Two brand-new regulations introduced by the Brazilian Securities and Exchange Commission (CVM), promise to make the market more understandable for the public and the lives of the companies a little bit more complicated – to say the least!

CVM has recently published rules 480 and 481 and the idea is to insert a new regulatory framework to the companies. Rule 480 changes the rules for companies listing whereas Rule 481 alters the information to be provided by them concerning general meetings calls and Powers of Attorney requests.

RULE 480

Rule 480 brought along several new regulations and procedures that shall be put into use regarding the regulated markets of securities. The new rules have changed the old procedures into a stricter and more judicious level, especially when talking about international investments.

Effective from January 1st, this new rule is causing a lot of companies to adjust to these new procedures, giving a whole new level of information that now must be provided on a regular basis.

CVM changed the old criteria for issuers by dividing them into 2 new categories: “A” and “B”. Those on the “A” category will have an authorization to negotiate any amount in the securities markets. On the other hand, those on the “B” category will not be able to negotiate stock options, certificates of deposit of shares or securities that are converted or give a right to acquire shares or depository receipts of shares. Once enrolled at one of these categories, it is possible to change the option if the requirements established on CVM’s new rule are complied with.

Reference Form

The obligation to provide information is much more severe now. The issuers must make available to all its investors, for a three-year minimum term, regular information as described on the rule. In addition, as far as A issuers are concerned, such information must be available online for the same period as well. Furthermore, if the information is not provided as required, issuers are subject to a fine equivalent to five hundred reais (R$ 500.00) per day for the ones on the A category and three hundred reais (R$ 300,00) per day for those on the B category.

The old IAN (Annual Reports) were replaced by the Reference Form, which is required and intended for more complete information and is in accordance with the international standards for securities markets. The amount and level of information varies according to the category of the issuer.

International Companies

When it comes to International Issuers, the new rules are very specific and quite interesting. Now, the criteria used will consider not only the issuers’ head offices, but also the amount of assets held in Brazil.

According to the new rule, international companies are not allowed to hold more than 50% of all its assets in Brazil in order to be considered as such. With that CVM hopes to end with an old procedure that caused a lot of problems to everyone: shell companies that would be organized outside of CVM jurisdiction and later trade in Brazil.

RULE 481

Following the same idea, Rule 481 made the level of information requested to be provided to the public and all the shareholders more complete and detailed. Now, companies will need to inform, before their meetings, the business to be transacted thereat, and will have new procedures to grant powers of attorney to vote at these meetings. The idea is generally to make easier for investors to obtain the information needed. Yet, this will also give to minority shareholders more power over the company.

The call notice must list in a very explicit way the businesses that will be transacted at the meeting, and the phrase ‘general affairs’ will no longer be valid.

Moreover, the company must make available to shareholders on the CVM webpage the documents that will be presented on the meeting and any other that may be relevant to its decisions and voting – and this must be done until the date of the first call notice.

Rule 481 also establishes new regulations governing the requests to public proxies, giving a chance to the shareholders to participate on the business decision-making processes.

Basically, the shareholders representing more than 0.5% of capital may include candidates for the Board of Directors or the Supervisory Board. Companies that have electronic system of proxies need to allow shareholders with more than 0.5% to make public requests through this system. And if the company does not establish an electronic proxies system, it must pay a portion of the costs of public requests promoted by the shareholders representing more than 0.5% of the capital.

In addition, all materials used in public applications of proxies, and the information and documents relating to the meeting shall be available to the shareholders at CVM website on the Internet.

To prove that they mean business, CVM has already released to the general public names of companies that are in culpable delay for at least three months to comply with any of its new obligations. With that, CVM intends to alert all investors and the general public when dealing with these companies, and, therefore, help them make their best investment decisions.

Last January 4th, forty-eight (48) companies had their registration cancelled due to the lack of information requested by the new regulation. And, according to the CVM, this is just the beginning! They will now be more severe and always try to give more stability to the public.

Whether they like it or not, companies now have a big challenge ahead to adjust their structure to this new regulation. As mentioned by Maria Helena Santana, CVM´s chief, will be necessary to rethink processes, controls for power and information provided to the public.

The rules are intended to yield benefits to everyone. And in order to do so, we better run and adjust to that, always keeping our eyes wide open for what will come next.