This year, the Brazilian Securities and Exchange Commission ("CVM") presented to a public hearing a draft of an Instruction that proposes to change the definition of the category of "Qualified Investors" of Instruction Nº 409 of CVM, dated of August 18th 2004 ("CVM Instruction 409″), which provides rules for investment funds, related to CVM Instruction Nº. 539, dated of November 13th 2013 ("CVM Instruction 539″).

With this proposal, the definition of "Qualified Investor" of the article 109 of CVM Instruction 409 has suffered a rupture, yielding two concepts of investors: (i) the Professional Investors, defined as people who have investments greater than R$ 20 million and that act directly in the financial market or that due to a great amount of equity, may hire service providers that are able to assist them in make decisions to diversify their investments; and (ii) Qualified Investors, represented by the people who have investments greater than R$ 1 million and that requires a broader regulatory protection than the professional investors do.

According to the draft, in addition to individuals or legal entities that have investments of more than R$ 20 million, the following will be considered included in the definition of Professional Investors: (i) financial institutions and other institutions authorized to operate by the Central Bank of Brazil; (ii) the insurance and capitalization companies; (iii) the pension funds, (iv) investment funds; (vi) independent investment agents, investment portfolio managers, analysts and securities consultants authorized by CVM, regarding their own investments; and (vii) non-resident investors. Qualified investors, in its turn, does include Professional Investors and some other persons who need a greater regulatory protection than the Professional Investors do.

On the other hand, the concept of Qualified Investors extends to the following cases: (i) Professional Investors, (ii) individuals or legal entities that have investments of more than R$ 1 million; and (iii) social security systems introduced by the States themselves, by the Federal District or by Municipalities that are recognized as Qualified Investors according to specific regulations of the Department of Social Security Policies.

Thus, besides the creation of the concept of Professional Investors and the alteration of the concept of Qualified Investors, the draft amends the equity criterion, no longer using the value of R$ 300,000 for its threshold and taking into account estimates of (i) a minimum amount of equity that would allow these investors to have access to service providers to assist them in managing their resources and (ii) equity value that would make sense that an average investor devote significant portion of his time to the administration of his financial investments and thus begin to better understand the capital market.

Additionally, CVM also proposed the removal of rules that require minimal investment in securities. There will be a category of "Overqualified" investors (which will be called professional, as explained above) and the category of "Qualified Investors", which will be updated according to the Brazilian current economic reality. The recent CVM regulation on the obligation to check the suitability of the products to customer's profile also takes further the decision to abolish the rule of minimum investment in certain securities.

The public hearing received many proposals for adjustments/amendments to the draft, most of them requesting the reduction of the values of investments that are considered to objectively qualify the Professional Investor and Qualified Investor, because the way they were proposed will greatly restrict access of such investors to operations and products in the capital market.

There has not been the publication of the normative instruction that will address the issue definitely, but we believe it is essential to define carefully the threshold values purposes of the definitions of Professional Investor and Qualified Investors, in a way to have an update of such values, but without the imposition of a restriction to access the market, which in a long-term could harm most investors and discourage potential new investments.

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