The Brazilian Stock Investment Funds - Market Access

On June 24, 2014, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM) issued CVM Instruction No. 549 (CVM Instr. 549/2014), amending CVM Instruction No. 409, of August 18, 2004 (CVM Instr. 409/2004), that regulates the incorporation, administration, operation and disclosure of information on investment funds.

CVM Instr. 549/2014 allows the creation of the so-called Stock Investment Fund - Market Acess (Fundo de Investimento em Ações - Mercado de Acesso - FMA), which is an investment fund in stocks with the most appropriate structure for the purchase of shares of smaller companies of less liquidity, in order to participate more easily in the process of transition between the pre and post Initial Public Offering (IPO) phases.

The investment policy of these FMAs must provide that at least 2/3 of the net worth of the Fund is invested in shares of companies listed on the securities trading segment voted to market access established by a stock exchange or an entity of the organized over-the-counter (OTC) market that ensures differentiated corporate governance practices through a contractual link. This type of Fund must use in its name the term in Portuguese "Ações - Mercado de Acesso" which means "Stock - Market Access".

Regardless of whether they are structured as open-end or closely-end funds, the FMAs will have 180 days to achieve the concentration limits by issuer and by modality of asset set out in their respective regulations.

The relevant aspects of the FMAs contemplated in CVM Instr. 549/2014 are outlined herein.

1. Investment in Closely-Held Corporations

   When incorporated in the form of a closely-end condominium, the FMA may invest up to 1/3 of its net worth in the acquisition of shares, debentures, subscription bonus or other securities convertible into or exchangeable for shares issued by closely-held corporations, provided that the FMA must: (i) participate in the decision-making processes of the invested company, with effective influence in the definition of its strategic policies and management, particularly by: (a) appointing members of the invested company's Board of Directors (Conselho de Administração); (b) the holding of shares that integrate the respective control block; (c) the signing of a shareholders' agreement; or (d) the signing of another contract or the adoption of a procedure which ensures that the FMA has an effective influence in defining its strategic policy and management; and (ii) solely invest in closely-held corporations that comply with the following corporate governance practices: (a) prohibition to issue Profits Participation Certificates (Partes Beneficiarias) and the inexistence of such securities in the market; (b) establishment of an unified term of office of two years to all the members of the Board of Directors; (c) to make available shareholders' agreements and programs for the acquisition of shares or other securities issued by the invested company and disclosure of information on...