Circular Letter CVM/SIN No. 04/2010

CIRCULAR LETTER/CVM/SIN/No. 4/2010
Rio de Janeiro, November 8, 2010

To Portfolio Administrators, Securities Consultants and Analysts, Directors Responsible for Portfolio Administration, Securities and Investment Fund Consultancy, Regulated by CVM Instruction No. 409/04, and Representatives of Non-Resident Investors.

Subject: Guidelines on procedures related to the operation of investment funds, registration of non-resident investors, and portfolio administration, consultancy, and securities analysis activities.

Dear Sir,

The dissemination of this Circular Letter aims primarily to clarify doubts regarding the best way to comply with the regulations governing investment funds, the registration of non-resident investors, and the activities of portfolio administration, consultancy, and securities analysis. The document also presents the understanding of regulatory provisions and, consequently, the manner of their application, which has been adopted by the Superintendence of Institutional Investor Relations (SIN).

Observance of the recommendations listed below will contribute to minimizing any deviations and, consequently, reducing the need for the SIN to formulate requirements. In this way, it will allow the registration and supervision process of these participants to proceed swiftly, in favor of investor protection and market integrity.

We emphasize, at this juncture, that some positions and interpretations of this Superintendence regarding certain aspects of the regulation presented here do not necessarily represent the final interpretation of the Securities and Exchange Commission (CVM) on the subject.

Thus, we set forth below understandings manifested by this Superintendence as a result of consultations and complaints made by market participants.

We highlight that this circular was prepared taking as a basis Circular Letters/CVM/SIN/No. 003 of 2008 and CVM/SIN/No. 002 of 2009. The changes and additions made are in blue characters and bold.

1. CVM Instruction No. 409/04 – Investment Funds

1.1. Shares of Closed Companies in Portfolio – Art. 2, VII and Art. 64, VI

It is prohibited for an investment fund administrator to voluntarily acquire shares issued by a closed company, as these are assets that do not meet the requirement set forth in Article 2, § 3 of the Instruction, according to the Collegiate Board’s deliberation of 12/16/2008.

The above does not prevent, however, that the administrator faces the possibility that these assets arise in the fund’s portfolio for reasons unrelated to their discretionary management powers. This may occur, for example, when the fund holds shares issued by an open company that proceeds to cancel its registration with the CVM, in accordance with Article 2, I, of CVM Instruction No. 361/02.

In such cases, the issue must be treated as a passive disqualification, in the manner provided for in Article 89 of the Instruction, and any intention to alienate these assets must, in accordance with Article 64, VI, be submitted for prior CVM approval.

1.2. Investment in Privately Issued Debentures – Art. 2, § 1, VIII

Investment of investment fund resources in privately issued debentures, i.e., those that have not been subject to public offering registration for distribution with the CVM, is permitted, under the authority of Article 2, item VIII.

We remind you that such assets must be registered in a registration, custody, or financial settlement system duly authorized by the Central Bank of Brazil (BACEN) or by the CVM, within their respective areas of competence, as established by § 3 of the cited Article.

It is also necessary for the administrator to verify, at the time of investment and also throughout the maintenance of these debentures in the fund’s portfolio, compliance with the limits established in Articles 86 and 87, relating respectively to concentration by issuer and by asset category.

However, we alert that if the issuers of the debentures are not open companies registered with the CVM, the administrator must have procedures for accessing the information and documents necessary for pricing and evaluating the debentures, prior to their acquisition, and also during their maintenance in the fund’s portfolio, employing in the analysis and evaluation of this information the care and diligence that any active and honest person usually dispenses to the administration of their own business.

1.3. Credit Assets – Art. 2, § 1, VIII

We recall that, in the understanding of this technical area, the assets provided for in Article 2, § 1, VIII, referred to as "any other credits, titles, contracts, and operational modalities," should not be confused with the credit rights specifically conceptualized by Article 2, I, of CVM Instruction No. 356/01.

In this sense, we understand that Article 2, § 1, VIII, does not cover non-performing credit rights (those where "the debtor's obligation is linked to a counter-performance by the originator, [such as, for example, in the case of service provision and/or delivery of future goods] at the time of the credit assignment to the fund" – Collegiate Board decision in CVM Process No. RJ20046913, of 10/4/2005), nor expectant credit rights (whose constitution depends on the occurrence of a future and uncertain event), which have specific provision in their own regulation for Credit Rights Investment Funds (FIDCs, CVM Instruction No. 356/01) and Non-Standardized Credit Rights Investment Funds (FIDCNPs, CVM Instruction No. 444/06), as applicable.

1.4. Hiring Third Parties to Provide Asset Custody Services Abroad for Investment Funds – Art. 2, §5

Article 2, § 5, II, provides that, for the acquisition of assets traded abroad, the fund’s custodian must ensure their existence, and must specifically hire third parties duly authorized to exercise the custody activity in other jurisdictions and supervised by a recognized local authority.

However, if the institution responsible for the fund’s custody can perform the custody of assets acquired abroad, it will not be necessary to hire a third party to perform this activity, as the purposes of the rule would be met.

In the event of hiring third parties to ensure the existence of assets abroad, the criteria adopted by the contracted institution must be verified by the fund’s custodian, to ensure they meet its own control criteria and those established in the legislation in force in Brazil.

Although it is the duty of the custodian hired abroad to ensure the existence of the fund’s portfolio assets, the fund administrator, by virtue of due diligence, as set forth in Article 65A, must, in the case of investments in shares of other funds (not admitted to trading on markets supervised by a recognized authority), employ all the effort required by the circumstances to verify if this guarantee also extends to the underlying assets held by the invested fund.

Finally, regarding Article 2, § 5, I, we believe that the obligation to have a cooperation agreement with the CVM, which is imposed on the jurisdiction where the registration, custody, and financial settlement system used is located, does not extend to the jurisdiction where the institution responsible for registering the assets in those systems is headquartered.

1.5. Extension of Distribution Period for Closed Funds – Art. 9

In accordance with the sole paragraph of Article 9, the CVM may, due to a justified request, extend once, for a period of up to 180 days, the initial 180-day period provided for the distribution of shares of closed-end investment funds.

On the other hand, reading item II of Article 9 of the Instruction could lead to the understanding that extension requests would only be reviewed by the CVM if the minimum number of shares representing the initial net asset value of the closed fund is not subscribed within the 180-day period of the offering registration.

However, in reality, the device for the compulsory cancellation of closed funds that do not reach the minimum number of subscribed shares aims to avoid burdening shareholders with the operating costs of a fund that does not have a minimum scale for such.

Thus, it should not be generally prevented that funds seek to reach the number of shares foreseen by their structurers in the offering, by obtaining a more extended period for the public distribution of shares, as otherwise, there is a risk of acting against the interests of investors in this type of financial asset.

In this way, this technical area considers broad the prerogative to request the CVM to extend the distribution period of closed-end fund shares, even in cases where the minimum number of shares has already been subscribed.

This understanding is supported by the content of § 4 of Article 28, which requires the return to subscribers of the amounts paid, "...if the number of shares foreseen is not subscribed within 180 (one hundred and eighty) days, extendable by an equal period...".

The request must be made with some advance notice before the end of the placement period, so that the CVM has sufficient time to adopt a careful decision by that date, and must be justified in a reasoned manner, ensuring the absence of prejudice to the share subscribers up to the moment of the request.

To this end, it is necessary for the request to include the expression of agreement from all these subscribers, given the mandatory application of the paid resources, during the distribution process, in federal public bonds or in shares of investment funds classified as Short Term.

1.6. Fiduciary Cession of Investment Fund Shares – Art. 12

The Collegiate Board manifested the understanding, in a meeting on 07/03/08, that the constitution of guarantees on open fund shares through fiduciary cession operations is regular, in accordance with Article 66B of Law No. 4,728, of July 14, 1965.

This decision was based on the possibility that such a guarantee enables the granting of credits under more favorable conditions to the ceding shareholders, which would stimulate greater circulation of wealth. It was also taken into consideration that this practice, which has already been adopted in the market – based on a legitimate interpretation of the norm – means that a new CVM orientation would shake the legal security of the market and impose restrictions, without an apparent benefit to justify it.

Without prejudice to the above, the Commission will prepare studies aimed at creating rules that address the relevant aspects related to the use of this mechanism, such as, for example, the flow of information appropriate between the fund administrator, ceding debtors, and cessionary creditors, and the definition of the duties of administrators and shareholders regarding redemption, voting, and other events related to the encumbered shares.

1.7. Restrictions on Shareholders’ Redemption Rights – Articles 15 and 16

In accordance with the Collegiate Board decision in CVM Process No. RJ20084449, of 2/9/2010, it is irregular for the administrator to establish in the fund’s regulations conditions and restrictions on shareholders’ redemption rights that are not provided for or do not respect the limits of Articles 15 and 16 of the Instruction.

On the other hand, that Collegiate Board decision also reiterated that the Adhesion Term has a specific purpose, namely, to record the delivery of certain information to shareholders (as, indeed, had also been highlighted in the Collegiate Board decision regarding CVM Process No. RJ20087977), and thus, it is not an adequate means for other purposes not inherent to it, such as, for example, the granting of powers or the concession of rights by the signing shareholder to the fund administrator.

On its part, when using the faculties provided for in Article 16, the administrator must also respect the guidelines established by the Collegiate Board decision in CVM Process No. RJ20090247, of 1/16/2009, where it was recalled that it is possible for the administrator, based on that provision, to suspend both the possibility of requesting new redemptions and the procedures related to redemptions already requested (regardless of whether pricing has been done or not), given the purpose of the relevant provision of the norm, which aims to protect, directly, much more the integrity of the fund (i.e., the totality of shareholders) than the investor who requested the redemption.

In this same sense, regarding redemptions already priced but not yet paid, Article 15, V, of the Instruction would not apply, as its application would certainly invalidate the very possibility of suspending redemptions already requested but not yet paid.

Still regarding this matter, as determined in that decision, investors in the fund maintain the condition of shareholders until their respective redemption requests have been priced. After pricing, investors are considered creditors of the fund, with the rights and duties inherent to that condition.

Regarding the application of Article 16 of the Instruction, it is worth mentioning the Collegiate Board decision regarding CVM Process No. RJ20065768, of 1/30/2007, in which the taxative nature of the norm was recorded regarding the possibilities of deliberation in assemblies convened based on that provision, namely: (1) the substitution of the administrator, the manager, or both; (2) the reopening or maintenance of the fund’s closure; (3) payment in securities; (4) the spin-off; or (5) the liquidation of the fund.

1.8. Establishment of Fixed Dates for Share Conversion – Art. 15, I

It is regular to establish fixed and determined dates for share conversion, as provided for in Article 15, I, provided that the fund’s regulations address the matter with clarity and objectivity, and the prospectus alerts regarding the special liquidity condition of the shares of this fund, in attention to what is required by Article 39.

We highlight that this freedom to stipulate deadlines in share conversion does not confuse with the maximum deadline, also applicable, of five business days for the payment of redemption requests, as provided for in Article 15, III, since this is a deadline that must be counted only from the realization of the aforementioned share conversion.

1.9. Redemption Payment After Banking Business Hours – Art. 15, III

It is common market practice to adopt the closing share price methodology as a parameter for the daily calculation of amounts due for redemption requests.

However, in specific cases where the redemption payment occurs on the same day as the request, it is certain that this calculation can only be performed after the closure of the markets in which the fund operates, so that the payment of this redemption is made at a time when it may no longer be possible for the shareholder to perform, for example, various banking transactions with the paid resources, in the case of payment with credit to a checking account.

Thus, for a fund that trades its assets on the São Paulo Stock Exchange, the redemption payment can only occur after 5:00 PM, i.e., at a time when Electronic Available Transfers – TED – can no longer be performed.

In this way, in cases where the fund provides for redemption payment on the same day as the request, and also adopts calculation based on the closing share price, it is important that investors and shareholders are specifically alerted, through a specific mention in the prospectus, of the particular liquidity restrictions to which they may be subject due to the redemption payment being made at a time that no longer allows for various banking transactions with their resources.

1.10. Distinct Limits for Investment, Movement, and Holding – Art. 40

There is no irregularity in adopting distinct limits for minimum initial investment in the same investment fund, varying according to different segments of the target audience to which it is intended. As an example, we cite the use of lower initial investment limits for investors who already have other investments with the same administrator.

In this sense, as the fund’s minimum investment rules are made public in the prospectus, we do not identify in the adoption of differentiated limits any information asymmetry or breach of fiduciary duty by the administrator. In this way, this differentiation – provided it is in accordance with reasonable and non-arbitrary criteria – does not offend the Principle of Equality among Shareholders, or any other provision of the Instruction.

The purpose of this principle is to prevent differentiations that cause damage to the investor, which does not apply to this case, as no negative effects are foreseen for those who invested a larger or smaller amount to enter the fund.

On its part, in conformity with the decision in Collegiate Board Meeting No. 47, of December 9, 2008, it is also worth emphasizing that this possibility is not restricted only to minimum initial investment limits, but also to movement limits, as well as to the minimum holding period of the fund.

We highlight, however, that these criteria must always be stated clearly and objectively in the fund’s prospectus, in conformity with what is required by Article 40, I and VI.

1.11. Means of Document Availability – Art. 48

As is known to all, it is the administrator’s duty to ensure that the dissemination of any information related to the fund is given under equal conditions to all its shareholders, in attention, especially, to what Article 40, XIII, determines.

In this context, considering the wide reach of the distribution of shares of certain funds in the Brazilian market, we understand that the availability of documents related to proposals submitted to general assemblies, as provided for in Article 48, § 4, must be done in a manner compatible with the dispersion of the fund’s investors and with the means used by the investor to access fund information and make their investment decision. Thus, for example, it is recommended that availability be provided through the maintenance of specific access to these documents on the administrator’s website on the worldwide web.

1.12. Shared Management in Investment Funds – Art. 56

In a decision taken in a meeting on 5/6/2008, the CVM Collegiate Board considered regular the constitution of an investment fund that involves the hiring of more than one manager, as it does not contradict any regulatory norm, being a natural consequence of the increasing specialization of third-party resource administration markets.

In that same decision, the Collegiate Board also verified that the hiring of two managers for the fund was the subject of deliberation in a general shareholders’ meeting convened for this purpose, in accordance with Article 47, II, of the cited Instruction, and that responsibility for management acts was fully assumed, in a regime of contractual solidarity, by both service providers.

Thus, in recognizing the regularity of shared management in an investment fund, that decision required that the following conditions be respected, however:

(i) execution of a contract in accordance with Article 56, § 1, which (1) ensures the joint liability of managers for shared management acts; (2) grants authorization for orders, before the fund’s custodian, limited to the specific market of operation of each manager, in attention to Article 59, Sole Paragraph, I; and (3) authorizes the administrator to intervene as an arbitrator in case of eventual conflicts in investment decisions.

(ii) alert to investors, through the regulations and prospectus, that management will be exercised by more than one service provider, in order to inform, with emphasis, the specific attribution of each; and

(iii) information, in the prospectus, on (a) the benefits and risks resulting from the shared management structure; (b) the condition of joint operation of managers in conducting the fund’s investment policy, including with regard to the joint liability provided for in Article 57, § 2; and (c) the role of the administrator as an arbitrator for the resolution of conflicting investment decisions.

At the time of dissemination of this circular letter, the CVM is endeavoring to adapt its electronic information reception system, in order to allow the inclusion of more than one manager in an investment fund. However, while the sending of information about more than one manager is not available on CVMWeb, the administrator must highlight the fund’s condition to the market and its investors, by sending a relevant fact regarding it, as provided for in Article 72 of the Instruction.

1.13. Promise of Minimum Profitability – Art. 64, V

The Collegiate Board, in a meeting on 2/14/2008, within the scope of CVM Process RJ200710500, emphasized that the promise of predetermined profitability, referred to in Article 64, item V, of the Instruction, is that considered frivolous and illusory, i.e., that may induce the investor to judge that the investment is exempt from the risk of not remunerating it as promised.

Thus, a perspective of profitability measurable by strictly objective and previously known parameters, when accompanied by the necessary alerts that this profitability may not be obtained, does not characterize a "promise of predetermined yield," which would remove the prohibition under analysis.

It is important to say that objective and previously known parameters do not confuse with the mere expectation, opinion, or desire of the administrator, even if theoretically founded. In this sense, mechanisms are required, such as put options, insurance contracts, etc., that allow ensuring the achievement of the desired profitability, despite typical market fluctuations.

In this way, whatever guarantee is adopted, its nature and extent must always be clarified, with the inclusion of a warning that its adoption does not completely exclude the risk that the desired profitability may not be reached. The same logic also applies to the dissemination of information in the sale or distribution of fund shares, as regulated by Article 74 of the Instruction.

1.14. Restructuring of Investment Fund Families – Art. 64, VI

In decisions taken in the Meeting of 06/17/08, the CVM Collegiate Board established the guidelines and parameters that must be observed in requests for approval or exemption from compliance with requirements provided for in the Instruction for restructuring of investment fund families, with requests for trading of shares, open-end fund shares, and other assets outside the stock or over-the-counter market, and thus, in exemption from the prohibitions contained in Articles 12, 64, VI, and 110, I of the Instruction.

With the objective of making the processing of such operations more expedient, the CVM delegated competence to this Superintendency to authorize the transfer of assets from investment funds privately, through the issuance of CVM Deliberation No. 546, of August 4, 2008.

As a rule, these operations involve the creation of a fund that comes to concentrate an investment policy already adopted in a dispersed manner by several existing investment funds. On the other hand, these funds are transformed into share funds that come to have as their objective to invest, exclusively, in that fund.

The need for consultation will exist when these operations involve funds that are not intended exclusively for qualified investors, because, otherwise, the operation between the funds may occur based on Article 110, I, of the Instruction.

Preliminarily, it is worth observing that the examination of these consultations is limited to the verification, by the technical area, of the feasibility, convenience, and opportunity of waiving the requirement contained in the cited norm, which is why we reiterate that, in these cases, no judgment of value is issued regarding the operations presented.

We emphasize that, if the aforementioned funds hold shares of other open investment funds in their portfolio, the request must also detail what treatment the administrator intends to give to these assets, considering the prohibition on transfer of ownership imposed by art. 12 of the Instruction.

Furthermore, we observe that the prohibition addressed by art. 64, VI is limited to the specific negotiation of shares outside the stock exchange or over-the-counter market, which is why operations involving funds that do not have shares or shares of open funds in their portfolio are exempt from prior evaluation by this Autarchy.

We remind you that, in the aforementioned operations, the administrator must demonstrate that there will be no prejudice to the shareholders as a result of the operation, such as changes in the investment policy to which investors will be exposed; modification of tax treatment; changes in total administration and performance fees charged; or changes in redemption conditions.

On the other hand, since these processes involve the amendment of the bylaws, a requirement for their approval is that the restructuring, with all appropriate detailing of the advantages and risks to shareholders, be submitted for consideration by the shareholders involved in a general meeting convened for this purpose.

Furthermore, sufficient homogeneity between the portfolios must be demonstrated, which can evidence a similarity between the funds that justifies the consolidation of the portfolios into a single Master fund, and also to prove that there is no mixing, in the operation, of funds with investors of distinct risk profiles.

In this regard, it is up to the administrator to demonstrate that the portfolio contains only assets with reliable pricing, so as to ensure that some funds are not prejudiced relative to others in the asset verification, which must always be carried out at market value.

It is worth observing that this structure allows some funds of the same family to present differences in relevant aspects, such as the period for redemption subscription, which implies a risk that, in scenarios of significant redemption demands, the fund with the longer period to meet them will be prejudiced relative to the others.

In these cases, we emphasize the need for the aforementioned risk to be highlighted in the call to the general meeting that will deliberate on the restructuring of the fund with the longer redemption period, and also that a specific alert be included in the prospectus of that fund regarding this particular risk.

Finally, it is a condition for the regularity of the operation that the funds that will be transformed into share funds respect the provisions of Article 102 of the Instruction. The accounting statements and the independent audit report related to the operation must be archived by the administrator and kept available to the CVM.

1.15. Investment Objectives – Arts. 65, XIII and 65A

This Superintendency considers it positive the establishment of objective references to evidence the profitability goals (provided they do not constitute a guarantee of future results, in accordance with art. 74) that the fund intends to achieve, such as, for example, percentages on indices known to the market (CDI, Ibovespa, IbrX100, etc.) or fixed percentages above a certain price index (IPCA, IGPM, etc)[1], since they serve as additional information regarding the goals and management objectives of the fund, in accordance with art. 40, I, of the Instruction.

However, we alert that such goals must always be based on reasonable and objectively calculated expectations of the results that the fund expects to obtain based on the investment policy and cost structure it adopts.

Thus, any objective reference must take into account, in addition to the fund's own investment policy, also the expenses that will be incurred by the fund, such as those resulting, for example, from the charging of fees (administration and performance, if any), as well as the charges provided for in article 99 of the Instruction.

1.16. Investment Limits in Shares of the Administrator, Manager, or Affiliated Companies – Art. 86, § 2º, and 95B

In response to a consultation presented by the Superintendency of Market Relations and Intermediaries, the CVM Collegiate Body, in deciding on CVM Process No. RJ200712876, consigned the possibility of constituting investment funds of the Stocks or Multimercado classes that provide for the investment of more than 95% of their net asset value in a specific share issued by the administrator, the manager, or an affiliated company, given the permissions contained in art. 95B, § 2º and art. 97, § 3º, of the Instruction, and provided that the conditions provided for in those devices are respected.

It is worth remembering that the basis for the concession was the fact that the prohibition contained in art. 86, §2º is not precisely a risk diversification rule, but, rather, a conflict of interest rule whose objective is to prevent fund resources from being used to provide liquidity or sustain quotations of papers issued by companies in the same group as the administrator or the manager.

Thus, the Collegiate Body concluded that the provisions of art. 86, §2º should not be applied in the case where the declared objective of the fund, known to the investor, consists of applying exclusively the fund's resources in securities issued by the administrator, the manager, or any company affiliated with them.

1.17. Investment in FIP Shares by Qualified FIs 110B and 110A – Article 86, § 10, II

As is known, investment funds are prohibited from investing in shares of other investment funds that are not provided for in article 87, I, as per the provision of article 86, § 10, II, of the Instruction.

However, the Collegiate Body, in a decision regarding CVM Process No. RJ200912749, taken in the Meeting of 10/8/2010, deliberated that the aforementioned prohibition would not extend to exclusive funds (article 111A) or those with a minimum initial application of R$ 1 million (article 110B), since they are expressly exempt from observing the concentration limits by asset class provided for in article 86 of the Instruction.

Thus, to these funds it is possible to apply in shares of other investment funds not listed in article 87, I, of the Instruction, such as, for example, but not limited to, Investment Funds in Participations (FIPs), Investment Funds in Shares of Investment Funds in Participations (FICFIPs), and Investment Funds in Non-Standardized Credit Rights (FIDCNPs).

However, it is worth remembering that the exemption from compliance with these limits does not exempt any fund (not even the exclusive ones or those with a minimum initial application of R$ 1 million) from observing the provisions of item I of § 10, given the specific and distinct objective of this device, which intends to preserve the integrity of the fund's patrimony.

1.18. Investment in FIDC and FICFIDC Shares – Article 87, I, and 112, § 5º

In line with the decision regarding CVM Process No. RJ20097903, of 16/3/2010, the Collegiate Body reiterated the possibility of application, by investment funds and investment funds in shares of investment funds, in shares of Credit Rights Investment Funds ("FIDCs") and Investment Funds in Shares of Credit Rights Investment Funds ("FICFIDCs").

Thus, the Collegiate Body, in examining the issue, highlighted the applicability of the provisions contained in article 87, I, of CVM Instruction No. 409/04, for investment funds; and of article 112, § 5º, for investment funds in shares of investment funds, provided that the limits provided for in that Instruction are observed.

Still regarding the application and incidence of article 87, I, of the Instruction, it is also worth remembering the content of the Collegiate Body decision of CVM Process No. RJ2009 7219, judged on 1/6/2010, in which, in response to a consultation, it was decided that any pledged operations that are not specifically backed by public bonds, in conformity with the exemption contained in art. 87, II, "a", of the Instruction, must be computed in the general limit provided for in article 87, I, of that norm.

At this point, the CVM Collegiate Body understood that exempting compliance with the limit of art. 87, I, of the Instruction for pledged operations of other nature would depend on a change in the norm, which would not be appropriate to do within the scope of a consultation, but rather, within the framework of a regular and conventional normative alteration process that includes, among other things, market participation in a public hearing process.

1.19. Application in Shares of Stock Index Funds (Art. 87, I, f)

CVM Instruction No. 359/02 regulated the constitution and functioning of Index Funds with shares traded on a stock exchange or organized over-the-counter market.

Index Fund shares representing a stock portfolio are securities with characteristics similar to shares of stock investment funds, and may be acquired by investment funds and investment funds in shares.

Due to these peculiar characteristics, doubts arose among market participants regarding the classification of these securities under the provisions of the Instruction, which is why we understand it is necessary to make the following clarifications:

a) Index Fund shares may be subject to lending operations in accordance with current legislation, in accordance with CVM Deliberation No. 471/04;

b) Regardless of the titles and securities held in the portfolio, the Index Fund must be considered as the issuer for purposes of complying with the limit established in Article 86, as well as its issued shares must be considered as financial assets, for purposes of the limit provided for in Article 87;

c) Stock Index Fund shares must be considered, together with the other securities listed in § 1º, inc. I, of art. 95B, for purposes of classifying the investment fund as a stock fund;

d) Provided that it is provided for in its bylaws, an Investment Fund in Shares of Stock Investment Funds or an Investment Fund in Shares of Multimercado Investment Funds may apply up to 100% of its net asset value in Index Fund shares of stocks, in view of the provisions of art. 112, § 4º.

1.20. Minimum net asset value – Art. 105

Article 105 of the Instruction explicitly states that, after 90 days from the start of activities, an open fund that maintains, at any time, a daily average net asset value lower than R$ 300,000.00 for a period of 90 consecutive days must be immediately liquidated or incorporated into another fund.

Thus, for the purposes of such a rule, the calculation of daily average net asset values must be carried out only after the 90-day period from the start of the fund's activities has elapsed, which occurs upon the first subscription of fund shares.

For this reason, it is recorded that the obligation of liquidation or incorporation into another fund, required by Article 105, can only occur, in the most unfavorable scenario, after 180 days from the first subscription of fund shares.

1.21. Cancellation of Investment Fund Registration – Art. 107

The cancellation of an investment fund's registration requires the sending of documents to the CVM that prove the closure of the fund and the request for cancellation of the fund in the National Registry of Legal Entities CNPJ.

Under certain circumstances, an investment fund that has already had its closure deliberated by a general meeting of shareholders or determined by the total redemption of its shares cannot effectuate it, for exogenous reasons and unrelated to the will of its administrator and shareholders.

Examples of reasons that prevent the regular closure of the funds in these cases are: (1) judicial decisions that determine the maintenance of the fund in operation; (2) assets in the portfolio with no liquidity; and (3) dividends and other proceeds declared in favor of the fund, but which have not yet been paid.

These funds, given the particular situation they are in, also tend to present net asset values lower than R$ 300,000.00, which would subject them, in principle, to immediate liquidation or incorporation into another fund, in accordance with Article 105.

Thus, in accordance with CVM Deliberation No. 571, of 31/3/2009, it was defined that, in these exceptional cases, the administrator of the investment fund may request this Superintendency to waive the obligation of liquidation or its incorporation into another fund, together or not with the cancellation of its registration at the CVM, provided that the following requirements are met:

a. The waiver and cancellation requests must be detailed;

b. The waiver and cancellation must be approved by all shareholders of the fund gathered in a general meeting;

c. Proof of an exceptional situation that prevents the liquidation of all remaining assets in the fund's portfolio; and

d. Declaration by the administrator that it remains responsible for the administration of the fund and that the shares will no longer be offered publicly. The contracted distributors must attest that they will no longer offer such shares.

1.22. Qualified Investors – Art. 109

By virtue of consultations from market participants regarding the subject, we come to remind you that art. 109, § 2º, of the Instruction is a device of a transitory nature, which only had the objective of regulating the situation of shareholders who, at the time of the entry into force of the Instruction, met the qualification requirements then in force, but who did not fit into those provided for by the new norm.

Thus, we remind you of the Collegiate Body's understanding on the matter, manifested on 19.04.05 through a Market Communication, that investment funds already adapted to Instruction 409/04 that come to transform into funds for qualified investors, will not be able to maintain shareholders who, at the time of the alteration, do not meet the qualification requirements of the Instruction.

Still in accordance with that communication, we remind you that the transitory permission contained in the device only extends to shareholders who are retail funds (not intended exclusively for qualified investors) if, alternatively, these funds (a) are transformed into funds for qualified investors, in which case their former shareholders, even if not qualified investors, may remain in them; or (b) do not admit new shareholders, which, in practical terms, will mean their closure for applications, in accordance with art. 17 of the Instruction.

1.23. Initial Application of R$ 1,000,000.00 – Art. 110B

As is known, funds intended for qualified investors, whose bylaws require a minimum investment per investor of one million reais, do not need to comply with the concentration limits by issuer and by financial asset class established in Articles 86 and 87.

Thus, based on Article 110B, their bylaws may provide, with greater freedom, their investment policies. Their concentration limits by issuer and by financial asset class are generally more flexible than those applicable to other investment funds.

In this sense, it is important to emphasize that the minimum investment required by the norm is a limiter to be considered when verifying the suitability of the product offered to the investor's investment objective, risk profile, and financial capacity to tolerate losses (suitability rule).

Thus, the verification of the minimum application requirement must occur when the investor enters the fund. For this reason, there is no legislative requirement for the investor to maintain any minimum value in the fund, nor predetermined minimum values for additional applications. Notwithstanding, rules establishing minimum values for the maintenance of resources applied in shares may be established in the bylaws.

However, situations of partial redemptions in a short period of time after the initial application, so that shareholders can remain in the fund with values lower than the initial investment, may configure for the technical area the hypothesis of an attempt to circumvent the objective of the norm.

1.24. Investment in FICFIP Shares – Article 112, §§ 5º and 6º

In accordance with a Collegiate Body decision regarding CVM Process No. RJ20098053, of 1/9/2009, it is possible for investment funds qualified under article 112, § 6º, to apply in shares of Investment Funds in Shares of Investment Funds in Participations ("FICFIPs").

In this sense, we remind you that, still according to that decision, the absence of provision in § 6º of art. 112 regarding the possibility of application in FICFIP shares constitutes a material error that finds no reasonable justification.

For this reason, a merely literal interpretation of the device must be set aside, in favor of the purposes of the norm, in order to recognize, in this direction, the possibility for the FICFIs provided for in article 112, § 6º, to invest in FICFIP shares.

2. CVM Instruction No. 306/99 – Portfolio Administration

2.1. Affiliated Companies – Art. 7º, §§ 5º and 6º

The exception rule of the aforementioned device allows the director, delegated manager, or partner responsible for the administration of securities portfolios in the company to exercise this same activity in other companies, provided they are affiliated, "as defined by law" (article 7º, § 6º, final part of the Instruction).

In the absence of a law – in the strict sense – that defines the concept of affiliated companies, this technical area has supported its understanding based on other norms issued by the CVM that also possess the same foundation, namely, the prevention of conflict of interest scenarios.

Thus, we cite the concepts brought by the provisions of article 3 of CVM Instruction No. 149/91 and article 86, § 2º, of CVM Instruction No. 302/99, which consider two companies as affiliated when (1) one of them or its administrators, and their respective spouses, partners, or relatives up to the 2nd degree, hold a participation greater than 10% of the share capital of the other, or when (2) they have in common administrators or partners with participation greater than 10% of both share capitals.

In the same sense, we refer to the provisions of article 29, Sole Paragraph, of CVM Instruction No. 359/02, which considers two companies as affiliated when (1) one of them – or its controllers and administrators – holds an administrative position, or still, individually or jointly, holds a participation greater than 10% of the share capital of the other; or when (2) one is controlled by the other.

Finally, it is worth noting that – despite being expressly revoked – we consider CVM Instructions No. 149/91 and 302/99 as reliable and adequate sources for the conclusions exposed, since they are limited to serving as support for the better interpretation of the concept of affiliated companies.

2.2. Annual Report of Portfolio Administrators (ICAC) – Art. 12

Article 12 of the Instruction provides that the portfolio administrator accredited at the CVM must send, by May 31 of each year, information regarding the portfolios they administer, based on positions as of March 31 of the same year, in addition to updated registration information.

It is important to observe that this obligation must be fulfilled even if the administrator has no resources under their administration, and also that no alteration is necessary in the registries of this Autarchy.

The sending of the ICAC is also mandatory by an accredited portfolio administrator, natural person, who is responsible for the administration of securities portfolios in a legal entity authorized by the CVM to exercise such activity.

The aforementioned annual update must be sent through the restricted access environment of the administrator available on CVMWeb, in the item "Sending Documents Via Form", option "Registration Report", type of report "Annual (Mandatory)", function "Send Documents".

After the report entry is made, it is possible and recommended to consult the system to verify if the information was accepted by the system. To do so, in the same way, the item "Sending Documents Via Form", option "Registration Report", function "Search Document" must be accessed. To consult, for example, the report sent by 31/5/2009, the year of research "2009" must also be informed.

Finally, we remind you that the failure or delay in sending the aforementioned report may lead to the application of a coercive fine, in accordance with the provisions of Article 20 of the Instruction, and in conformity, still, with the requirements of Articles 3 and 11 of CVM Instruction No. 452/07.

2.3. Eventual Report for Updating Registration of Portfolio Administrators (ICACE) – Art. 12

Without prejudice to the obligation described in item 2.1, whenever it is necessary to update the registered data of the accredited entity, this must be done directly in the restricted access area available on CVMWeb, under the item "Sending Documents via Form", option "Registration Information", type of report "Occasional", function "Send Documents". The update must be provided within 15 days of the occurrence of the registration change, in accordance with the provisions of Article 12, Sole Paragraph. We alert, however, that in the case where the update refers to a change in the name or the responsible person of the portfolio administrator (Legal Entity), another procedure must be adopted. In the case of a change in name, the update must be informed to the CVM through correspondence signed by the Responsible Director, accompanied by a copy of the corporate instrument proving the change in name of the legal entity, and, in the case of a financial institution, registration and approval by the Central Bank of Brazil. In the case of a change of responsible person for the administrator, the update must be informed to the CVM through correspondence signed by the new Responsible Director, accompanied by a copy of the corporate instrument proving their appointment, and, in the case of a financial institution, approval by the Central Bank of Brazil. There is, furthermore, a third hypothesis that requires a petition by correspondence: when there is a simultaneous forgetting of the access password to CVMWeb by the user and a change of their email, without such fact having been the subject of an update in the Registration Information. We remind, finally, of the importance of the accredited entity keeping its registration with the CVM always updated, since the data contained therein are used for any notifications to the interested party, including those that alert to the incidence of penalty fines provided for in the regulation of this Commission.

2.4. Segregation of Activities – Article 15
One of the most relevant aspects in the conduct of the activities of a society accredited as a portfolio administrator of securities lies in the procedures for segregation of activities adopted, with the objective of guaranteeing an efficient policy for the administration of conflicts of interest that are inherent to its own activity. Thus, in the understanding of this Superintendence, the establishment of adequate policies for the segregation of activities, without prejudice to other initiatives, can contribute to ensuring investment decision-making that respects the best interest of the institution's clients. In this context, it is advisable to have written manuals that detail the rules and procedures adopted by the administrator to comply with Article 15 of the Instruction, as well as documents that formalize the mentioned policies encompassing, at least, the content described below:
a. Policies of Segregation of Activities (Article 15, item I) – presented only when the company develops more than one activity. It aims to demonstrate the total separation of areas or present the segregation rules adopted, with discrimination, at minimum, of those related to installations and equipment, with detail, at least, of the computers used, networks, facsimiles, telephones, and files; b. Confidentiality Policies (Article 15, item II) – define the confidentiality and conduct policies adopted, with detail of the requirements applicable, at minimum, to its partners, administrators, collaborators, and employees. Furthermore, these rules must identify holders of privileged information due to their position or assignment, in order to establish an Information Barrier with other employees;
c. Training Policies (Article 15, item III) – present the education policies for, at least, its partners, administrators, collaborators, and employees. Its purpose is to give everyone knowledge of the society's segregation policies, to guarantee their effectiveness. In addition to the specific Adhesion Term of this Policy, there may also be a declaration by the involved party stating that they have been trained in accordance with the presented Training Policy, and their perfect understanding of the adopted Segregation Policies;
d. Security Policies (Article 15, item IV) – detail the policies for controlling access to confidential information, at least by its partners, administrators, collaborators, and employees who possess them. Furthermore, it must always be possible to identify the holders of this information for liability in case of leakage; e. Personal Trading Policies (Article 15, item V) – express the policies of restriction for trading in securities, at minimum, by partners, administrators, collaborators, and employees, and especially those who possess privileged information. They must specifically appear in the Individual Adhesion Term. These Manuals, therefore, must provide, at least, provisions related to (1) policies adopted by the society, with clear, objective, and detailed description of the corporate criteria adopted, and containing a model of the Adhesion Term to be signed by the interested party; (2) compliance, which contains a description of how the monitoring of the policies will be done, and the designation of the person responsible for this activity; and (3) enforcement, with provision of the applicable sanctions in case of non-compliance with the policies, and also of the person designated for this activity.

3. CMN Resolution No. 2,689/00 – Registration of Non-Resident Investors
   3.1. Representation Contract – Art. 5
   As is known, it is the obligation of the non-resident investor's representative to keep, and provide whenever requested, in accordance with Article 5 of CVM Instruction No. 325/00, the respective custody and representation contracts signed with the client, as well as the forms provided for in that Resolution.
   In this sense, we remind that, within 15 days after the constitution of the portfolios of these investors, the number of the Electronic Declaratory Registration (RDE) of the constituted portfolios must be sent to the CVM, and it must contain a declaration by the representative in the following terms:
   "I declare that I am in possession of the documentation proving the representation and custody contracts and the Form Annexed to CMN Resolution No. 2,689/00, for which I take responsibility."
   Still regarding this, we note that any registration changes of non-resident investors, in accordance with item II of Article 5 of the Resolution, do not need to be accompanied by documentation proving the changes made, but only by a declaration by the representative that they are in possession of this documentation, and that they take responsibility for its custody and presentation to the CVM, when requested. Finally, we recall that the maintenance of registration with the CVM does not imply automatic update in records of other bodies of the Public Administration, such as the Central Bank of Brazil and the Federal Revenue Service of Brazil. Thus, these updates, when necessary, must be promoted, through its own means, by the representative of the non-resident investor.

4. CVM Instruction No. 388/03 – Securities Analysts
   4.1. Graphical Analyses Disseminated via the Internet art. 2.
   CVM Instruction No. 388/03 brings in its art. 2 the definition of the activity of a securities analyst. This definition encompasses all those who, on a professional basis, prepare recommendations, follow-up reports, and studies for dissemination to the public, which assist in investment decision-making, regardless of the methodology used for such. Thus, both the graphical analyst and the fundamentalist analyst are included in the normative definition of a securities analyst. Both must prove their technical qualification through accreditation with the accrediting entity and, subsequently, obtain registration with the CVM, so that they can exercise this activity. In this sense, it is worth clarifying that graphical analyses and recommendations resulting from these analyses, disseminated on sites, chats, or blogs specialized on the Internet, if carried out on a professional basis, must be prepared and disseminated only by professionals accredited by the accrediting entity and registered with the CVM.

5. CVM Instruction No. 43/85 – Securities Consultants
   5.1. Accreditation
   The Collegiate Body of the CVM, in a meeting on 08/19/2008, established the requirements to be demanded for the purpose of granting accreditation of a securities consultant for natural and legal persons, embodied in the documents that must accompany the accreditation requests.
   The demanded documents are the following:

6. Natural Persons:
   (i) request signed by the interested party containing the reasons why they believe they are qualified to exercise the activity; (ii) copy of the curriculum and proof of the main courses mentioned therein; (iii) proof of registration with the CPF and copy of the identity card; (iv) documentation proving their experience and detailing the nature of the activities performed by the interested party, their professional experience in an activity that reveals aptitude for investment analysis must amount to a minimum period of 3 years (this requirement is waived for those accredited as securities analysts, who must only prove this condition, in the manner provided for in the current regulation on the activity of an analyst); (v) registration form containing their full name, CPF, address, telephone, facsimile, email; (vi) declaration signed by the applicant, informing:
   (a) if they are disqualified from exercising a position in financial institutions and other entities authorized to operate by the CVM or BACEN, insurance companies, private pension entities, and publicly held companies; (b) if they have been convicted of bankruptcy crime, malfeasance, active or passive corruption, extortion, market manipulation, improper use of privileged information, irregular exercise of position, profession, activity, or function within the scope of the securities market, embezzlement, against the popular economy, public faith, property, the National Financial System, or criminal penalty that bars, even temporarily, access to public positions; (c) if they are included in the Register of Issuers of Bounced Checks; (d) if they have titles protested against them; (e) if, in the last five years, they suffered any punishment due to acting in the administration or on the fiscal council of an entity subject to the control and supervision of the CVM, BACEN, SPC, or SUSEP; and (f) if their assets, by virtue of a judicial decision or administrative authority, are unavailable.

2. Legal Entities:
   (i) request signed by the legal representative of the legal entity; (ii) copy of the constituent acts duly consolidated; (iii) proof of registration with the CNPJ; (iv) information about the investor profile with which it intends to operate; (v) document indicating the person responsible for the activity; and (vi) registration form containing, at least, the corporate and trade name of the society, CNPJ, address for correspondence, telephone, facsimile, email, and the person responsible for the activity. The accreditation of the legal entity is conditioned to the designation of a responsible director, who must be accredited as a securities consultant (natural person) with the CVM.

6 Structured Funds
6.1 Art. 23A of CVM Instruction No. 356/01 – FIDC, FICFIDC, and FIDCNP
Art. 23A of CVM Instruction No. 356/01 establishes the requirements that must be met for the fund to remain automatically exempt from presenting the classification of classes or series of quotas by a risk rating agency operating in the Country.
Initially, it is worth highlighting that all the requirements provided for in the aforementioned device, which are divided into three items, must be observed, that is: the automatic exemption requires the cumulative satisfaction of the three items of art. 23A, not the satisfaction of only one item.
Furthermore, we alert that the fact that the public offering of distribution of quotas constituting the initial patrimony of the fund occurs under the aegis of CVM Instruction No. 476/09 does not result, by itself, in the applicability of art. 23A in question. Thus, even if the constitution of the fund uses the aforementioned Instruction, the automatic exemption from risk classification depends on the observance of all items of art. 23A of CVM Instruction No. 356/01. Finally, we inform that the automatic exemption from risk classification is only valid while the characteristics that frame the operation to the provision of item I of art. 23A of CVM Instruction No. 356/01 are maintained. That is, if the fund ceases to be invested exclusively by a single quota holder or by a group of quota holders linked by a single and inseparable interest, the risk classification becomes due.

6.2 Art. 34, item VIII, of CVM Instruction No. 356/01 – FIDC, FICFIDC, and FIDCNP
Art. 34, VIII, of CVM Instruction No. 356/01 provides that it is included among the obligations of the administrator to provide, at least quarterly, the update of the risk classification of the fund or of the credit rights and other assets comprising the fund's portfolio.
We alert that the period provided for in the device – quarterly – does not refer to the civil quarter, nor is the risk classification part of the quarterly statement provided for in art. 8, §3, of the Instruction, which is due due to the civil quarter.
That is, a new risk classification must be sent, at least, as soon as the previous classification reaches three months, regardless of the civil calendar.

6.3 Art. 5, item I, of CVM Instruction No. 472/08
The operation of the fund requires prior registration, which will be automatically granted, among other requirements, upon proof, before this CVM, of the subscription of the total quotas object of the distribution registration or of the partial subscription of quotas, in the hypothesis provided for in art. 13 of the Instruction, provided that the minimum value provided for in §1 of the device is reached. We alert that the forwarding of the investment commitments (art. 11, §5) signed does not satisfy the aforementioned device, since they do not have the capacity to prove that the quotas were subscribed. The device in question can be satisfied by forwarding, alternatively, copies of the subscription bulletins or of the manifestation of the fund's quota registrar agent, in which the volume, in Reais, of subscribed quotas is clear. As a last option, if the distribution of quotas includes a Closing Announcement and it objectively informs the total number of quotas subscribed, the same can serve as proof document of the subscription of quotas, satisfying the referenced device.

7. Parameters for Formulating Inquiries
   This Superintendence frequently receives inquiries from market participants with doubts regarding the correct application of the regulatory norm applicable to the investment fund industry.
   Below, we highlight some requirements that must be observed in these inquiries to ensure that the technical area has sufficient elements to analyze the issue presented.
   A first point concerns the need for the inquiry to describe the concrete case with the greatest possible detail. However, if the doubt is not specifically based on any concrete case, the reasons that generated the raised doubt must be detailed.
   On the other hand, the inquirer must expose what they understand as the best interpretation of the norm regarding the proposed issue, without failing to count on all the legal foundation that supports this understanding.
   We request that, as a rule, the inquiry be formulated by the responsible director of the administering institution.
   If the inquiry refers to the application of norms and accounting procedures provided for in CVM Instruction No. 438, it must also be signed by the qualified professional responsible for accounting, in accordance with item 1.1.2.9 of the Investment Funds Accounting Plan – COFI.
   Finally, as required by the aforementioned Instruction 438, the inquiry must be accompanied by a manifestation of the independent auditor, when it concerns the change or adoption of new accounting practices or procedures.

Sincerely,
(Signed Original)
Francisco José Bastos Santos
Superintendent of Institutional Investor Relations

[1]Applicable, for example, for passive funds or those seeking to partially, fully, or exceed a benchmark. There will be cases, however, where the determination of an objective parameter as the fund's goal may not be advisable, such as for investment policies that imply variable exposures to various risk factors, or in cases where the fund does not assume the commitment of exposure to any defined risk factor.