The Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) authorized Brazilian Real Estate Investment Funds (Fundos de Investimento Imobiliário – FII) to contract market makers (formadores de mercado) for the units of the FII at the expenses of the unit holders. This decision was adopted by means of CVM Instruction No. 528, of October 23, 2012 (CVM Instr. 528/2012), which amended CVM No. 472, of October 31, 2008, that regulates the incorporation, administration, operation, public offering for distribution of units and information disclosure of FII, and expressly includes the market maker in the list of service providers that can be retained by the FII´s administrator in the name of the investment fund.
The FII is an investment vehicle structured as a closely-held fund aimed at developing real estate-related projects (empreendimentos imobiliários) such as construction, acquisition of property, investments in projects enabling the growth of the housing and services in both urban and rural areas, for subsequent sale, letting or leasing.
The acquisition of units of the FII is deemed to be a long-term investment. The role of the market maker is to buy and sell offers for a certain number of units of the FII which retained its services in the market daily in order to reduce the asset volatility and create liquidity to the trading of these units. Investors in general are more attracted by liquidity because they will have confidence that it is possible to buy and sell such units at any time.
Only legal entities duly registered with the managing entities of organized markets may provide services as market makers to the FII. Neither the administrator (administrador) nor the manager (gestor) of the FII can act as a market maker for the units of the fund. However, the contracting of related parties to the administrator or the manager as a market maker is admitted, provided that it is submitted to the prior approval of the Unit Holders´ General Meeting of the FII. This decision must be taken by majority of votes and each unit will be entitled to one vote. The hiring or termination of a service agreement between the FII and the market maker is a material fact (fato relevante) and must be disclosed as such.
The possibility of hiring a market maker does not mean that all FII will contract such a service. Even if they do, there is nothing to prevent the unit holders of the FII to review the hiring of the market maker and resolve to terminate the service agreement entered into with or replace such market maker, if the cost-benefit ratio is not satisfactory.
The regulation of any FII incorporated after the enactment of CVM Instr. 528/2012 which intends to contract a market maker must contemplate expressly this possibility as well as the remuneration to be paid for such service.
For any existing FII, it is necessary to amend the fund´s regulation to provide for the hiring of the market maker, which must be duly approved by the Unit Holders General Meeting of the FII by majority of votes, giving them the opportunity to assess the desirability of contracting this service or not.