CVM Instruction 522 of May 8, 2012

FULL TEXT OF CVM INSTRUCTION NO. 522, OF MAY 8, 2012, WITH CHANGES INTRODUCED BY CVM INSTRUCTION NO. 524/12

Amends CVM Instruction No. 409, of August 18, 2004.

THE PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION - CVM makes public that the Board, in a meeting held on March 28, 2012, in accordance with the provisions of arts. 2, item V and § 3 and 8, item I, of Law No. 6.385, of December 7, 1976, APPROVED the following Instruction:

Art. 1 The arts. 2, 8, 16, 30 and 36 of CVM Instruction No. 409, of August 18, 2004, shall enter into force with the following wording:

“Art. 2 .............................................. ............................................................. § 2 Financial assets whose settlement may occur through the delivery of products, goods or services shall: .............................................................”(NR)

“Art. 8 ............................................. ............................................................. VI – registration of the fund in the CNPJ; VII – standardized form with the basic information of the fund, according to the model available on the CVM website, duly filled out; and VIII – brochure prepared in accordance with Annex III of this Instruction, in the case of an open fund that is not intended exclusively for qualified investors.

Sole Paragraph. Items 5, 7, 8 and 9 of Annex III of this Instruction are exempt from presentation in the fund registration request instruction and until the fund completes 1 (one) year of operation.”(NR)

“Art. 16. In exceptional cases of illiquidity of the financial assets comprising the fund's portfolio, including as a result of redemption requests incompatible with the existing liquidity, or that may imply a change in the tax treatment of the fund or of the set of unitholders, to the detriment of the latter, the administrator may declare the closure of the fund for the purpose of redemptions, being mandatory the convening of an Extraordinary General Meeting, within a maximum period of 1 (one) day, to deliberate, within a period of 15 (fifteen) days, counting from the date of the closure for redemption, on the following possibilities: ............................................................. III – possibility of payment of redemption in financial assets; ............................................................. § 5 It is incumbent upon the administrator to take the necessary measures so that the hypotheses described in the caput do not occur as a result of the physical liquidation of the fund's financial assets, as provided for in item I of § 2 of art. 2.”(NR)

“Art. 30. ............................................ I – received: a) the bylaws; and b) the brochure, if any. ............................................................. § 2 The administrator must deliver to the unitholder the current version of the bylaws and the updated brochure.

§ 3 The administrator must make available to unitholders an updated version of the fund's prospectus.”(NR)

“Art. 36. ............................................. I – the supply to clients of brochures, bylaws and terms of adherence, to be mandatorily forwarded by administrators to intermediaries, for this purpose; .............................................................”(NR)

Art. 2 Section IV-A, consisting of arts. 38-A to 38-H, is added to Chapter III of Instruction No. 409, of 2004, with the following wording:

“Section IV-A General Rules on Information Disclosure

Art. 38-A. The information disclosed by the administrator regarding the fund must be true, complete, consistent and must not mislead the investor.

Art. 38-B. All information regarding the fund must be written in simple, clear, objective and concise language.

Art. 38-C. The disclosure of information about the fund must be comprehensive, equitable and simultaneous for all unitholders.

Art. 38-D. The information provided must be useful for the evaluation of the investment.

Art. 38-E. Information regarding the fund cannot assure or suggest the existence of a guarantee of future results or exemption from risk for the investor.

Art. 38-F. Factual information must be differentiated from interpretations, opinions, projections and estimates. Sole Paragraph. Factual information must be accompanied by the indication of its sources.

Art. 38-G. This section applies to the prospectus, the brochure and any other fund disclosure material.

Art. 38-H. If the disclosed information presents inaccuracies or improprieties that may mislead the investor in their evaluation, the CVM may demand: I – the cessation of the disclosure of the information; and II – the broadcasting, with equal prominence and through the medium used to disclose the original information, of corrections and clarifications, which must expressly state that the information is being republished by order of the CVM.”(NR)

Art. 3 Art. 40 of CVM Instruction No. 409, of 2004, shall enter into force with the following wording:

“Art. 40. .............................................. ............................................................. II – investment policy and asset allocation ranges, discriminating its analysis and selection process; ............................................................. X – risk management policy, with the description of the methods used by the administrator to manage the risks to which the fund is subject, including liquidity risk; ............................................................. XII – policy regarding the exercise of voting rights arising from financial assets held by the fund; ............................................................. § 2 The fund that intends to carry out operations that may result in patrimonial losses or, in particular, lead to the occurrence of negative net equity, must insert on the cover of its prospectus, clearly, legibly and prominently, one of the following warnings, according to the case: I – "This fund uses strategies that may result in significant patrimonial losses for its unitholders."; or II – "This fund uses strategies that may result in significant patrimonial losses for its unitholders, possibly even resulting in losses greater than the capital applied and the consequent obligation of the unitholder to inject additional resources to cover the fund's loss". ............................................................. § 6 Funds that use the prerogative referred to in § 3 of art. 10 must mention in the prospectus, as an indication of the risks assumed by the fund referred to in item IX of the caput of this article, the possibility of losses resulting from volatility in the prices of the financial assets that make up its portfolio. .............................................................”(NR)

Art. 4 Section VI, consisting of arts. 40-A to 40-C, is added to Chapter III of Instruction No. 409, of 2004, with the following wording:

“Section VI On the Essential Information Brochure

Art. 40-A. The administrator of an open fund that is not intended exclusively for qualified investors must prepare an essential information brochure in the form of Annex III to this Instruction. Sole Paragraph. It is optional for the administrator of the fund to format the brochure freely provided that: I – the order of the information is maintained; II – the content of Annex III is not modified; III – the logos and formatting do not hinder the understanding of the information; and IV – any additional information: a) are added at the end of the document; b) do not hinder the understanding of the information contained in the brochure; and c) are consistent with the content of the brochure and the prospectus.

Art. 40-B. The brochure must be updated monthly until the 10th (tenth) day of each month with data relating to the immediately preceding month. Sole Paragraph. The fund administrator must send the brochure to the CVM, through an electronic system available on the CVM website, whenever it is updated, on the same date of its update.

Art. 40-C. The administrator must: I – deliver the brochure to the future unitholder before their entry into the fund; and II – disclose, in a prominent place on its website and without password protection, the updated brochure.

Art. 5 Arts. 41, 42, 44, 56, 60, 61, 64, and 65 of CVM Instruction No. 409, of 2004, shall enter into force with the following wording:

“Art. 41. ........................................ ........................................................ XVI – policy regarding the exercise of voting rights arising from the financial assets held by the fund; ............................................................... XVIII – risk management policy, with the description of the methods used by the administrator to manage the risks to which the fund is subject, including liquidity risk. § 1 .............................................. I – the maximum percentage of investment in financial assets issued by the administrator, manager or a company affiliated with them, observed the provisions of art. 86 of this Instruction; ............................................................... III – the maximum percentage of investment in financial assets of the same issuer, observed the limits of art. 86 of this Instruction; and ............................................................”(NR)

“Art. 42. The administrator may directly allocate to unitholders the amounts attributed to the fund as dividends, interest on equity or other income arising from financial assets that make up its portfolio, provided that this is expressly authorized by the bylaws.”(NR)

“Art. 44. .............................................. I – copy of the bylaws, consolidating the changes made; II – updated prospectus, if applicable; and III – updated brochure, if applicable.”(NR)

“Art. 56 ......................................... § 1 ................................................ ........................................................ III – treasury activities, control and processing of financial assets; ........................................................ VI – custody of financial assets; and ............................................................... § 2 Portfolio management of the fund is the professional management, as established in its bylaws, of the financial assets comprising it, carried out by a natural or legal person accredited as a securities portfolio administrator by the CVM, having the manager powers to: I – trade, in the name of the investment fund, the financial assets of the fund; and II – exercise the voting rights arising from the financial assets held by the fund, carrying out all other actions necessary for such exercise, observed the provisions of the fund's voting policy.”(NR)

“Art. 60. Purchase and sale orders for financial assets must always be issued with the precise identification of the investment fund in whose name they must be executed. .............................................................”(NR)

“Art. 61. ............................................. ............................................................. § 2 The fees provided for in the caput cannot be increased without prior approval of the general meeting, but may be reduced unilaterally by the administrator, who must communicate this fact, immediately, to the CVM and to the unitholders, promoting the appropriate alteration in the bylaws and, if applicable, in the brochure and prospectus. ............................................................. § 5 ..................................................... I – the prospectus must highlight both fees, clarifying their distinction; and .............................................................”(NR)

“Art. 64. ............................................. ............................................................. Sole Paragraph. Investment funds may use their assets to provide guarantees for their own operations, as well as to lend and borrow financial assets in loans, provided that such loan operations are carried out exclusively through a service authorized by the Central Bank of Brazil or by the CVM.”(NR)

“Art. 65. ............................................. ............................................................. X – to cover expenses with the preparation and distribution of the fund's disclosure material, including the prospectus and the brochure; .............................................................”(NR)

Art. 6 Section IV-B, consisting of art. 65-B, is added to Chapter VI of Instruction No. 409, of 2004, with the following wording:

“Section IV-B Liquidity Risk Management

Art. 65-B. The administrator must adopt the internal policies, practices and controls necessary so that the liquidity of the fund's portfolio is compatible with: I – the deadlines provided for in the bylaws for the payment of redemption requests; and II – the fulfillment of the fund's obligations. § 1 The internal policies, practices and controls referred to in the caput must take into account, at minimum: I – the liquidity of the different financial assets of the fund; II – the obligations of the fund, including expected margin deposits and other guarantees; III – the expected redemption values under ordinary conditions, calculated with consistent and verifiable statistical criteria; and IV – the degree of dispersion of share ownership. § 2 The administrator must subject the fund's portfolio to periodic stress tests with scenarios that take into account, at minimum, liability movements, asset liquidity, obligations and the fund's pricing. § 3 The periodicity referred to in § 2 of this article must be adequate to the characteristics of the fund, the historical variations of the scenarios chosen for the test, and the prevailing market conditions. § 4 The criteria used in the preparation of the internal liquidity policies, practices and controls, including in stress scenarios, must be consistent and verifiable. § 5 If the fund invests in shares of other investment funds, the administrator must diligently evaluate the liquidity of the invested fund, considering, at minimum: I – the invested volume; II – the redemption payment rules of the invested fund; and III – the liquidity management systems and tools used by the administrator and manager of the invested fund. § 6 The provisions of this article do not apply to closed funds.”(NR)

Art. 7 Arts. 68 and 71 of CVM Instruction No. 409, of 2004, shall enter into force with the following wording:

“Art. 68. ............................................. ............................................................... III – make the fund's information available, including those relating to the composition of the portfolio, at least in the terms of art. 71 regarding the periodicity, deadline and content of the information, in an equitable manner among all unitholders; IV – send to unitholders of funds not intended exclusively for qualified investors the fund's performance statement, until the last business day of February of each year; and V – disclose, in a prominent place on its website and without password protection, item 3 of the fund's performance statement relating to: a) the 12 (twelve) months ended on December 31, until the last business day of February of each year; and b) the 12 (twelve) months ended on June 30, until the last business day of August of each year. ............................................................. § 4 The performance statement provided for in items IV and V must: I – be prepared for all open funds in operation for at least 1 (one) year on the base date to which the performance statement refers; and II – be produced according to the model contained in Annex IV. § 5 It is optional for the fund administrator to format the performance statement freely provided that: I – the order of the information is maintained; II – the content of Annex IV is not modified; III – the logos and formatting do not hinder the understanding of the information; and IV – any additional information: a) are added at the end of the document; b) do not hinder the understanding of the information contained in the performance statement; and c) are consistent with the content of the performance statement and the prospectus. § 6 Funds that make applications in other investment funds must add to their own expenses the expenses of the invested funds. § 7 For the purposes of § 6, the funds: I – must consider the value of the last expenses disclosed by the invested fund according to item V of the caput proportionally to the invested amounts and application periods; and II – are exempt from consolidating the expenses of the invested funds when these are not obliged to disclose them regarding the semester prior to the base date of the performance statement. § 8 If there are relevant divergences between the values presented in the performance statement and those that would have been calculated for the same period based on the audited accounting statements, the administrator must send a corrective statement to unitholders within 15 business days of the sending of the independent auditors' report to the CVM, without prejudice to the disclosure of a relevant fact in accordance with art. 72.”(NR)

“Art. 71. ............................................. ............................................................. § 2 When the fund adopts a policy that provides for the exercise of voting rights arising from the financial assets held by the fund, the monthly profile must include: a) a summary of the content of the votes cast in the period to which the profile refers; and b) a brief justification of the vote cast or the brief reasons for eventual abstention or non-exercise of the voting right.”(NR)

“Art. 72. The administrator is obliged to immediately disclose, by correspondence to all unitholders and by communication through the Document Submission System available on the CVM website, any act or relevant fact occurred or related to the functioning of the fund or to the financial assets comprising its portfolio. .............................................................”(NR)

Art. 8 Section III of Chapter VII of Instruction No. 409, of 2004, shall enter into force with the following wording:

“Section III Disclosure Material

Art. 73. Any fund disclosure material must: I – be consistent with the prospectus, when available, and the bylaws; II – be prepared in a calm and moderate language, warning its readers of the risks of the investment; III – be identified as disclosure material; and IV – mention the existence of the brochure and the prospectus, when available, as well as the addresses on the worldwide web where such documents can be obtained.

Art. 74. [revoked]. ............................................................. Art. 79-A. This section does not apply to the brochure.”(NR)

Art. 9 Arts. 85, 93, 94, 95-B, 97, 98, 99, 100, 103, 110, 115 and 117 of CVM Instruction No. 409, of 2004, shall enter into force with the following wording:

“Art. 85. The fund must maintain its assets applied in financial assets, as defined in art. 2, in the terms established in its bylaws, observed the limits referred to in this Instruction. .............................................................”(NR)

“Art. 93. ............................................. § 1 The private securities referred to in the caput must be considered low credit risk by the administrator and the manager. .............................................................”(NR)

“Art. 94. ............................................. I – ........................................................ ............................................................. b) fixed income financial assets considered low credit risk by the administrator and the manager; .............................................................”(NR)

“Art. 95-B. ......................................... § 1 ..................................................... I – 67% (sixty-seven percent), at minimum, of its net equity shall be composed of the following financial assets: ............................................................. § 2 Without prejudice to the provisions of the caput, the investment in the financial assets listed in item I of § 1 shall not be subject to concentration limits by issuer, provided that the bylaws and the prospectus, when available, contain, prominently, a warning that the fund may be exposed to significant concentration in financial assets of few issuers, with the risks arising therefrom. .............................................................”(NR)

“Art. 97. ............................................. ............................................................. § 3 The investment in financial assets listed in item I of § 1 of art. 95-B by the funds referred to in this article shall not be subject to concentration limits by issuer, provided that the bylaws and the prospectus contain, prominently, a warning that the fund may be exposed to significant concentration in assets of few issuers, with the risks arising therefrom.”(NR)

“Art. 98. ............................................. ............................................................. II – the bylaws and the prospectus shall contain, prominently, a warning that the fund is subject to the risk of substantial loss of its net equity in case of events that result in the non-payment of the financial assets comprising its portfolio, including by force of intervention, liquidation, temporary administration regime, bankruptcy, judicial or extrajudicial reorganization of the issuers responsible for the fund's assets; and .............................................................”(NR)

“Art. 99. ............................................. ............................................................. VIII – expenses related, directly or indirectly, to the exercise of voting rights arising from financial assets of the fund; .............................................................”(NR)

“Art. 100. Any expenses not provided for as charges of the fund, including those related to the preparation of the prospectus and brochure, shall be borne by the administrator, who must contract them.”(NR)

“Art. 103. ........................................... ............................................................. III – proof of entry of the request for deregistration in the CNPJ of funds closed by merger or incorporation; and IV – brochure duly updated, when applicable. ..........................................”

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