Circular Letter CVM/SIN 02/2019

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP Code: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br

Circular Letter No. 2/2019/CVM/SIN
Rio de Janeiro, March 1, 2019

To
Securities Analysts

Subject: Clarifications on the activity of securities analysts and provisions of CVM Instruction No. 598

1. This Circular Letter aims to present clarifications on provisions of CVM Instruction No. 598/18 (“ICVM 598” or “Instruction”), with the objective of guiding on the best way to comply with said regulation. Observance of the recommendations listed below will contribute to minimizing eventual deviations and, consequently, to reducing the need for the formulation of requirements by the Superintendency of Institutional Investor Relations (SIN), as well as to allow the activity of market participants to take place in an agile manner, in favor of investor protection and market integrity.

2. It is worth noting that much of the content addressed in this Circular Letter is the result of questions raised by market participants and perceptions arising from supervision by the technical area, especially on Fintech topics under the responsibility of SIN.

3. In this regard, it is of particular importance to perceive that technological innovations in the capital market often involve new business models and unexplored approaches to investors, which makes the need for timely clarifications by the technical area of utmost relevance and pertinence.

Art. 17 of CVM Instruction No. 598/2018

4. The cited article, in summary, establishes that Securities Analysts – Legal Entities must take all necessary measures so that their analysis teams are formed by, at least 80% (eighty percent) of accredited securities analysts.

5. We highlight the understanding obtained regarding Art. 13 of CVM Instruction 598 in the Public Hearing Report 03/17, which states: “it clarifies that when referring to other professionals who are part of the analysis department of legal entities, the CVM intended to refer to people who participate in the formulation of securities analysis reports, but who are not registered analysts, such as interns, trainees, and professionals who contribute in some way to the analysis reflected in the report.”

6. Therefore, we understand that the clarifications made during Public Hearing 03/17 regarding the definition of non-accredited professionals who are part of the team must also be applied to Art. 17 of CVM Instruction 598. Thus, if interns, trainees, or other non-accredited professionals are indeed assisting in a technical, non-procedural manner (data collection, research, etc.) in the process of preparing analysis reports, they must be considered as members of the analysis team for the purposes of complying with Art. 17.

Communication Methods

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP Code: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br

7. In line with what is provided, for example, in CVM Instruction No. 400, of December 29, 2003, CVM Instruction No. 598/18 also provides in its Art. 14 that information disclosed by the securities analyst must be true, complete, consistent, and not mislead the investor. In addition, they must be written in simple, clear, objective, and concise language. As stated in the regulation, such requirements extend beyond the content of the analysis report, and thus also cover any advertising disclosure made through newspapers, magazines, computer networks, programs, applications, electronic messages, or any other means of communication that reaches final investors.

8. Thus, expressions that indicate or suggest “certain income,” “fixed yield,” or “guaranteed,” or the exposure of fixed percentages of gain from any operations or indicated assets, should be avoided, as such projections are naturally unrealistic and therefore mislead investors into making evaluation errors in their investment decisions, leading them to believe in the certain realization of gains from operations that, by their very nature, are subject to risks and whose return will always be uncertain.

Educational Activity vs. Provision of Analysis Services

9. This Superintendency has received inquiries, complaints, and questions regarding the interpretation to be given to situations where, under the pretext of presenting educational content, buy/sell situations of assets are shown in live environments during trading hours.

10. SIN understands that the presentation of the contents listed below involving securities, whether through internet sites or social networks (Facebook, YouTube, Instagram, etc.) or any other information that can influence the decision or motivate the purchase or sale of stocks or other securities, may exceed the educational scope and fall under the concept of “analysis report” contained in §1 of Art. 1 of CVM Instruction No. 598/2018.

• live broadcasts in online chat rooms;
• daily monitoring during online trading;
• performing live operations, with comments on trends of a specific stock, indicating the hour or appropriate moment to buy or sell;
• disclosure of operations, decided with the aid of technical or fundamental analysis, with ostensive indication of historical profitability and investment opportunities (for example, entry and exit moments in the asset or derivative object) through live broadcasts during trading.

11. An important aspect to be evaluated in these circumstances is whether the agent involved performs the activity in a professional manner. In this sense, any benefit, remuneration, or advantage obtained in the offer of these recommendations, whether or not directly involving cash, such as, for example, the charging of subscription or membership fees, monthly or annual fees, indirect revenues received due to third-party access, or any others, may attract CVM competence and demarcate the professional character of the activity.

1 “any texts, follow-up reports, studies, or analyses on specific securities or on specific securities issuers that may assist or influence investors in the investment decision-making process.”

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP Code: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br

12. In this context, also, for example, forms of remuneration more typical of the academic environment (such as the charging of registration fees or monthly fees for participation in “courses”) are included, whenever the technical area identifies that such charging methods aim to mislead investors and the market regarding the real nature, scope, and reach of the recommendations made by the involved party. It is also worth noting that the form, vehicle, or platform through which the offer is made is irrelevant for the characterization or not of the irregularity. Thus, irregularity can be characterized through the structuring of a dedicated website for the offer of these services; with the maintenance of channels on content providers or social networks (YouTube, Instagram, Facebook, etc.); with disclosure in any communication media (WhatsApp, Telegram, etc.), or by any other means by which an indeterminate number of investors is reached.

13. In this context, it is worth remembering that the preparation of analysis reports is the exclusive activity of securities analysts accredited in accordance with CVM Instruction 598, and acting without due registration may lead to the application of administrative measures such as the issuance of a Stop Order Decision determining the immediate cessation of activities; the imposition of coercive fines for non-compliance with the Decision, if applicable; or, at the limit, the initiation of sanctioning administrative proceedings by the technical area.

Commercialization of Automated Strategies

14. Regarding offers made to investors of standardized strategy services through automated systems or logical and mathematical algorithms, with the objective of indicating opportunities and appropriate moments to carry out operations with securities, we clarify that SIN considers that the offer of such services constitutes a securities analysis service, and therefore is also exclusive to securities analysts accredited in accordance with CVM Instruction No. 598.

15. It is important to highlight that the accreditation requirement does not cover those who commercialize only automated systems intended to operationalize the execution of decisions made by the investors themselves. Thus, we alert that the need for accreditation is restricted to services involving pre-defined strategies where the investor has little or no power of parametrization.

Sincerely,

Digitally signed by
DANIEL WALTER MAEDA BERNARDO
Superintendent of Institutional Investor Relations