Circular Letter CVM/SSE No. 4/2023

04/04/2023, 11:04 SEI/CVM - 1741426 - Ofício-Circular https://super.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=1834402&infra_sis… 1/9 COMISSÃO DE VALORES MOBILIÁRIOS Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146- 2000 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4º Andar, Brasília/DF – CEP: 70712-900 – Brasil -Tel.: (61) 3327-2030/2031 www.cvm.gov.br Circular Letter No. 4/2023/CVM/SSE São Paulo, April 4, 2023. To service providers involved in the "tokenization" activity ("exchanges" or "tokenizers"), credit consultants, structurers, and assignors of credit rights. Subject: Characterization of "receivables tokens" or "fixed income tokens" as securities. Dear Sir/Madam,

1. This Circular Letter aims to guide service providers involved in the tokenization activity regarding the probable nature of securities of the so-called "Receivables Tokens" or "Fixed Income Tokens" (collectively "TR"), whether under the terms of Art. 2, item IX, of Law No. 6,385 of December 7, 1976, or Arts. 18, sole paragraph, and 19, of Law No. 14,430 of August 3, 2022.

2. Additionally, this Circular Letter aims to clarify that certain public offerings of TR distribution may be carried out under the regime provided for by CVM Resolution No. 88/2022.

3. Finally, this Circular Letter seeks to guide, within the scope of the requirements of CVM Resolution No. 88/2022, that the platform's webpage on the worldwide computer network that refers to the token offering and the advertising materials for its promotion must contain specific information about the tokens, in accordance with the recommendations of Orientation Opinion No. 40/2022.

I. CVM Orientation Opinion No. 40/2022 – characteristics of a security.

4. Recently, the CVM issued Orientation Opinion No. 40/2022 ("PO 40"), through which it consolidated its understanding regarding the application of securities regulation to certain cryptoassets. The Regulatory Authority observed that:
   a) "although tokenization itself is not subject to prior approval or registration with the CVM, if securities are issued for public distribution, both the issuers and the public offering of such tokens will be subject to the applicable regulation"; b) "market practice has shown that a token can represent not only assets, but also (...) right to receive related to structures similar to securitization (...). In this regard, we note that some of these models bring the issued tokens closer to the concept of security"; and c) "Even though cryptoassets are not expressly included among the securities cited in the items of Art. 2 of Law No. 6,385/76, market agents must analyze the characteristics of each cryptoasset with the objective of determining if it is a security, which occurs when: (i) it is the digital representation of any of the securities expressly provided for in items I to VIII of Art. 2 of Law No. 6,385/76 and/or provided for in Law No. 14,430/2022 (i.e., certificates of receivables in general); or (ii) it fits within the open concept of securities in item IX of Art. 2 of Law No. 6,385/76, insofar as it is a collective investment contract" (emphasis added).

5. In this sense, the use of DLT (Distributed Ledger Technology), or any other technology in the issuance, does not change the nature of the instrument as a security. Moreover, the characterization of a certain asset as a security does not depend on prior manifestation by the CVM. Therefore, private agents must always evaluate whether capital market regulation is applicable to distributed products.

6. If the tokens are characterized as securities, the rules on issuer registration and public offerings must be respected, as well as the provisions on intermediation, bookkeeping, custody, centralized deposit, registration, clearing, settlement, and administration of organized markets for trading securities.

II. Tokens referenced to receivables, fixed income tokens, or TR

7. Within the scope of SSE supervision activities, emissions and public offerings of TR representative, linked, or backed by credit rights were detected that, in the understanding of said technical area, possess characteristics of securities, without compliance with the norms applicable to the capital market.

8. In this sense, this SSE comes to inform the agents involved, notably "exchanges" or "tokenizers", but also issuers, assignors, consultants, and structurers, of its understanding regarding the probable nature of securities of TR whose public offering is comparable to the securitization operation governed by Law No. 14,430/2022 or the offering of a collective investment contract ("CIC") provided for in Art. 2, item IX, of Law No. 6,385, of 1976.

9. It is worth noting that the concept of public offering is regulated by CVM Resolution No. 160/2022, and, briefly, this technical area understands that advertising investment in TR can be characterized as a public offering even when carried out exclusively for previously registered persons, in the case of sending communication that is considered massified.

10. TR generally present the following characteristics:
    a) They are publicly offered through "exchanges", "tokenizers", or other means; b) They confer fixed, variable, or mixed remuneration to the investor; c) They may be representative, linked, or backed by credit rights or debt instruments; d) Interest and amortization payments to the investor arise from the cash flow of one or more credit rights or debt instruments; e) The credit rights or debt instruments represented by TR are assigned or issued in favor of final investors or third parties that perform "custody" of the backing in the name of investors; f) The remuneration is defined by a third party who may be the TR issuer, the assignor, the structurer, or any agent involved in the operation.

11. In general, in these cases, this technical area understands that there is a securitization operation, which, when publicly offered, is comparable to the Receivable Certificate or other securitization security by virtue of Arts. 18, sole paragraph, and 19 of Law No. 14,430/2022 - Legal Framework for Securitization.

12. Even if the token may not be directly comparable to the Receivable Certificate or other securitization instrument, under Law No. 14,430/2022, this SSE understands that TR, in certain concrete cases, may be securities, as a result of their characterization as a collectively offered public investment contract ("CIC"), as detailed below.

13. In accordance with CVM Orientation Opinion No. 40/2022, the Board of this Regulatory Authority has repeatedly considered the following requirements, which are inspired by the Howey Test, to decide whether a certain instrument or contract has the legal nature of a security:

"(i) Investment: contribution of money or asset susceptible to economic evaluation; (ii) Formalization: instrument or contract resulting from the relationship between investor and offeror, regardless of its legal nature or specific form; (iii) Collective nature of the investment; (iv) Expectation of economic benefit: either by right to some form of participation, partnership, or remuneration, resulting from the success of the activity referred to in item (v) below; (v) Effort of entrepreneur or third party: economic benefit results from the predominant action of a third party who is not the investor; and (vi) Public offering: effort to raise resources from the public savings".

14. In TR offerings, the presence of requirements (i) to (iv) and (vi) of the Howey Test tends to be evident. Regarding item (i), in general, there is a contribution of financial resources by the investor, whether in money or another asset with economic value, such as "stablecoins" traded or issued by the "exchange".

15. Regarding the formalization referred to in item (ii), the result of tokenization is the acquisition of a token by the investor, backed, representative, or linked to the credit right or debt instrument acquired at a discount rate. The concept of tokenization suggests that the ownership of the token will be represented through effective registration in a DLT network, or other technology, in the name of each investor, corresponding to an instrument or contract.

16. In any case, it is common for DLT records to point to ownership by the platform or the credit assignor, often with a "master block" merely for reference of the quantity issued. In this case, the platform generally controls, managerially and internally, the percentage allocated to each client in "graphic accounts" with balance referenced to a certain quantity of tokens.

17. Whatever the procedure used for ownership registration, the fact is that the tokenization operation, by definition, in essence, is intended to assign the ownership of an electronic instrument to a specific acquirer: therefore, the requirement of item (ii), referring to formalization, always tends to be met in TR cases, for the purpose of qualification as a security.

18. Regarding point (iii), it also seems natural that there is investment of a collective nature, given that the resources contributed by all investors are directed towards the acquisition or joint linkage to credit rights, directly or indirectly, which will be distributed in fractions represented by tokens to each investor.

19. It is observed that, as a rule, this collectivity does not have the means to analyze the risk, pricing, acquisition, and management of the credit rights represented by TR.

20. Regarding requirement (iv), it is understood that the offering of tokens has as its attraction the expectation of economic benefit on the part of investors, via the offered remuneration. There is the same clarity regarding the requirements for a certain offering to be considered public, requirement of item (vi), this theme being already settled and crystal clear in Laws No. 6,404/76, 6,385/76 and in CVM Resolution No. 160/22, as well as in PO 40.

21. Therefore, the evaluation of requirement (v) remains, which requires that the expected economic benefit result from predominant efforts of an entrepreneur or third party, which justifies a more casuistic analysis, aimed at deepening the characteristics of each structured token.

22. Generally, the SSE understands that requirement (v) will be satisfied if the tokens are backed, linked, or representative of credit rights or instruments, whose activities of selection, risk analysis, pricing, acquisition, maintenance, custody, or management, of the credit right(s) or its cash flow, including in collection activities, are performed, jointly or individually, by third parties other than the investor themselves.

23. This scenario tends to characterize the efforts of third parties to perform part or all of these activities, which contribute to investors' expectation of economic benefit, including on the premise that knowledge of the effort already executed by the third party is acquired.

24. For example, the investor acquires a token with a certain discount rate or remuneration on the receivable that was defined by a third party, which may be a credit consultancy, the assignor, the "exchange" or "tokenizer", the debt issuer, or any other agent involved in the issuance. In this example, the third party was responsible (and remunerated) for the credit analysis of the debtor and their risk profile for the definition of the discount rate or remuneration to be offered to investors, thus characterizing the effort of third parties, even when a range of discount rates is offered.

25. Similarly, collection activities or the pass-through of ordinary cash flows tend to characterize, in the view of this SSE, the effort of the entrepreneur or third parties referred to in requirement (v).

26. In this sense, we reinforce that the relevance of third-party efforts for investors' expectation is evident, especially when: (i) the investor does not have access to the debtor's financial information and does not analyze their credit risk for the purpose of determining the discount rate or remuneration, or even if they have access, they do not have the technical capacity to perform such analysis; and, thus, (ii) the investment decision is mainly based on confidence in the effort and technical capacity of a third party.

27. The SSE highlights that public offerings in which there is co-obligation of the assignor or third parties for the fulfillment of tokens are also considered as collective investment contracts, since the effort of the assignor or third parties for the success of the investment is relevant to the expectation of economic benefit of investors.

28. Furthermore, it is reaffirmed that, even with the civil assignment of the credit right to investors, this formalization does not change the legal nature of the TR as a security publicly offered. Commonly, the operation is, in fact, characterized by the offering of acquisition of ideal fractions of credit rights, or debt instruments. In general, third-party efforts are relevant and there is de facto securitization to disperse activity risk through the offering of investment opportunities, as exposed above.

29. In this regard, we emphasize that, even if there is direct assignment of the entirety of a credit instrument in favor of each investor, the SSE understands that it may be de facto securitization and, thus, a security provided for in Law No. 14,430/22 or Law No. 6,385/76.

30. In this sense, even in cases of direct assignment, without any subsequent intervention by the assignor or third party, prior efforts may be observed, as exposed above, for example, for selection of the instrument to be assigned, its risk analysis, pricing, prior acquisition, maintenance, or prior management, of the credit right(s) or its cash flow, including in collection activities, which may characterize the existence of effort by the entrepreneur or third parties.

31. Regardless of the formalization of the distributed instrument, the nature of security will be characterized whenever the expectation of economic benefit arises from the effort performed by the entrepreneur or third party, for example, assignor, originator, "exchange", consultancy, or other structurer, with the other requirements of the Howey Test present, or whenever there is factual equivalence to the economic essence of securitization.

III. Possibility of using CVM Resolution No. 88/22 for the realization of TR offerings

32. The SSE understands the operational challenges for the registration of TR offerings and the necessary compatibility of its technology with capital market infrastructure, mainly regarding registration, bookkeeping, deposit, and custody activities.

33. In this sense, the SSE observes that TR offerings of up to R$15 million can be compatible with the regulatory model of Receivable Certificates or other instruments and securities of securitization, provided for in Law No. 14,430/22, and of Crowdfunding, and may be issued by closed-capital Securitization Companies, without registration with the CVM, and conducted through platforms registered under the regime of CVM Resolution No. 88/22, provided that the same requirements provided for in said Law and Resolution are met.

34. Securitization instruments issued by closed-capital securitization companies can be "tokenized" and offered via crowdfunding platforms, which would enable the compatibility of token technology with those used in platform infrastructure, given the special regulatory regime of CVM Resolution No. 88/22, which dispenses, in certain situations, the contracting of traditional capital market infrastructure.

35. Specifically, the requirements concerning the issuer's annual gross revenue, small business company, provided for in Art. 2, item VII and §2º, of said Resolution, must be observed, to be applied to the securitization company issuing the securitization instrument.

36. However, if the instrument is subject to the fiduciary regime provided for in Art. 26 of Law No. 14,430/22, this SSE understands that the separate patrimony instituted may be considered the issuer for the purpose of meeting the gross revenue limits of CVM Resolution No. 88/22.

37. In this sense, the separate patrimony may not exceed the annual gross revenue of R$40 million or R$80 million, considering the economic group of the separate patrimony, with the offering of the instrument subject to separate patrimony limited to R$15 million annually.

38. In an issuance concentrated in only one debtor, or of debtors who are related parties to each other, the SSE understands that the concept of annual gross revenue must be applied to this debtor or their related parties, considered jointly, and not to the separate patrimony.

39. This understanding arises from the fact that the exemplified structure is comparable to the debt of a single debtor that, for certain purposes, may be comparable to the issuer, especially when there is the constitution of separate patrimony. The securitization instrument, in this example, would serve only as a backing between the real debtor and the investor.

40. Likewise, still in this example with a single debtor, the SSE understands that the concept of related party must be applied to the backing debtor for the purpose of applying the consolidated revenue limit provided for in Art. 2, § 2º, of CVM Resolution No. 88/22.

41. The requirements of Law No. 14,430/2022 for the constitution of a securitization term or other issuance instrument must also be respected, since the TR will be legally equivalent to a Receivable Certificate, debenture, or other securitization instrument provided for in current regulation.

42. In particular, considering the "tokenization" of the instrument, the minimum content of the securitization term must be registered on the DLT network, identifying each token.

IV. Bookkeeping - Chapter IV of CVM Resolution No. 88/2022.

43. It is worth noting the obligation for the small business company, or, in the case of TR offerings, the securitization company, to hire a registrar for TR offerings in the cases provided for by Arts. 12 and 13 of CVM Resolution No. 88/2022.

44. In the case of Article 12 of said Resolution, simple records in a DLT network do not equate to the ownership control provided for. Furthermore, the token does not replace the security in its cartular or book representation, nor does it act as a certificate thereof.

45. For cases where Resolution No. 88/22 admits control of ownership of a security or corporate participation by the crowdfunding platform itself, the platform hired to provide this service may rely on records in the blockchain network, provided that it is possible to control and prove ownership and the existence of transactions.

V. Deposit

46. The SSE observes that the exception to the need for deposit of publicly offered securities applicable to offerings carried out through a crowdfunding platform also covers offerings of "tokenized" securitization instruments issued by securitization companies.

47. In this sense, the SSE understands that instruments offered through crowdfunding platforms do not need to be taken to deposit, according to the exception of Art. 4, sole paragraph, item IV, of CVM Resolution No. 31/2021 c/c the provisions of Chapter IV of CVM Resolution No. 88/2022, considering the CVM's competence provided for in Art. 19 of Law No. 14,430/22, which prevails, in matters of specific subject matter, over Art. 23, sole paragraph, item I, of Law No. 14,430/22.

VI. Disclosure of Specific Information about Tokenized Assets

48. PO 40 recommended to offerors of securities using blockchain technology to disclose specific information about the assets in question, in language appropriate for general public comprehension.

49. The guidance aimed to promote full informational transparency, inspired by the "full and fair disclosure" principle, especially given the technical particularities of the assets in question.

50. This SSE emphasizes the importance of observing said Opinion, highlighting items "5.1. Information on Token Holders' Rights" and "5.2. Information on Trading, Infrastructure, and Ownership of Tokens", as well as the requirements of CVM Resolution No. 88/22.

51. Finally, this Superintendence communicates that the CVM has a channel for receiving questions and complaints on its website: https://www.gov.br/cvm/ptbr/canais_atendimento/consultas-reclamacoes-denuncias.

Sincerely,

Bruno de Freitas Gomes
Superintendent of Securitization Supervision - SSE

Luís Lobianco
Securitization Supervision Manager - GSEC-2

04/04/2023, 11:04 SEI/CVM - 1741426 - Ofício-Circular https://super.cvm.gov.br/sei/controlador.php?acao=documento_imprimir_web&acao_origem=arvore_visualizar&id_documento=1834402&infra_sis… 9/9 Document electronically signed by Luis Lobianco, Manager, on 04/04/2023, at 10:42, based on art. 6 of Decree No. 8.539, of October 8 2015.
Document electronically signed by Bruno de Freitas Gomes Condeixa Rodrigues, Superintendent, on 04/04/2023, at 10:51, based on art. 6 of Decree No. 8.539, of October 8, 2015.
The authenticity of the document can be checked on the site https://super.cvm.gov.br/conferir_autenticidade, informing the verification code 1741426 and the CRC code 0D671FC6.
The authenticity of this document can be verified by accessing https://super.cvm.gov.br/conferir_autenticidade, and typing the "Verification Code" 1741426 and the "CRC Code" 0D671FC6.
Reference: Process No. 19957.009383/2021-43 SEI Document No. 1741426