BM&FBOVESPA Presents Proposed New Regulations For Special Corporate Governance Segments - Listed Companies, Investors, Intermediaries, Academics And Market Bodies Have Until September 9 To Participate In The Public Hearing

BM&FBOVESPA presented proposed new regulations for the Special Corporate Governance Segments (Novo Mercado and Level 2 corporate governance), starting the second phase of the evolution process of segments that bring together companies with the Exchange’s highest corporate governance practices.

In the first phase, market participants, listed companies, local and foreign investors, and intermediaries, agencies and experts participated in the Public Consultation, answering an open questionnaire on the BM&FBOVESPA web portal, participating in workshops and in individual conversations with the technical areas of BM&FBOVESPA. Following this, from June 27, 2016, until September 9, 2016, all stakeholders can participate in a Public Hearing to carefully analyze BM&FBOVESPA’s proposals.

The proposals presented by BM&FBOVESPA seek to align rules with the systematics of the Regulation for the Listing of Issuers and for Admission of Securities for Trading, which was launched in February 2014 and has been in force for listed companies since August 2015. It also aims to reorganize that document, with specific chapters about joining the Novo Mercado, about obligations for remaining on or leaving the segment, about sanctions, enforcement and adaptation periods and about exceptional treatment, among other matters.

Among the main changes suggested for the Novo Mercado Listing Rules regard Free Float (among other things, to maintain 25% or 20% outstanding shares, conditional on maintenance of R$25 million minimum ADTV in the previous 12 months); Board of Directors (nominations policy; a level of 20% or at least two independent directors, whichever is greater; a new concept of independent director); Voluntary Exit rules (performance of the PTO, with acceptance of quorum 50%), considering the shareholders on the date of publication of the intention to exit the segment, at fair price, with spot payment in currency, among other topics.

Also included were new rules such as those aimed at Material Acquisition and Supervision and Control (Statutory Audit Committee with the same duties and powers provided for in CVM Instruction 308, Internal Audit and Area responsible for the functioning of Compliance).

Listed on the BM&FBOVESPA website are the main proposals to change Novo Mercado Listing Rules, discussed with market participants, comparing the prevailing rules with the Public Hearing’s proposals.

See the presentation of the proposals for the new Special Segments Listing Regulation

See the full proposals for the new Special Segments Listing Regulation

See the BM&FBOVESPA Novo Mercado and Level 2 Listing Regulations (current)

Development Process of the Special Corporate Governance Segments

In March, BM&FBOVESPA began broad discussions into the development process of the Special Corporate Governance Segments to identify corporate governance best practices in international codes for corporate governance and in other exchanges’ listing rules. The program has been divided into three stages: Public Consultation, Public Hearing and Closed Hearing. The initiative includes the Novo Mercado and Level 2 corporate governance. Level 1 corporate governance will not change.

Public Consultation

In the first stage, which took place from March 15, 2016 to May 16, 2016, market participants were able to answer 38 questions on various topics related to corporate governance. In total, 143 answers were received in the Public Consultation. The questionnaire also allowed respondents to make other suggestions to BM&FBOVESPA.

In addition to the questionnaire, there were two workshops (São Paulo and Rio de Janeiro) and various interactions with investors, companies and other bodies, which allowed BM&FBOVESPA to gather more impressions from market participants on improving the Special Corporate Governance Segments.

Public Hearing

The second stage of discussions regarding the development process of the Special Corporate Governance Segments also aims to gather the impressions of listed companies, investors, intermediaries and market participants on proposed amendments to the Special Segments regulations, built from information gathered during the public consultation, meetings, workshops and presentations. This phase will last until September 09, 2016.

During the Public Hearing, BM&FBOVESPA will promote interactions with investors, associations and, in particular, with all companies in the Novo Mercado and Level 2 corporate governance segments, where they will have unique sessions to get to know the proposed new regulation and to interact directly with the BM&FBOVESPA.

Closed Hearing
The Closed Hearing will start on November 07, 2016 and will finish on February 06, 2017. During this phase, the companies listed in the Special Corporate Governance Segment (Novo Mercado and Level 2 corporate governance) will decide on the respective changes to listing regulations. Changes can only be implemented if not contested by more than 1/3 of listed companies in each of the Special Corporate Governance Segments (Novo Mercado and Level 2 corporate governance).

History

The Novo Mercado was established in 2000 as a differentiated listing segment for trading shares issued by companies committed to the adoption of corporate governance practices beyond those required by law. At the same time, Levels 1 and 2 (Níveis 1 and 2) of corporate governance were also created.

The premise for the creation of the special listing segments was that adopting good corporate governance practices permits reduced investor risk perception. The resultant reduced information asymmetry and the additional rights and guarantees could thus positively influence the valuation and liquidity of shares. To maintain the applicability of this premise, however, the rules must constantly evolve.

The rules for the special corporate governance segments were reviewed in 2006 and 2011, and now, five years after their last revision, BM&FBOVESPA is launching new discussions with broad market participation. Currently there are 128 companies in the Novo Mercado, 21 at Level 2 and 29 at Level 1.