On June 25, 2014, the Brazilian Securities and Exchange Commission ("CVM") enacted CVM Ruling No. 549, effective June 24, 2014 ("CVM Ruling 549/14"), which partially amends CVM Rulings No. 409, as of August 18, 2004, and No. 391, as of July 16, 2004, and creates the Stock Investment Fund – Access Market (Fundo de Investimento em Ações – Mercado de Acesso) ("FMA").

The creation of the FMA is the result of CVM's efforts to improve the Brazilian regulatory environment for smaller companies, enabling them to access the capital markets and finance themselves by means of public offerings of shares. In this sense, FMA has features aimed at allowing investors to participate in the transition process from the pre to post initial public offering phases.

As an investment policy, FMAs must invest at least 2/3 of their net assets in shares issued by companies listed in securities trading segment focused on the access market (mercado de acesso). Within the São Paulo stock exchange (BM&FBovespa), the access market is currently represented by the Bovespa Mais.

Funds incorporated in the form of privately-held funds (condomínios fechados) will be allowed to invest up to 1/3 of their assets in securities issued by privately-held corporations that comply with minimum corporate governance standards (similar to those applicable to investment funds - fundos de investimento em participações). For this purpose, the FMA must have certain levels of involvement in the decision making process and management of invested companies, by adopting various mechanisms, among which: (a) appointment of members to the Board of Directors; (b) holding of shares of the controlling stake; or (c) execution of shareholders' agreements. So that the value of FMAs' quotas (cotas) representative of the funds' assets does not become outdated compared to the value of privately-held corporations (which have no market value), CVM Ruling 549/14 requires that privately-held corporations in which FMAs invest are evaluated every 12 months, at fair value (in accordance with rules issued by the CVM as to fair value assessment).

In addition, in order to provide managers (gestores) of FMAs with mechanisms to deal with the mismatch between the fair value of the quotas and their value in the secondary market, FMAs incorporated under the form of privately-held funds (condomínios fechados) are also authorized to repurchase quotas in case they are traded in the aftermarket below their book value. By giving liquidity to the quotas, the possibility to repurchase has the potential to stimulate negotiations in the secondary market.

Finally, as currently there is no variable income index that properly demonstrates the evolution of smaller companies, CVM Ruling 549/14 allows the charging of performance fees based on absolute returns (interest rates or inflation), an already well-known compensation structure in the private equity and venture capital industries. It also contains several provisions designed to protect investors from excessive performance fees.

By creating the FMA, CVM Ruling 549/14 complements a series of government measures to stimulate the Brazilian capital market, with the potential to play an important role in preparing companies for the stock market. By establishing such an important investment vehicle, CVM Ruling 549/14 is expected to promote the access of smaller companies to financing sources.

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