Circular Letter No. 5/2024/CVM/SIN: Interpretation of Provisions of CVM Resolution No. 175

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br Circular Letter No. 5/2024/CVM/SIN Rio de Janeiro, September 26, 2024

To administrators and managers of investment funds Subject: Interpretation of provisions of CVM Resolution No. 175

Dear Sirs,

This Circular Letter aims to disclose additional interpretations by the Superintendency of Supervision of Institutional Investors (“SIN”) regarding other provisions of the general part of the Resolution, as well as provisions of Annexes I and V. Thus, this Circular Letter complements Circular Letters No. 2, 3 and 4/2024/CVM/SIN. For better organization of the subjects, the clarifications will be made through questions and answers that were consolidated from doubts received from the market, and follow as an annex to this Circular Letter.

We also inform that other Circular Letters will be released opportune with clarifications regarding doubts related to the general part and to the Normative Annexes of the Resolution, and, as the case may be, by the respective superintendency that is competent for the supervision of the categories of funds treated therein.

Sincerely,

Digitally signed by MARCO ANTONIO VELLOSO DE SOUSA Superintendent of Supervision of Institutional Investors

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br General Part of RCVM 175

1. Establishment of share classes with distinct tax treatments
   Article 37 of Ordinary Law 14.754/2023 provides that in cases where the investment fund regulation provides for different classes of shares, with distinct rights and obligations and segregated assets for each class, in accordance with item III of the caput of Article 1.368-D of Law No. 10.406, of January 10, 2002 (Civil Code), observed the regulation of the Securities and Exchange Commission, each class of shares will be considered as an investment fund for the purpose of applying the tax rules provided in the legislation. Additionally, CVM Resolution 175 establishes in §1 of Article 5 of the general rule that all classes must belong to the same category of the fund, and it is not permitted to establish share classes that alter the tax treatment applicable to the fund or to the other existing classes. In this way, is it correct to interpret that it is possible from October 1, 2024, the date of entry into force of the possibility for funds to have more than one class of shares, the establishment of classes with different tax treatments?

Answer: Correct, it is considered regular the establishment of share classes with different tax treatments as long as they belong to the same category of the fund (that is, funds regulated under the same normative annex of CVM Resolution 175). As an example, we cite the possibility of establishing within the same fund of the FIF category (financial investment fund), classes of shares of the type multimarket, fixed income and stocks within a Financial Investment Fund (FIF) structure, including that they may differ by being open or closed classes. In these hypotheses, the denomination of the fund will refer only to its category (FIF) and the denomination of each of the classes will refer to their respective types (multimarket, stocks, fixed income).

Annex I – Financial Investment Funds (FIFs)

2. Exemption from Submission of Information Sheets: basic information sheet and fund performance statement
   2.1. The current basic information sheet mixes asset and liability information, which makes it complex to adapt it to the reality of the new structure of classes and subclasses of RCVM 175. Moreover, the current layout of the file does not allow: (i) the reporting of the different fees due to service providers since it provides only a field for filling in the “management fee” and (ii) the correct filling of the 3 to 5 year scenarios for the provision of subclass profitability since the layout does not allow the breakdown by subclass. In this way, is it correct to interpret that funds, regardless of adaptation to RCVM 175, from the competence of October 1, 2024, are exempt from the monthly obligation to comply with item II, letter “d” of art. 24, item XIV, art. 2 and art. 5 of Annex I of the Resolution until the final deadline for adaptation to Resolution 175, as well as its publication at the time of the constitution of the funds on the CVM Web site?

Answer: Correct, funds regardless of adaptation to RCVM 175 are exempt from submitting the sheet starting from the competence of October 2024, without prejudice to a more detailed review of the reports considering the perspective of informational transparency and aligned with the study of the Economic Analysis, Risk Management and Integrity Advisory (ASA) which recommends a more in-depth discussion regarding the obligation to send this report recurrently to the regulator, as well as regarding its prescriptive format.

2.2. In the same way, the current layout of the performance statement is incompatible with the structure of classes and subclasses. Therefore, is it also correct to interpret that the statement regarding the competence of December/2024 until the final deadline for adaptation to Resolution 175 is exempt?

Answer: Correct, funds regardless of adaptation to RCVM 175 are exempt from submitting the performance statement starting from the competence of December/2024, without prejudice to a more detailed review of the reports considering the perspective of informational transparency and aligned with the study of the Economic Analysis, Risk Management and Integrity Advisory (ASA) which recognizes that the Performance Statement document has an unusual frequency and is also little known to the public.

3. Exemption from Limit per Issuer for FI-Infra Destined to Professional Investors
   CVM Resolution 175, in Article 60 of Normative Annex I, provides for a limit of 20% per issuer regarding the assets of Article 2 of Law 12.431 for the classes typified as “Infrastructure” (“FI-Infra”). This limit can be doubled for FI-Infra classes exclusively destined to qualified investors, in accordance with Article 75 of Normative Annex I. CVM Instruction 555, in its Article 129, V, exempts FI-Infra destined to professional investors from observing the concentration limit per issuer. However, although CVM Resolution 175 does not have a corresponding provision to Article 129, V, of CVM Instruction 555, we understand that the classes of FI-Infra destined to professional investors would continue to be exempt from said limit, given the general exemption from observing the limits per issuer of Article 76, I, of Normative Annex I of CVM Resolution 175. Is this understanding correct?

Answer: Yes, as long as provided in the regulation, the class of FI-Infra destined to professional investors is exempt from observing the concentration limit per issuer, provided in Article 60 of Normative Annex I.

Annex V – Index Funds

4. Exchange Contribution as an Expense of ETFs
   CVM Instruction 359 provided as an expense of index funds “the annual contribution due to stock exchanges or to the over-the-counter market entity in which the fund has its shares admitted to trading” (Article 61, VIII), however, with the transfer of the norm to Normative Annex V of CVM Resolution 175, this provision was suppressed. Considering that such transfer did not intend to materially alter the rules of CVM Instruction 359, can it be understood that the similar provision applies to index funds, provided in Article 117, XIV of the general part of CVM Resolution 175, by which they are expenses of the fund “the expenses inherent to: a) primary distribution of shares; and b) admission of shares to trading in an organized market”?

Answer: Yes. Although the provision in reference specifically mentions closed classes, it also applies to index funds, whose classes, although constituted in the form of an open condominium, can be traded in an organized market.

5. ETF that replicates an index whose portfolio is composed of futures contracts
   How should Article 41 of Normative Annex V of CVM Resolution 175 be interpreted, in the case of an ETF that replicates an index whose portfolio has futures contracts in its composition?

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

Answer: First of all, given that the theoretical portfolio of the underlying indices in question contains futures contracts in its composition, the interpretation to be given is that the requirement to maintain 95% of the assets of the Index Fund may, for the purposes of Article 41 of Normative Annex V of CVM Resolution 175, be fulfilled through exposure in the futures contracts that are components of the underlying index. Thus, given that only daily adjustments are accounted for in the net asset value of the Index Fund that invests in futures contracts, the best interpretation to be given to the aforementioned provision consists of considering that, at minimum, 95% of the net asset value of the ETF must have exposure in the futures contracts that make up the index it replicates.

In summary, for the purpose of verifying compliance with the minimum limit of 95% provided in Article 41 of Normative Annex V to CVM Resolution 175, the futures contracts provided for in item II of that device must be computed based on the current and potential exposure they cause on the fund's portfolio, that is, taking into account their respective notionals.