Circular Letter CVM/SIN 05/2019: ICVM 555 Fund Transformation Functionality and SGF System Improvements

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

Circular Letter No. 5/2019/CVM/SIN
Rio de Janeiro, April 26, 2019

To administrators of investment funds subject to registration in the SGF System Subject: Functionality for Transforming ICVM Instruction 555 Funds into Structured Funds and Implementation of Improvements in Certain Fields in the SGF System

Dear Sirs,

1. This Circular Letter aims to complement Circular Letters No. 01/2017/CVM/SIN, 02/2017/CVM/SIN, and 06/2018/CVM/SIN, regarding the Structured Funds Management System – SGF, with information on innovations in specific operations.

I) Functionality for Transforming ICVM 555 Funds into Structured Funds

2. We inform you that the SGF system has, since August 2018, a functionality that allows the transformation of funds regulated by CVM Instruction No. 555 (“ICVM 555 funds”) into investment funds subject to registration in the SGF system (“structured funds”) – namely, FIPs – Investment in Participation Funds, FIDCs – Investment in Credit Rights Funds, FIIs – Real Estate Investment Funds, and Funcines – National Cinematographic Industry Financing Funds.

3. Before the implementation of this functionality, administrators who wished to transform ICVM 555 funds into structured funds needed to request the transformation by email to GIES – Structured Investments Management, so that the management could activate the internal IT team of CVM to perform the manual transformation in the registry of the Autarchy, which involves the closure of the requested fund in the ICVM 555 fund registry base and the subsequent registration of the post-transformation structured fund in the corresponding registry base.

4. For this reason, a functionality was implemented in the SGF, represented by the flag “Transformation of ICVM 555 Fund to Structured Fund” in the “General Data” tab of the system, to automate the procedure. In other words, in specific cases of transforming ICVM 555 funds into structured funds, activating this flag is a mandatory condition for registering the post-transformation structured fund in the SGF system, without the need to send any request to GIES.

5. Thus, in specific cases of transforming ICVM 555 funds into structured funds, the administrator must follow the following steps:
   a) Close the fund regulated by CVM Instruction 555 in the CVMWeb system, using as the closure date the transformation base date. Immediately after, the administrator must register the resulting structured fund in the SGF – Structured Funds Management System. b) When registering the structured fund in the SGF, the administrator must select the option “Transformation of ICVM 555 Fund to Structured Fund” in the “General Data” tab of such system. By selecting this option in the SGF, the system will show the “Registration Date” field, within which the administrator must insert the transformation base date (which represents the registration date of the post-transformation structured fund). Regarding the “Constitution Date” field, the same original constitution date of the fund must be maintained, that is, the date on which the fund was constituted as an ICVM 555 fund. c) Regarding the “1st Quota Issuance” tab of the SGF, the administrator must fill in a minimum and maximum quantity of quotas, as well as a unit quota value, which are consistent with the fund's net asset value on the transformation base date. This avoids the SGF pointing out an error at a later stage, when the administrator reports the “1st quota installment,” as will be described below. d) The remaining filling of the fields and tabs of the post-transformation structured fund in the SGF must be performed by the administrator in the usual manner, that is, as if a new structured fund unrelated to any transformation process were being registered. In this way, the registration of the post-transformation structured fund in the SGF system will be obtained, with this fund registered in the system in the “pre-operational phase” status. e) For cases where the ICVM 555 fund was already in normal operation when the transformation occurred, the administrator must, immediately after registering the post-transformation structured fund in the SGF, change the status of the structured fund to “in normal operation.” To do this, the administrator must perform a report of “1st quota installment” in the SGF, inserting the fund's transformation base date in the “Date of 1st quota installment” field, the fund's net asset value at the time of transformation in the “Installment Value” field, and the month of closure of the social year foreseen in the structured fund's regulations in the “Month of Closure of the 1st Social Year” field. f) Finally, we remind you that, after the completion of the registration of the post-transformation structured fund in the SGF, as described in the previous steps, the administrator, as usual, must send via the CVMWeb system (or Fundos.Net, in the case of FIIs) the documentation related to the transformation of the fund (Minutes of the General Meeting of Quota Holders, Administrator's Act, new Fund Regulations, audited financial statements, etc., as applicable in each case).

6. We emphasize that another Transformation Functionality is still under development in the SGF, which comprises the options (i) Transformation of Structured Fund into Structured Fund, (ii) Transformation of Structured Fund into ICVM 555 Fund, (iii) Incorporation of Structured Funds, and (iv) Merger of Structured Funds. When such functionality is implemented in the SGF, a new communication will be released at the appropriate time.

II) Implementation of Improvements in Certain Fields in the SGF System

7. To improve the informational level of certain fields filled by administrators in the SGF, we communicate that the following improvements have been implemented:
   a) “1st Quota Issuance” Tab (for all structured funds)

8. An improvement was made to the “1st Quota Issuance” tab, making the quota distribution regime adopted in the 1st issuance of structured funds to be registered from this date in the SGF system clearer. New response options regarding the distribution regime were introduced, including cases of open FIDCs.

9. It is worth noting that the question at the beginning of the “1st Quota Issuance” tab was changed from “Does the public offering of quotas fall under a registration exemption case?” to “Will the public offering of quotas be subject to registration with the CVM?”, thereby changing the logic of the response to be provided.

10. Thus, the CVM requests special attention from administrators when filling out this field, when registering new structured funds in the SGF. For structured funds already registered before this change, the filling in the previous format was maintained in the system.
    b) “Investment in Public Credit?” Field in the “General Data” Tab for FIDCs

11. In the case of registering new FIDCs, an improvement was made to the “Investment in Public Credit?” field in the “General Data” tab of the SGF. This field now presents, in addition to the option related to credit rights provided for in art. 1, §1, item II of CVM Instruction No. 444/06 (credit rights resulting from revenues originating or derived from the Union, States, Federal District, and Municipalities, as well as their autarchies and foundations), an option related to credit rights provided for in art. 8, §6, item III of CVM Instruction No. 356/01 (credit rights assigned or originated by companies controlled by the public authority).

12. We remind you that, for cases of FIDCs that propose to acquire any of these types of credit rights, the administrator must necessarily declare expressly in the SGF that the fund is meeting the requirements described therein – namely, art. 8, §8 of CVM Instruction No. 356/01, or the precautionary decision of the Court of Accounts of the Union (TCU) published in the Official Gazette of the Union on 11/12/2014, as applicable.

13. We also emphasize that the credit rights provided for in art. 1, §1, item II of CVM Instruction No. 444/06 are compatible only with funds of the FIDC-NP category, while the credit rights provided for in art. 8, §6, item III of CVM Instruction No. 356/01 are compatible with both standardized FIDCs and FIDC-NP. Thus, when registering a new FIDC, the administrator must ensure that the fund's category in the SGF is selected correctly.
    c) Removal of the field referring to the registration form of Annex II of ICVM 356 in the “Other Information” Tab for FIDCs

14. In the case of registering new FIDCs, we inform you that the field related to the registration form of the fund's administrator or manager, provided for in Annex II of CVM Instruction No. 356/01, was removed from the “Other Information” tab of the SGF, since such Annex II had already been revoked in ICVM 356 by the issuance of CVM Instruction No. 558/15.

15. For FIDCs registered before this change in the SGF, the filling in the previous format was maintained in the system, that is, the Annex II sent by the administrator at the time of the fund's registration in the SGF was maintained.

16. Finally, we inform you that any doubts related to the subjects treated in this Circular Letter should be sent to the electronic address gies@cvm.gov.br.

Sincerely,

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