Circular Letter No. 10/2023/CVM/SIN

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP Code: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br Circular Letter No. 10/2023/CVM/SIN Rio de Janeiro, December 28, 2023

To
Fund Managers and Administrators of Investment Funds

Subject: Capital risk exposure of financial investment funds

1. This Circular Letter aims to provide clarifications regarding the capital risk exposure of financial investment funds regulated by Normative Annex I of CVM Resolution No. 175, of December 23, 2022 (“Resolution”).

2. Article 73 of the Resolution provides that the capital risk exposure of funds must observe maximum limits for the use of gross margin, to be controlled by fund managers, according to the classification of the fund class. Paragraph 1 of said Article 73 establishes that gross margin is considered to be the sum of coverages and guarantee margins, required and potential, employed by the class in relation to the operations of its portfolio.

3. The objective of such limits is to ensure that the capital risk exposure of funds is consistent with its class, through active management.

4. The capital risk of a fund is a function of its exposure to potential price variations of risk factors underlying the positions it holds. The realization of this risk occurs when the variation in the price of risk factors reflects in variations in the prices of assets and derivatives, leading to a negative variation in the fund's net asset value.

5. On the other hand, we know that, in the domestic market, B3 is the market administrator entity that practically exercises the calculation and control of margins deposited by investment funds based on their risk exposure to the central counterparty they administer.

6. With the objective of assisting in the control of these limits and in coordination with the SIN, B3 then developed a new metric to measure this potential loss. Thus, it established the concept of Capital Risk of the Fund (RCF), which represents the market risk of the portfolio defined by the set of positions and assets used for the calculation of required margin and balance of guarantees of positions and guarantees maintained at the B3 Clearing House by the fund.

7. The RCF metric is calculated by discounting the market value of the positions from the result of the sum of cash flows obtained from the application of the portfolio closing strategy in the worst risk scenario, following the same principles and parameters used in the calculation of the required margin by the B3 Clearing House. B3 will publish on its website, at an appropriate time, the description of this methodology and the daily results of this metric.

8. The CVM understands that the RCF metric is adequate and may be used by administrators and managers of investment funds for the assessment of classification as provided for in Article 73 above, in substitution for the required margin value by B3.

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP Code: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br

9. Finally, we emphasize that non-compliance with the limits will be subject to the provisions of Article 73 of the Resolution.

Sincerely,

Digitally signed by
MARCO ANTÔNIO VELLOSO DE SOUSA
Superintendent of Institutional Investor Supervision - acting