Brazilian Market Index Investment Funds May Invest In International Exchange Traded Funds (ETF)?

On November 12, 2012, the Supervision of Relations with Institutional Investors (Superintendência de Relações com Investidores Institucionais) of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) issued Directive Release (Ofício-Circular) CVM/SIN/No. 5/2012, dated November 7, 2012, addressed to the administrators of Brazilian Market Index Investment Funds (Index Funds), also known abroad as Exchange Traded Funds (ETFs), governed by CVM Instruction No. 359, of January 22, 2002 (CVM Instr. 359/2002), about domestic Index Funds that invest in International ETFs.

By force of CVM Instr. 359/2002, domestic Index Funds cannot invest in units (cotas) of ETFs incorporated in other jurisdictions.

The Index Fund is organized as an open-end joint ownership, whose resources are intended for investment in securities portfolio that seek to replicate the variations and profitability of a reference index for an indefinite period of time. For this purpose, reference index means a specific market index recognized by CVM, with which the investment policy of the Index Fund is associated.

Payment and redemption of fund units may only be made by a tender of securities that compose the reference index, pro rata to such composition. The fund bylaws may specify minimum or maximum lot of securities for the purpose of issuance or redemption of units, based on the theoretical portfolio of the reference index.

The Index Fund will maintain at least 95% of its resources invested in securities or other variable income assets authorized by CVM, in the same proportion in which they appear in the reference index, or in positions purchased in the reference index futures market, so as to reflect the variations and profitability of such index. The total margin guarantees required of the Index Fund in transactions involving derivatives may not exceed 20% of the fund´s net asset value. The Index Fund may enter into swap agreements with third parties containing a mark-to-market settlement provision, covering the difference in profitability between the fund and the reference index.

Funds in excess of the minimum investment specified in the preceding paragraph (95%) may be invested in: (i) governmental securities issued by the Brazilian Treasury of the Central Bank of Brazil (Banco Central do Brasil – Bacen); (ii) fixed-income securities issued by financial institutions; (iii) units of a financial investment fund (fundo de investimento...