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CVM issues Rule No. 598 establishing new rules applicable to securities analysts

Capital Markets

On May 3, 2018, the Brazilian Securities Commission ("CVM") issued Rule No. 598 ("CVM Rule No. 598") which revokes CVM Rule No. 483, dated July 6, 2010, as amended (“CVM Rule No. 483”), and establishes new standards for the activity of securities analysts.

CVM Rule No. 598 is part of a recent effort by CVM to clarify its rules concerning the activities carried out by different service providers in the securities markets, such as fiduciary administrators, portfolio managers and securities consultants.

The issuance of CVM Rule No. 598 is the result of discussions held during Public Hearing SDM No. 03/2017, and seeks to stipulate clearer guidelines and rules relating to the conduct of securities analysts, as well as to extend the possibility of accreditation as securities analyst to entities – CVM Rule No. 483 allowed such accreditation to individuals only. CVM Rule No. 598 also requires minimum standards involving both institutional and advertising communications used by securities analysts with their clients and the public.

Please note that CVM Rule No. 598 maintained the standard set forth by CVM Rule No. 483, by which the accreditation of securities analysts is carried out by an entity authorized by the CVM (currently, the Association of Analysts and Investment Professionals in the Capital Markets, APIMEC).

Among the innovations introduced by CVM Rule No. 598, we highlight the following:

i. Registration of entities. CVM created the possibility of entities to obtain a securities analyst accreditation. In this case, the entity must assign the responsibility for the analysis of securities to an individual accredited as a securities analyst. Please note that for an individual to be accredited as a securities analyst by an accrediting entity, he or she must be certified by a national or international certification institution prior to the registration (e.g. CFA, CNPI), and pass the exams established in CVM rules.
ii. Staff accreditation. In addition to the requirement above, entities accredited as securities analysts must take necessary measures to ensure that the team responsible for the analysis of securities is formed by at least eighty percent (80%) of registered securities analysts.

iii. Concurrent activities and segregation of activities. CVM Rule No. 598 allows entities that perform other services in the securities market to also provide analysis of securities services. In this case, the activities of analysis of securities should be segregated from the other services, including via physical segregation of facilities and segregation of systems. There is an exception to the permission of the exercise of concurrent activities, which is the activity of independent brokerage agent (agente autônomo). According to CVM Rule No. 598, the following people cannot obtain or maintain their registration as independent brokerage agents: (i) individuals accredited as securities analysts; (ii) persons appointed by the legal entity accredited as securities analyst to be responsible for (ii.a) securities analysis or (ii.b) the implementation and compliance with internal rules, procedures and controls, in accordance with the provisions of CVM Rule No. 598.

iv. Communication. CVM Rule No. 598 revised the minimum criteria by which the securities analysts should guide their communication, whether institutional or advertising, written or verbal, including information shared via internet. Among such criteria, we emphasize (i) the one concerning the content of communications, whereby the reported information must be true, consistent and cannot mislead the investor, and (ii) the one concerning the language, which shall be smooth and moderate. In addition, according to CVM Rule No. 598, CVM or the accrediting entity may require the interruption of any communication containing improprieties or that could mislead the investor, as well as request a republication of the communication, with the same emphasis given in the original, for rectification and clarification purposes.

v. Restrictions. Among the restrictions to related activities, which are applicable to the entities and individuals registered as securities analysts, we highlight the prohibition against participation of the securities analysts: (i) in public offers for distribution of securities; (ii) in structuring of financial assets and securities; and (iii) in any activity concerning financial consulting in M&A transactions. CVM Rule No. 598 maintained the restrictions for trading securities that are discussed in analysis reports, by individuals or entities. Entities registered as securities analysts may render the services above (or trade securities that were object of the said reports) through other departments, provided that those departments are segregated from the securities analysis department.

vi. Deadline for accreditation. Entities interested in acting as securities analysts must submit their registration within 180 days as of May 4, 2018.

Mattos Filho is available to discuss the impacts of CVM Rule No 598. 
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