Proposal Of A Change In The Definition/Concept Of 'Qualified Investors'

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...