Independent Investment Agent
The Brazilian Securities and Exchange Commission (CVM) issued Resolution No. 178 on 02/14/2023, which revokes the existing regulations regarding the activity of investment advisors and will replace CVM Instruction Resolution No. 16, dated February 9, 2021.
Resolution CVM 178 now governs investment advisors, replacing Resolution CVM 16. The main innovations of the new regulation are:
Possibility of Non-Exclusive Investment Advisors: Investment advisors can now act as representatives for one or more intermediaries.
Flexibility in the Corporate Structure for Legal Entity Investment Advisors: This measure replaces the previous requirement to adopt the form of a simple partnership.
Greater Transparency for Investors: The regulation includes an investor acknowledgment statement describing the essential characteristics of investment advisor activities. It also reinforces the advisors' duties to disclose their remuneration structure and potential conflicts of interest to investors.
Creation of the Responsible Director for Legal Entity Investment Advisors: This professional must be registered as an investment advisor and, among their responsibilities, acts as the focal point with regulators, self-regulatory organizations, and intermediaries.
Detailing of Intermediary Oversight Responsibilities: The regulation seeks to clarify aspects of the oversight duties intermediaries must exercise over investment advisors and reinforces their responsibility for the actions of the investment advisor towards the client.
Responsible Director for RCVM 178: Mauro de Andrade Phone: +55 11 3842-1122
Responsible Director for RCVM 178: Mauro de Andrade
Phone: +55 11 3842-112
Related Persons
According to CVM Resolution 35 of May 26, 2021:
Article 25. Persons associated with the intermediary may only trade securities on their own account, directly or indirectly, through the intermediary to whom they are associated.
§ 1 The provisions of the head of this article do not apply to:
I – financial institutions and entities treated as such; and
II – persons associated with the intermediary, in relation to transactions in organized markets where the intermediary is not authorized to operate.
§ 2 For the purposes of this Instruction, transactions conducted for the intermediary's own account are considered equivalent to transactions by associated persons.
§ 3 Persons associated with more than one intermediary must choose only one of the intermediaries with whom they are associated to exclusively trade securities in their name.
Article 1. For the purposes of this Instruction, the following are considered:
VI – associated persons:
a) administrators, employees, operators, and other agents of the intermediary who perform intermediation or operational support activities;
b) autonomous agents providing services to the intermediary;
c) other professionals who have a service contract with the intermediary directly related to intermediation or operational support activities;
d) individuals who are, directly or indirectly, controllers or participate in the corporate control of the intermediary;
e) companies controlled, directly or indirectly, by the intermediary or by persons associated with the intermediary;
f) spouse or partner and minor children of the persons mentioned in subparagraphs “a” to “d”; and
g) investment clubs and funds where the majority of the shares belong to associated persons, unless managed discretionarily by non-associated third parties.
Risk Management
In compliance with Resolution 4,557/2017 of the National Monetary Council, we have prepared the annual Risk Management Report covering the risk management activities of CM Capital Markets CCTVM Ltda ("CM Capital" or "Brokerage") concerning credit, liquidity, market, operational, and capital management risks.
The areas responsible for risk management at CM Capital are segregated from commercial and operational areas to avoid any potential conflict of interest and have the autonomy to define policies, procedures for analysis, monitoring, and evaluation of existing risks and mitigating controls.
This text aims to present the risk management structure at CM Capital through qualitative and quantitative data, ensuring compliance with Central Bank requirements and the proper management and control of the aforementioned risks.
a) Operational Risk
The Internal Audit, Compliance, Internal Controls, Risk, and Technology departments form the control structure for operational risks. Operational risks are identified within the organization through mappings carried out in the areas with the aid of procedure manuals. Any deficiencies in controls are identified through audits, Internal Controls, regulatory or self-regulatory bodies.
The operational risk structure at CM Capital pays special attention to procedures and handling of operational/trade errors (losses). An operational error is considered to be one that arises from intermediation and results in financial loss or gain.
b) Market and Liquidity Risk
CM Capital is exposed to market and liquidity risks due to the operations performed by the Brokerage's clients, as it does not maintain its own portfolio. The Market and Liquidity Risk structure monitors the situations and price variations of assets held or traded by its clients.
The analysis of market and liquidity risks focuses on client positions, process failures, and operational errors that could transfer client exposures to the Brokerage itself.
With a focus on transaction execution, only a small portion of the settlement of transactions is the responsibility of CM Capital. For the most part, transactions are settled and custodied in other institutions (clients of the "Direct Settlement Participant" and "Pass-Through" types). The Brokerage also has other operational characteristics that mitigate market and liquidity risks:
Transfer of assets only after settlement, for the Bovespa segment;
Definition of Operational Limits for anti-money laundering purposes and financial limits to limit market exposure;
Allocation of collateral with the Clearinghouse (and consequent activation by the Brokerage in case of default).
CM Capital maintains liquidity (investments in Federal Public Securities, one-day repurchase agreements, and Liquidity Fund) compatible with the market and liquidity risks to which it is exposed, with the allocation of collateral and definition of operational limits with the Exchange. These limits are constantly monitored by the Risk department.
c) Credit Risk
As a general policy, CM Capital does not grant any type of financing to its clients. Exceptions are carefully evaluated and can only be approved by the Board.
The credit risk to which CM Capital is exposed occurs during the settlement window of client transactions, in the BM&F segment on T+1 and in the Bovespa segment on T+2. In the case of pass-through and DLP (Direct Settlement Participant) clients, the credit risk persists until the client's custodian accepts the transaction intermediated by CM Capital. For clients whose custody is handled by CM Capital, the credit risk persists until the settlement is made by the client.
Regarding CM Capital's Credit Risk, the brokerage has: an operational limit with the Exchange for transaction intermediation; a limit for Non-Operational Minimum Guarantees as a Clearing Member; a limit for Non-Operational Minimum Guarantees as a Trading Participant; a limit for the Clearing Fund as a Clearing Member in the BM&F segment; a settlement limit and an operational limit in the Bovespa segment.
d) Capital Management
CM Capital's Capital Management structure monitors and controls the capital maintained by the institution monthly through a specific report generated with the help of software.
Capital management is based on the existing market scenarios at CM Capital, as well as other elements used to assess market, credit, operational, and liquidity risks.
Operational Risks
Areas Involved in the Operational Risk Structure
The following structures are involved in managing Operational Risk:
- Operations and Administrative Finance Directorate
- Compliance / Risk / Internal Controls
- Internal Audit
- IT
- HR
- Accounting / Finance
- Back Office