Circular Letter CVM/SIN 05/12

CIRCULAR LETTER/CVM/SIN/No. 5/2012 Rio de Janeiro, November 7, 2012

To Administrators of Investment Funds in Regulated Market Indices governed by CVM Instruction No. 359/02.

Subject: Investment funds in market indices that invest in international index funds

Dear Sirs,

As is known, due to requirements set forth in CVM Instruction No. 359/02, and especially its articles 18, 19, 58, and 59, investment funds in Brazilian market indices are not permitted to invest in shares of other index funds established in other jurisdictions.

To enable a fund with such a proposal, specific waivers of compliance with certain provisions would indeed be necessary, in addition to those that the Collegiate Board has been granting in the case of index funds that have been registered with the CVM since 2008.

These would be (i) the possibility for the index fund to also have as an eligible asset for acquisition shares of other index funds traded in other jurisdictions; (ii) permission for subscription and redemption in national currency, without any limit; and (iii) a provision for the charging of entry and exit fees that pass on to the investor requesting the subscription/redemption the costs resulting from the creation or destruction, respectively, of the basket.

Thus, due to a consultation from a market participant in this regard, we inform you that this Superintendency submitted a consultation to the Collegiate Board, which, upon analyzing it, sought to evaluate the relevance, timeliness, and convenience of the analysis, to be carried out on a case-by-case basis, of registration requests for market index funds that replicate international indices, and contain the aforementioned waivers of compliance with the provisions of CVM Instruction No. 359/02.

In the consultation, the fund subject to waivers would have the following characteristics and guarantees: (1) the indices and the international index funds invested in would be compatible with Brazilian regulatory requirements (that is, leveraged, inverse, or synthetically replicated index funds would be excluded from this scope, for example), and (2) it would be intended exclusively for individual or legal entity investors with financial investments exceeding R$ 1,000,000.00 (one million reais).

In this sense, after analyzing the case and the arguments presented, the Collegiate Board deliberated, in a decision taken on October 10, 2012 and available for consultation on our website (WWW.cvm.gov.br), that it deems it opportune and convenient to evaluate, on a case-by-case basis, the possibility of granting waivers of requirements of CVM Instruction 359/02, for the purposes of constitution, registration, issuance, distribution, and trading of shares of market index funds in Brazil (known abroad as exchange-traded funds – ETF), based on indices from other jurisdictions, provided that the characteristics exposed above are observed.

Sincerely,

FRANCISCO JOSÉ BASTOS SANTOS
Superintendent of Institutional Investor Relations