Circular Letter CVM/SIN 04/25

SECURITIES AND EXCHANGE COMMISSION COMMISSION
Seven of September Street, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br Circular Letter No. 4/2025/CVM/SIN Rio de Janeiro, July 18, 2025

To
Fund Managers and Administrators of Investment Funds

Subject: Interpretations on Index Funds ("ETF") and BDR-ETFs

Dear Sirs/Madams,

This Circular Letter aims to disseminate the interpretations of the Superintendence of Institutional Investors Supervision ("SIN") regarding Index Funds ("ETF"), in response to recurrent questions received.

I. Exercise of the Market Maker Function

In accordance with Article 18 of Annex V of RCVM 175, the portfolio manager is prohibited from exercising the function of market maker for the shares of funds under its management. This measure aims to preserve the independence between its management activities and secondary market trading practices, mitigating potential conflicts of interest.
However, as previously stated through Joint Circular No. 3/2017-CVM/GIR 1, in the SIN's interpretation, it is understood that the activity of market making for ETF shares in general is possible, regardless of their classification, such as fixed income, variable income, cryptoassets, currencies, commodities, among others, by parties related to the index fund manager. Thus, the prohibition established in the aforementioned article is not extended to holding companies, subsidiaries, affiliates, and companies under common control of the ETF manager, provided that the operation of this market-making entity does not interfere with the fund's management responsibilities and decisions.
For the above construction, the following were taken into consideration:

i. CVM Resolution No. 21/21, which determines the segregation of the portfolio manager's activity, including index fund managers, from other activities carried out by the legal entity (Art. 27);
ii. CVM Resolution No. 133/22, which establishes, in its Article 8°, the prohibition of access by the market maker to undisclosed material information;
iii. The passive management exercised in ETFs, given that such funds aim to reflect the variations and profitability of reference indices.

In this regard, we clarify that this interpretation also extends to the managers of the underlying asset of the BDR-ETF; thus, the prohibition is not extended to holding companies, subsidiaries, affiliates, and companies under common control of these.

1 Circular formulated by SIN and SMI on 03/31/2017, in response to the consultation presented by B3 S.A. - Brasil, Bolsa, Balcão, on 09/08/2016, regarding the interpretation of Article 24, sole paragraph, of CVM Instruction No. 359/02 (Process SEI No. 19957.009479/2016-44).

We understand that the operation as a market maker by parties linked to the index fund manager is aligned with practices adopted in other jurisdictions, such as the United States and Europe, and will contribute to increasing the liquidity of these funds, without compromising the integrity of the Brazilian capital market.

II. Index Provider

Article 2°, § 2°, item VI, of Annex V of RCVM 175, provides that it is prohibited to constitute an ETF that has an index whose provider is a related party to the administrator or manager of the fund. The main purpose of the rule is to avoid conflicts of interest on the part of these service providers, to the detriment of investors' interests.
The index provider aims to assist in the conceptualization and creation of the index according to a proposed objective, defining, calculating, and maintaining its methodology, being responsible for the calculation and dissemination of information, as well as the maintenance and monitoring of regulatory and corporate events, for the analysis of the need for rebalancing and for licensing this index and dissemination of the benchmark, including revisions, adjustments, or modifications.
However, in other markets, the CVM has been allowing the implementation of internal controls and governance practices in the decision-making process to serve as mitigators of the risks of occurrence of conflicts of interest, removing prohibitions intended to avoid such situations.
In this sense, in consonance with international practices and the growing sophistication of the Brazilian market, as well as interpretations of this SIN regarding BDR-ETFs with similar characteristics, we clarify that, in cases where the measures listed below are adopted, the prohibition set forth above is not applied:

i. Verifiable criteria are established that prove the separation of functions between the index provider and the administrator/manager, ensuring the mitigation of potential conflicts of interest between the parties;
ii. Technical and decision-making independence is ensured in the implementation, revision, and maintenance of the index methodology, and no entity has discretion over the index, other than the provider; and
iii. The relationship between the parties must be transparent in the fund documents (regulations, advertising materials, and periodic reports).

This interpretation aims to align the understanding of the current Brazilian regulatory framework with international best practices, seeking benefits for the parties such as reduced operational costs and greater capacity for innovation in passive strategies.

III. Market Maker for BDR-ETF

In accordance with Article 6° of RCVM 133, the market maker may exercise its activity autonomously or be hired by the issuer of the securities in which it specializes, by holding companies, subsidiaries, or affiliates of the issuer, or by any investor who is interested in forming a market for the securities of which it is the holder.

However, in the case of the BDR-ETF, which involves a depositary institution responsible for issuing the asset in Brazil (BDR) and a foreign institution that issues the ETF whose shares serve as the underlying asset for the issuance of the BDR-ETF, we clarify that the hiring of the market maker can be carried out by the issuer of the ETF used as the underlying asset of the BDR or by holding companies, subsidiaries, or affiliates thereof.

IV. BDR of ETF Nomenclature

Due to a question received, this SIN clarifies that there is no prohibition on the use of the nomenclature "Global ETF" with regard to ETF BDRs and their corresponding disclosure materials. The use of the expression "Global ETF" aims to facilitate the understanding of the characteristics of the security, reducing bureaucracy in accessing the capital market and improving the decision-making capacity of investors when considering their investment options.
It is important to emphasize that the use of this nomenclature does not exempt those responsible from complying with applicable regulations, which must be fully observed, regardless of the adoption of any other expression.

Sincerely,

Digitally signed by
MARCO ANTONIO VELLOSO DE SOUSA
Superintendent of Institutional Investors Supervision

Circular Letter CVM/SIN 04/25

Lineage: In force