CVM Circular Letter 06/22

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. 6/2022
Rio de Janeiro, June 20, 2022

To the administrators of Market Index Investment Funds – Index Funds constituted under the terms of CVM Instruction No. 359 (“ETF”)

Subject: Interpretation of Article 14, Item II, of CVM Instruction No. 359, of January 22, 2002

Dear Sirs,

1. Item II of Article 14 of CVM Instruction No. 359, of January 22, 2002, establishes that it is prohibited for the administrator of Index Funds to take out or effect loans, except as provided in Articles 12 and 60 of the same Instruction1.

2. According to the supervisory experience of this technical area, in the loan market, operations in which the ETF acts as a borrower can primarily serve two objectives:

i. To admit a short position in an asset with the aim of obtaining a result from the price drop of the underlying asset; or

ii. To address operational failures or mismatches in the settlement periods of spot market operations, with the purpose of avoiding the failure to deliver assets to its counterparty.

3. The express prohibition in CVM Instruction No. 359 aims to ensure that such funds replicate the variations and profitability of the reference index, without there being, therefore, a directional position contrary to any of the assets comprising the index.

4. On the other hand, borrowing operations that aim to anticipate the availability of an asset sold due to adjustments in the fund's portfolio to meet redemptions or index rebalancing do not characterize a directional position opposite to that of the fund's portfolio and, therefore, do not conflict with the objective of the prohibition provided for in the aforementioned instruction.

5. In this sense, this technical area clarifies its interpretation that loans of assets carried out by ETFs, as borrowers, with the aim of avoiding delivery failures with clearing and settlement chambers maintained by securities markets regulated by the CVM are not prohibited.

6. We recommend, as is customary, that the evidence justifying the need for the loan operation be archived and kept available for CVM inspection.

Sincerely,

1 Article 12 refers to the free lending of the securities that make up the fund's portfolio to the fund's unitholders for the exercise, directly by them, of the right to vote in general meetings. Article 60, in turn, authorizes the fund to carry out lending operations of the securities that make up its portfolio, in the manner regulated by the CVM and according to the limit and conditions established in the bylaws.

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