New governance measures – Securities and Exchange Commission – Instruction No. 461
On 23 October 2007, the Brazilian Securities and Exchange Commission (CVM) issued Instruction No. 461, which regulates the securities markets in Brazil and governs the incorporation, organisation and operation of the stock exchanges, futures and commodities exchanges and over-the-counter markets.
According to CVM, Instruction No. 461 was enacted mainly because of the increase of the CVM’s regulatory scope. Indeed, since 2001, CVM has had full responsibility for regulating both stock exchange and futures and commodities exchanges (BM&F). Moreover, there was also the necessity to modernise the rules applicable to the Brazilian securities market, thereby updating the regulations on account of the constant changes that have been occurring during the past few years in the securities secondary markets.
Among the changes brought in by Instruction No. 461, the following are of particular note:
• Minimum governance from the bodies controlling the securities markets;
• Establishment of special administrative entities dedicated to the self-regulation of the controlling bodies;
• Distinguishing, by means of clear classification, between the exchanges and the over-the-counter markets, as well as the possible types of both exchange and over-the-counter markets;
• Rules for the set up of terminals in Brazil for trading in foreign stock exchanges – this is intended for qualified investors only;
• Substitution of the guarantee fund for a special mechanism under which losses will be reimbursed. The notable differences are in relation to the maximum level of indemnification and the deadlines for filing claims;
• Investors are not permitted to hold more than 15 per cent of the capital in the controlling body of the exchanges. In the specific case of parties authorised to operate in the market (e.g. brokers), such limitation shall be up to 10per cent; and
• The establishment of specific procedures for rendering or cancelling authorisations of the activities regulated by Instruction No. 461.
The final form of the Instruction No. 461 came about after CVM held public consultations with interested parties. This demonstrates the CVM’s will for all concerned to have a stake in the matter and is in keeping with CVM’s previous strategy of developing and improving the efficiency of the securities markets.
Undeniably, Instruction 461 has come in a good time. The São Paulo Stock Exchange (BOVESPA), the biggest exchange in Latin America, concluded its initial public offering (IPO) on October 26, 2007 – the demand for its shares reached more than US$ 30 billion, equivalent to ten times the amount of shares made available to the public, which was approximately US$ 3,5 billion. Moreover, the BM&F has published a draft prospectus for a public offering currently being evaluated by CVM. The BM&F is the fourth-biggest futures exchange in the world by number of contracts negotiated.