Circular Letter CVM/SIN 07/23

SECURITIES AND EXCHANGE 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. 7/2023/CVM/SIN Rio de Janeiro, October 6, 2023

To administrators and managers of investment funds

Subject: Interpretation of provisions of Supplementary B of CVM Resolution No. 175

Dear Sirs,

1. As is known, the Securities and Exchange Commission of Brazil (CVM) published CVM Resolution No. 187 on September 27, 2023, which rectifies certain provisions of CVM Resolution No. 175, of December 23, 2022.

2. Among the changes, the Department of Institutional Investors (SIN) highlights the alteration in the prospectus of financial investment funds ("FIF") with the substitution of the term "leverage" by "margin" in the content of Supplementary B, with the aim of reflecting the terminology adopted in the rest of Normative Annex I, to which Supplementary B refers.

3. Thus, the SIN comes through this Circular to clarify the filling of this information in the Prospectus henceforth to enable the first steps of supervision on the subject "Exposure to Capital Risk," as provided for in Article 73 of CVM Resolution No. 175.

4. All funds registered from October 2, 2023 (that is, new funds, already registered under the scope of the Resolution) must already comply with the maximum gross margin limits established in the items of Article 73 and, in the case of those that trade derivatives in an organized market without a central counterparty, the manager and administrator must prepare the potential margin calculation as provided for in § 2 of Article 73 of CVM Resolution No. 175.

5. Thus, in the "Margin Limit Up To" field of the Prospectus, the maximum Gross Margin limit (as qualified in Article 73, § 1, of Normative Annex I of the Resolution) established by regulation or the bylaws, if the latter is lower, must be reported.

6. As for funds registered before October 2, 2023 (that is, still in the process of adapting to CVM Resolution No. 175), the gross margin limit will continue to be that provided for in the bylaws, and such funds will not be subject to the maximum limits provided for in Article 73 until their adaptation to the Resolution. Without prejudice to this, during the years 2023 and 2024, the SIN will carry out prudential supervision to verify the adoption of an action plan by managers and administrators to adapt their margin limits to those established in the new regulation.

7. In these cases, therefore, the margin limits existing in the fund's bylaws must be reported in the "Margin Limit Up To" field. When the fund adapts, the prospectus of the month following the adaptation date must already meet the criterion exposed in item 5 above.

8. Also regarding older funds, the SIN has observed that several funds had been incorrectly filling the "Borrow up to the limit of" field, stated in these terms until the advent of CVM Resolution No. 187, as it appeared in the previous version of the Prospectus. Thus, we reiterate that administrators pay attention to the filling of this field to avoid that supervision finds false positives. In particular, in cases where the value reported in the prospectus is lower than the margin limit established in the bylaws, this error may lead the technical area, at the limit, to the undue conclusion that the fund would be violating its bylaws when analyzing the margins effectively maintained by the fund in admitted clearings.

9. Finally, for funds that do not have a margin limit established in the bylaws or in the regulation, we request that the field not be filled. That is, it should be left blank.

Sincerely,

Digitally signed by
DANIEL WALTER MAEDA BERNARDO
Superintendent of Institutional Investors Supervision