The activities of the autonomous agents (agentes autônomos de investimento) in Brazil are regulated by CVM Instruction No. 497, of June 3, 2011 (CVM Instr. 497/2011). On December 29, 2011, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) issued CVM Instruction No. 515 (CVM Instr. 515/2011), which amends paragraph 2 of article 13 of CVM Instr. 497/2011, and also added a new paragraph in the same article. The reasons behind the enactment of CVM Instr. 515/2011 are outlined herein.
Pursuant to item I of article 13 of CVM Instr. 497/2011, the autonomous agent is prohibited to enter into a contract as service provider with more than one institution of the Brazilian securities distribution system1. Therefore, there is an obligation of exclusive contractual relationship with a single intermediary. Originally, paragraph 2 of article 13 established that this restriction2 did not apply only to the autonomous agent that performs exclusively the distribution of units (cotas) of investment funds for qualified investors3.
Since the adoption of the above-mentioned rule, CVM received comments on this point of various market participants individually and also by means of the Brazilian Association of Entities of the Financial and Capital Markets (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais – ANBIMA)4. There was a consensus that it would be necessary to extend the exception for the distribution of units of investment funds to the investors in general. Although the exception has been established from the recognition that nowadays a large part of the investment funds created by independent managers is targeted to qualified investors, CVM concluded that there are indeed other aspects to be considered, in particular in view of the recent development of that market. These other aspects are commented below.
First there is a need to diversify the distribution structures for the funds industry in general and not only with respect to products intended for qualified investors. Increasingly independent managers also seek to create retail investment funds, in response to the growing investor demand for more competitive products.
Often these independent managers do not have their own distribution structures. In addition, it is common that they maintain relationships with more than one administrator institution, being these administrator institutions responsible to formally hire the distribution of the investment funds that they administrate. The rule of exclusivity, as it was initially formulated by CVM, could cause the distribution of products developed by the same independent manager to mandatorily occur through different distributors, linked to different administrator institutions of the investment funds of such independent manager, in an unreasonable fragmentation.
Another point that was taken into account by CVM is that, with the relatively small number of institutions that act as administrators, the rule of exclusivity could generate an even greater effect of concentration of the investment fund industry, crystallizing the current structure of the market.
Last but not least, CVM also recognized that the distribution of investment funds is subject to risks other than those which are inherent to the direct realization of operations on the securities market, either because of the own dynamic of the Stock Exchange transactions or the process of distribution of investment funds, which is associated with proper control mechanisms and documentation, already consolidated, in a distinct level of that of the distributor. The responsibilities of the administrator in the latter case are much better understood by the market agents. Many behavioral patterns that CVM wants to prevent with the rule of exclusivity do not exist in the market for investment funds.
On strengthening the request of modification and improvement of the existing regulations submitted by ANBIMA to CVM, ANBIMA decided to intensify its activities of self-regulation and oversight with respect to the distribution of investment funds. In this regard ANBIMA is not just including specific provisions in chapter XI of the ANBIMA Code Regulation and Best Practices for Investment Funds (Código ANBIMA de Regulação e Melhores Práticas – Fundos de Investimento), as well as developing a suitable supervision program which is being accompanied by CVM.
Accepting the reasonableness of the request of ANBIMA, CVM has decided to promote these changes in Instr. CVM 497/2011, which comprise: (i) the adjustment of the wording of paragraph 2 of article 13 to cover all investment funds, as described above; and (ii) the inclusion of a new paragraph 3 in the same article 13, reiterating that the contracting parties will be required to establish appropriate control mechanisms and to undertake the supervision of the activities of the autonomous agents. The non-exclusivity applies not only to the distribution of units of all investment funds but it is also allowed when the distribution of investment funds is made on a non-exclusive basis simultaneously with the distribution of products in the Stock Exchange (which must be exclusive), without bringing new risks to the market participants.
1 According to the provisions of article 15 of Law nº 6.385, of December 7, 1976 (which governs the Brazilian securities market and creates CVM), the participants of the Brazilian securities distribution system are the following: (i) financial institutions and other corporations engaged in the activity of distributing securities issues: (a) as agents of the issuing corporation; or (b) for their own account, underwriting or purchasing the issue in order to place it on the market; (ii) corporations engaged in the activity of purchasing securities available on the market, in order to resell them for their own account; (ii) corporations and independent agents engaged in intermediation activities in the trading of securities, on Stock Exchanges or the Over-The-Counter (OTC) market; (iv) Stock Exchanges; (v) organized OTC markets; (vi) commodities brokers, special operators and the commodities and futures exchanges; and (vii) securities clearing and settlement entities.
2 This exception was created because of the difficulties that the independent managers would have to distribute the products developed by them, since the distribution ends up being hired by administrators of investment funds. In addition, as CVM was more concerned with the protection of retail investors and with the improvement of the exchange product distribution practices, this exception was not contradictory to the regime adopted by CVM.
3 The following investors are deemed to be qualified investors: (i) financial institutions; (ii) insurance companies and capitalization societies; (iii) private welfare opened or closed capital organizations; (iv) individuals or legal entities that hold financial investments in an amount superior to R$ 300 thousand, attest in writing their qualified investor condition; (v) all investment funds, regardless as to whether they are directed exclusively to qualified investors or not. This means that investment funds destined to non-qualified investors are also considered qualified investors; (vi) portfolio administrators and securities consultants authorized by CVM, in relation to their own monies; and (vii) own social security regimes instated by the Federal Government, by the States, by the Federal District or by Municipalities.
4 ANBIMA is the main representative of the entities operating in the Brazilian financial and capital markets and its aim is to strengthen the domestic financial and capital markets as an instrument for fostering Brazilian development.
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