Circular Letter CVM/SIN No. 8/2021

SECURITIES AND EXCHANGE 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/CVM/SIN/No. 8/2021 Rio de Janeiro, December 1, 2021

To institutions administering and managing open-ended investment funds regulated by CVM Instruction 555 Subject: Disclosure of assets in the Portfolio Composition and Diversification Statement document (“CDA”)

Dear Sirs,

Article 56, paragraph 2, of CVM Instruction No. 555, of December 17, 2014, allows the administrator of the funds regulated by it to postpone the disclosure, for up to 90 (ninety) days, of the “identification and quantity, recording only the value and percentage of the total portfolio” of assets in the monthly CDA document, if the disclosure before this deadline, in the view of the fund manager, is likely to harm them.

On the other hand, Circular Letters CVM/SIN/No. 01/2009, of April 30, 2009, and CVM/SIN/No. 03/2010, of October 15, 2010, had already detailed what would be the views of this technical area, confirmed at the time by the CVM Collegiate Body, which justified the use of this option. In summary, the following situations were exposed there:

1. illiquidity of the assets comprising the fund’s portfolio, provided it is based on objective and verifiable criteria;
2. exclusive funds or funds intended exclusively for qualified investors who, under the terms of art. 110B of Instruction 409/04, are required by the fund’s regulations to make a minimum investment of 1 million reais, provided that, additionally, the fund’s shares have been distributed through a public offering with restricted efforts;
3. in the existence of positions of rented stocks that are little traded, especially when the fund has “stop loss” limits or margin commitment for guarantee.

Thus, due to the supervision experiences obtained by this technical area and the regulatory innovations promoted by the CVM since then (with the issuance, for example, of CVM Instruction No. 555 replacing CVM Instruction No. 409, in force at that time), through this Circular Letter we present the necessary clarifications to update the understandings previously expressed.

The first issue concerns typology (2) exposed above. As known, CVM Instruction No. 555, by revoking CVM Instruction No. 409, extinguished the minimum application funds of R$ 1 million, repositioning investment funds under another logic of division of their respective target audiences, namely, (a) for general investors, (b) for qualified investors or (c) for professional investors, and without any of them presenting an exact conceptual correspondence with the minimum application funds of R$ 1 million from before. Thus, it is incorrect and improper any exercise, by the administrator or fund manager, that compares these extinct funds to any type of existing investment fund today in the market.

Still regarding typology (2), it is worth clarifying the interpretation of this technical area that the possibility of lag in the disclosure of the portfolio of exclusive funds is intended for those who are effectively registered with the CVM and contain explicit provision in the regulations that they are intended for an exclusive investor, and thus do not cover investment funds that, circumstantially, contain only 1 (one) investor.

Another justification for the lag in disclosure relates to the identification, by the technical area, of the development in the market of automated tools for replicating the portfolios of investment funds registered with the CVM.
Although such tools cannot be considered illegal from the perspective of investment fund regulation, it is true that the growth and dissemination of their use attributed a new perspective of risks to the disclosure of the portfolio of certain investment funds, associated with a movement, now adopted by a relevant number of investors, in the same direction as the fund that discloses its operations under article 56, III, of CVM Instruction No. 555, in a massive and rapid way, effectively imposing losses on their operations due to this drag effect.

Thus, we understand that it is also legitimate the lag in portfolio disclosure based on this circumstance, provided that the administrator and manager keep appropriate evidence available for CVM inspection that, for the specific case of their fund, there is a relevant risk of this replication occurring.

At this opportunity, we remind you that this technical area still considers inappropriate the use of this prerogative (1) for the entire fund portfolio or for the maximum period of 90 days without plausible justification for all this amplitude, as reminded by Circular Letter CVM/SIN/No. 01/2009; or (2) based on any of the other justifications already considered inadequate by Circular Letter CVM/SIN/No. 03/2010, of October 15, 2010 (illiquidity of public debt securities, impacts on the price of DPGEs or other assets under the same circumstances, or even, rating downgrade).

Also regarding the justifications considered improper by SIN, we add others perceived since then by the supervision area over time, such as investments in shares of other funds or in assets for which the investment made is already known, even by other means (for example, feeders of international funds structured in accordance with Annex 101 of CVM Instruction No. 555, or funds whose portfolio positions have been subject to public comments by the manager, such as, for example, through social media, letters to the market or interviews for the press).

Sincerely,
Digitally signed by
DANIEL WALTER MAEDA BERNARDO
Superintendent of Institutional Investor Supervision