assets in Brazil."

Thus, we understand that assets traded in the country, even if they may refer to, be backed by, or possess a predominantly foreign underlying risk factor, must be considered as domestic assets, such as in the case of ETFs traded in Brazil that replicate foreign indices.

This does not prevent, of course, that the regulation itself establishes exceptional and particular treatment for a given type of asset, as it does, for example, for Brazilian Depositary Receipts ("BDR") Level I.

In this sense, Article 100, II, of the Instruction provides that "BDRs classified as Level I are equated to foreign financial assets," except when intended to compose the portfolio of Level I BDR Equity Funds. Thus, in this case, the general criterion provided for in Article 2, VI, of the Instruction is set aside, and Level I BDRs must be considered, in this context, as foreign financial assets.

Sincerely,

DANIEL WALTER MAEDA BERNARDO
Superintendent of Institutional Investor Relations