Circular Letter CVM/SIN 02/2013

CIRCULAR LETTER/CVM/SIN/Nº 2/2013
Rio de Janeiro, January 31, 2013

To
Responsible Directors
Administrators of Investment Funds and ETFs

Subject: Application of Provisions of CVM Instructions Nos. 505/11 and 506/11 – CVM Process No. RJ-2013-1139

Dear Sirs/Madams,

This Circular aims to clarify the best interpretation of certain provisions of CVM Instructions Nos. 505 and 506, both from 2011, regarding investment funds.

In this regard, we inform you that the matter was the subject of a consultation formulated by ANBIMA – Brazilian Association of Financial and Capital Market Entities, having been analyzed by this technical area and submitted to the deliberation of the CVM Board in the meeting of 1/29/2013, which expressed itself in the following sense:

1. Arts. 12 and 13 (registration of order transmission), arts. 19, 20 and 21 (order execution) and art. 25 (related parties), all of CVM Instruction No. 505/11

These first three items of the consultation refer, respectively, to the applicability of arts. 12 and 13 (registration of order transmission), arts. 19, 20 and 21 (order execution) and art. 25 (related parties), all of CVM Instruction No. 505/11, to investment funds.

In line with ANBIMA, the Superintendency of Relations with Institutional Investors – SIN expressed itself in favor of the inapplicability of the aforementioned provisions to investment funds, with the exception of closed-end funds whose shares are traded on a regulated market and ETFs.

The technical area, however, pointed out that its position does not represent a signal that the internal controls of intermediaries can be weakened, so that intermediaries must continue to adopt, and continuously improve as necessary, the control procedures they usually already adopt.

The Board, based on the arguments contained in MEMO/CVM/SIN/GIF/N° 45/2013, unanimously followed the understanding of the technical area.

2. Art. 2º, sole paragraph, of Annex I of CVM Instruction No. 301/99 (collection of the adherence term)

The fourth item of the consultation refers to the applicability of the obligation imposed on intermediaries in art. 2º, sole paragraph, of Annex I of CVM Instruction No. 301/99, regarding the acquisition of shares of investment funds.

In a formal analysis, SIN, based on the provisions of arts. 1º, 2º and 5º of CVM Instruction No. 301/99, combined with the provisions of arts. 30 and 119-A of CVM Instruction No. 409/04, understood that the provision would also be applicable to the acquisition of shares of investment funds.

However, analyzing the matter from a material aspect, SIN (i) corroborated ANBIMA's concern regarding the disadvantages created by art. 2º, sole paragraph, of Annex I of CVM Instruction No. 301/99, for investment funds traded on an organized market in relation to other traded products; and (ii) recognized that this type of updating of registration, which ends up being equivalent to the collection of a new adherence term for each new investor, is not part of the dynamics adopted for products traded on organized markets, observing, furthermore, that in such markets there are often assets with significantly higher risk degrees than the funds in question.

The Board unanimously deliberated on the inapplicability of the obligations imposed on intermediaries in art. 2º, sole paragraph, of Annex I of CVM Instruction No. 301/99 when acquiring shares of investment funds in the secondary market, having requested the Superintendency of Market Development to carry out studies with a view to a possible adjustment in the cited provision, in order to make it more easily applicable by market participants.

3. Art. 35, I, of CVM Instruction No. 505/11 (joint ownership of current accounts)

The fifth item of the consultation deals with the correct exegesis of Art. 35, I, of CVM Instruction No. 505/11, which prohibits the intermediary from using a current account with more than 2 holders. In its memorandum, SIN clarified that the provision refers to current accounts at intermediaries, not bank current accounts, a position unanimously approved by the Board.

4. Art. 2º, sole paragraph, of Annex I of CVM Instruction No. 301/99 (division of responsibilities between administrator and intermediary)

The sixth item of the consultation refers to ANBIMA's question regarding which institution (administrator or intermediary) would be responsible for the registration provided for in art. 2º, sole paragraph, of Annex I of CVM Instruction No. 301/99.

According to SIN, in the event that the investor enters the collective investment vehicle through the acquisition of shares in the secondary market, the required documents must be collected by the intermediary.

Nevertheless, the administrator is always responsible for keeping the adherence term available to the CVM, which is why it must take due care in this regard when establishing its relationship with distributors and make efforts to collect them from intermediaries.

Furthermore, the technical area reinforced its position by highlighting that, by virtue of the provision of art. 65, XV, of CVM Instruction No. 409/04, the administrator is already obliged to supervise the services provided by intermediaries that distribute shares of the administered funds.

Likewise, SIN understands that the model of division of responsibilities described in the paragraph above also applies, with due adaptations, to the other points raised by ANBIMA in its consultation, namely the delivery of documents and information provided for in the regulation, notably the Bylaws and the Prospectus, as well as the preparation and maintenance of the client registration.

Additionally, SIN believes that this understanding does not exempt the administrator from accessing all necessary information and documents from the intermediary to fulfill the responsibilities delegated to it by legislation, such as those related to the prevention and combating of money laundering, as well as the forwarding of information and communication with the shareholder.

The Board, based on the arguments contained in MEMO/CVM/SIN/GIF/N° 45/2013, unanimously followed the understanding of the technical area.

5. Art. 35, II, of CVM Instruction No. 505/11 (clients with outdated registration)

Regarding the seventh item of ANBIMA's consultation, concerning the scope of art. 35, II, of CVM Instruction No. 505/11 and art. 3º, §4º, of CVM Instruction No. 301/99, which deal with the movement of client accounts with outdated registration.

In line with ANBIMA, SIN understood that the application of the provisions in question could, in fact, be restricted to operations that represent inflows of investor resources into the fund, whether an initial application or an increase in position, not applying to operations that represent outflows of investor resources from the investment vehicle, even if the position is not completely redeemed or sold.

The Board, based on the arguments contained in MEMO/CVM/SIN/GIF/N° 45/2013, unanimously followed the understanding of the technical area.

Finally, we inform you that the full text of the decision in question will be made available for public consultation on the CVM's electronic page in due course.

Sincerely,

FRANCISCO JOSÉ BASTOS SANTOS
Superintendent of Relations with Institutional Investors