On December 9, 2014, the Board of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) decided to amend the definition of "qualified investor" (investidor qualificado) and create a new category of investor named "professional investor" (investidor professional), popularly known as "overqualified investor" (investidor superqualificado). The changes analyzed herein are contained in CVM Instruction No. 554 of December 17, 2014 (CVM Instr. 554/2014) and will come into full force and effect on July 1st, 2015.
On the same date (December 17, 2014), CVM also issued CVM Instruction No. 555 (CVM Instr. 555/2014) that governs the incorporation, management, operation and disclosure of information of investment funds (fundos de investimento), including restricted funds (those funds exclusively dedicated to qualified or professional investors and pension funds), and revokes CVM Instruction No. 409, of August 18, 2004 (CVM Instr. 409/2004), that formerly regulated investment funds1. These restricted funds are beyond the scope of this article.
I. Introduction
Regarding the different categories of investors, the definition of "qualified investor" was transferred from CVM Instr. 409/2004 to CVM Instruction No. 539, of November 13, 2013 (CVM Instr. 539/2013), that provides for the duty of checking the suitability of the products to the customer profile. Article 109 of CVM Instr. 409/2004 considered qualified investors the following entities: (i) financial institutions; (ii) insurance companies and capitalization societies; (iii) private welfare opened or closed capital organizations; (iv) individuals or legal entities that hold financial investments in an amount superior to R$ 300 thousand and that additionally attest in writing their qualified investor condition according to an own term, set forth in Annex I to CVM Instr. 409/2004; (v) investment funds directed exclusively to qualified investors; (vi) portfolio administrators and securities consultants authorized by CVM in relation to their own monies; and (vii) own social security regimes instated by the Federal Government (the Union), the States, the Federal District or the Municipalities.
In this process, CVM sought to standardize and to update the definition of investor that CVM believes to have ability to analyze complex investment structures.
II. Categories of Investors
Pursuant to CVM Instr. 554/2014, investors are classified into different categories according to the criterion of equity, covering both individuals and legal entities, as follows: (i) qualified investors - when they hold financial investments exceeding R$ 1 million; and (ii) professional investors - when they hold financial investments exceeding R$ 10 million.
These values are the result of estimates of: (a) the assets from which it makes sense for the average investor to dedicate part of his/her/its time to the relevant administration of his/her/its investments and thus have a better knowledge of the capital market; and (b) the minimum equity that allows the investor to have access to service providers who can assist him/her/it in the administration of his/her/its resources.
All investments funds (fundos de investimento) are deemed to be professional investors2. This change seems adequate because investment decisions on behalf of the investment fund are taken by the administrator of the securities´ portfolio registered with CVM. The administrator must have in-depth knowledge of the capital market and act in the best interest of the unit holders (cotistas).
Own social security regimes (regimes próprios de previdência social) established by the Union, the States, the Federal District or the Municipalities will be considered as qualified or professional investors only if they obtain specific certification, yet to be created, granted by the Ministry of Social Security. If they do not get such certification, such own social security regimes will be considered as retail investors.
Professional investors are persons who work daily in the financial market or that, due to their high net worth, can hire service providers able to assist them in investment decisions involving a broad universe of assets.
Qualified investors, in turn, include the professional investors and certain other persons that need regulatory protection greater than that of the professional investors.
As a result of the new CVM regulation, the following entities are considered professional investors3: (i) financial institutions and other institutions authorized to operate by the Central Bank of Brazil (Banco Central do Brasil - Bacen); (ii) insurance companies and capitalization societies; (iii) private welfare opened or closed capital organizations; (iv) individuals or legal entities that hold financial investments in an amount superior to R$ 10 million and that additionally attest in writing their qualified investor condition according to an own term, set forth in Annex 9-A to CVM Instr. 539/2013; (v) investment funds; (vi) investment clubs, provided they have the portfolio managed by a securities´ portfolio administrator authorized by CVM; (vii) autonomous investment agents and securities´ portfolio administrators, analysts and consultants authorized by CVM in relation to their own monies; and (viii) non-resident investors.
And the following entities are considered qualified investors4: (i) professional investors; (ii) individuals or legal entities that hold financial investments in an amount superior to R$ 1 million and that additionally attest in writing their qualified investor condition according to an own term, set forth in Annex 9-B to CVM Instr. 539/2013; (iii) individuals that have been approved in examinations of technical qualification or who have certifications approved by CVM as requirements for the registration of autonomous investment agents and securities´ portfolio managers, analysts and consultants, in relation to their own monies; and (iv) investment clubs, provided they have their portfolio managed by one or more unit holders, that must be qualified investors.
Own social security regimes instated by the Union, the States, the Federal District or the Municipalities may also be deemed professional or qualified investors, provided they are recognized as such as per the specific regulation issued by the Ministry of Social Security5.
The new regulation also permits to incorporate a Real Estate Investment Fund (Fundo de Investimento Imobiliário – FII) destined exclusively to qualified investors. The qualified investor status must be verified: (i) by the administrator in the act of subscription of the units (cotas) of the FII; and (ii) by the intermediary in trading on the secondary market6. The loss of status as a qualified or professional investor does not imply the impossibility of the investor to sell the securities on the regulated market, or the exclusion of the unit holder of the FII. CVM does not intend to prohibit trading of certain securities by investors who are not deemed to be qualified or professional investors.
Public offerings distributed with restricted efforts must be intended solely to professional investors, as defined in a specific regulation, and made through members of the securities distribution system. In public offerings distributed with restricted efforts, it will be allowed to seek a maximum of 75 professional investors, and the securities offered must be subscribed or purchased for no more than 50 professional investors. The offered securities can only be traded between qualified investors, as defined in a specific regulation7.
1 The Brazilian investment funds have been simplified and are now classified into only four categories, depending on the types of financial assets in which they invest, as follows: (i) Fixed Income (Renda Fixa); (ii) Equities (Ações); (iii) Foreign Exchange (Cambial); and Multimarket (Multimercado).
2 This means that not only the investment funds exclusively destined to qualified or professional investors are classified into the category of professional investor.
3 The definition of professional investor is contemplated in the new wording of article 9-A of CVM Instr. 539/2013, introduced by CVM Instr. 554/2014.
4 The definition of qualified investor is now set forth by the new wording of article 9-B of CVM Instr. 539/2013, contemplated by CVM Instr. 554/2014.
5 This provision is contained in the new wording of article 9-C of CVM Instr. 539/2013, introduced by CVM Instr. 554/2014.
6 Article 14 of CVM Instr. 554/2014 contemplates the new wording of articles 53 and 54 of CVM Instruction No. 472, of October 1st, 2008 that governs the incorporation, management, operation, public offering distribution of units and disclosure information of FII.
7 These rules have been introduced by article 15 of CVM Instr. 554/2014, which approved the new wording of articles 2, 3 and 15 of CVM Instruction No. 476, of January 16, 2009, that regulates public offerings distributed with restricted efforts and the trading of these securities in the regulated markets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
