This week (Wednesday, 7 th of July), BM&FBOVESPA presented proposed amendments to the listing rules for its special listing segments. These proposals will be subject to review in a closed hearing for the coming thirty days. Listed issuers (Novo Mercado and Corporate Governance Levels 1 and 2) will have until August 6, 2010 to respond. It is worth noting that by end-June 2010, these segments included 159 issuers representing 66.9% of the market capitalization, 72.7% of the financial traded value and 77.1% of the number of trades on BM&FBOVESPA’s cash market.
In addition to being forwarded to the issuers, the proposed listing rules will be available for consultation in the BM&FBOVESPA website . The revised listing rules are expected to take effect in November, after the closed hearing and final approval by both the board of directors of BM&FBOVESPA and by the Brazilian Securities and Exchange Commission (CVM). Issuers will then be communicated of the final wording of the revised listing rules. The amendments will be presented for voting by group of topics and will only be implemented if not opposed by more than one-third of the issuers voting in each listing segment.
Ten years after we first established our special listing segments this revision process was advisable due to a number of factors, including development and growth of both the equities market and the issuers, need for improvement of corporate governance practices whose vulnerabilities were unveiled by the international financial crisis, and because of the improved regulatory environment prevailing in the Brazilian capital markets, of the process of convergence to IFRS started with the enactment of Law No. 11,638/07, and of the heightened transparency requirements conveyed under CVM Instruction No. 480/09.
The objective of this new revision is to sustain the value of BM&FBOVESPA’s listing segments, and therefore their differential and attractivity for investors and issuers, in addition to preserving the value of the Novo Mercado segment as a national and international benchmark.
The proposed amendments BM&FBOVESPA presents to issuers are the result of a fully transparent and democratic process. In order to ensure the involvement of all stakeholders in the discussion, the Exchange strived to avoid limiting the process to its own perception. In addition, the Exchange also established the Novo Mercado Advisory Committee (CCNM) in collaboration with various market agents and conducted seminars and discussion forums with the issuers in order to present the proposed amendments.
We present below some of the proposed amendments:
Board of Directors (proposal for the Novo Mercado and Level 2 segments) – Increase to 30% (from 20%) the percentage of independent directors; Provision prohibiting the same person from accumulating the positions of Chairman of the Board and Chief Executive Officer (or lead executive) with an adjustment period provided for issuers to conform. Requirement for the Board of Directors to advise the shareholders and the market on the terms and conditions of any tender offer within 15 days after it is announced, taking into account the interests of all shareholders and the Company;
Board of Directors (proposal for Level 1 segment) – Board composed by a minimum 20% independent directors; Provision prohibiting the same person from accumulating the positions of Chairman of the Board and Chief Executive Officer (or lead executive), with an adjustment period provided for issuers to conform;
Audit Committee (proposal for the Novo Mercado, Level 2 and Level 1 segments) – Provision requiring establishment of an audit committee composed of at least three members appointed by the Board, including at least one independent director (includes a three-year adjustment period);
Securities trading policy and code of conduct (proposal for the Novo Mercado, Level 2 and Level 1 segments) – the issuers will be required to disclose their securities trading policy and adopt a code of conduct.
Limit to voting limitation(proposal for the Novo Mercado and Level 2 segments) – Prohibition of voting limitation clauses under 5% in the bylaws. Those clauses are used to cap voting power in general meetings irrespective to the ownership interest in the company. Exceptions include golden shares and other mandatory rules applicable in any particular industry;
Tender Offer for accumulation of material ownership interest (proposal for the Novo Mercado segment) – A tender offer will be required where a shareholder or a group of shareholders accumulates a material ownership interest (defined as a 30% interest in the shares). The bid price will be the highest price paid by the bidder in the preceding 12-month period. If the proposed tender offer for accumulation of material ownership interest is approved at the closed hearing, currently listed Novo Mercado issuers will be allowed to maintain in their bylaws currently existing similar provisions (known as “poison pills”);
Occasional and periodic reporting requirements and prospectuses (proposal for the Novo Mercado, Level 1 and Level 2 segments) – These sections of the listing regulations will be simplified in view of the enhanced rules and regulations now in effect, in particular as issued by the CVM.
Discussion process started in 2006
This revision of the listing rules started in 2006 (when last revised). BM&FBOVESPA has since received multiple amendment suggestions. In 2008, these suggestions were structured and evaluated by the Novo Mercado Advisory Committee (CCNN), which was established in October 2008, and is composed of 21 external members, including investors, issuers, lawyers, investment banks and market associations.
Between November 2008 and January 2009 smaller groups were organized to discuss specific topics. In June 2009 BM&FBOVESPA conducted 16 discussion forums with the participation of representatives of 169 issuers. In September 2009 the Exchange conducted the seminar “Challenges of the Novo Mercado Segment”, both in Rio de Janeiro and in São Paulo, with the participation of 27 lecturers and an audience of over 700 for an open debate. Based on the response of issuers, data were compiled; drafts were prepared and circulated amongst specialists. Refined drafts were then evaluated by BM&FBOVESPA’s board of directors, and subsequently presented to issuers at certain May 2010 seminars.