Circular Letter CVM/SIN 13/2020: Clarifications on the Professional Activity of Securities Analysts under CVM Instruction 598/18

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – CEP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br Circular Letter No. 13/2020/CVM/SIN Rio de Janeiro, November 11, 2020 Subject: Clarifications on the professional activity of securities analysts under the terms of CVM Instruction No. 598/18

1. With the growing popularization of social networks and also the greater interest of investors in the securities market exercised through these channels, especially in shares of open companies, we have noted many doubts from the general public regarding the type of opinion about a certain security that could be characterized as the exercise of the activity of a securities analyst under the terms of CVM Instruction No. 598 (“ICVM 598”).

2. In this sense, we transcribe below the concept of "analysis report" contained in §1 of art. 1 of ICVM 598:

Art. 1 A securities analyst is a natural or legal person who, on a professional basis, prepares analysis reports intended for publication, dissemination, or distribution to third parties, even if restricted to clients.

§ 1 For the purposes of this Instruction, the expression “analysis report” means any texts, monitoring reports, studies, or analyses on specific securities or on specific securities issuers that may assist or influence investors in the investment decision-making process.

3. We highlight the term “on a professional basis” to emphasize that only those who act with this character require registration under ICVM 598 to exercise the activity of a securities analyst. In addition to habituality, any benefits, remunerations, or advantages obtained on a recurrent basis in the offering of these recommendations help characterize the professional service, whether or not they directly involve money, 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, which thus attract the competence of the CVM and demarcate this professional character of the activity.

4. Thus, manifestations on social networks or by any other means, even if they contain opinions on securities, but which do not evidence the exercise of this office in a professional manner, do not require prior registration in the form of ICVM 598.

5. We highlight that the use of notices such as “this is not an investment recommendation,” “these are personal opinions only,” or with similar content will be weighed against the language used in the manifestations made regarding securities. In any case, they do not have the power, by themselves alone, to discharacterize the service of securities analysis if there are indications of the professional exercise of the activity.

6. In this regard, moderation in the language used is another parameter evaluated in the content of the manifestation to characterize or not whether there is a professional service provided, after all, messages of a more assertive or appealing nature reinforce the configuration of an attempt by the agent to convince and induce recipients to follow him, so that they “may assist or influence investors in the investment decision-making process” (end part of §1 transcribed above).

7. It is important to warn that using social networks to manifest opinions on securities, even on a non-professional basis, may constitute an administrative offense provided for in CVM Instruction No. 8/79 and subject to the penalties provided for in article 11 of Law No. 6.385/76, if its objective is to create artificial conditions of demand, supply, or price of securities, manipulate prices, carry out fraudulent operations, or enable unfair practices, in order to obtain an advantage for oneself or for third parties, without prejudice to possibly constituting a crime against the capital market, under the terms of article 27-C of Law No. 6.385/76.

8. It is also appropriate to clarify that the offering and provision of educational services whose objective is to teach concepts about operations in the securities market, without it being a matter of investment recommendations, are not under the regulation of the CVM. However, if the service provider uses untrue information, such as, for example, boasting through advertising positive results with securities operations that do not correspond to reality, with the intent of attracting investors to courses or mentorships, it may characterize, in theory, the crime of deceptive advertising, which, although not within the competence of the CVM, may be brought to the attention of the Public Prosecutor's Office for the appropriate measures.

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

Sincerely,

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