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Publicly Traded Companies Newsletter – No 05 – May 2023
June 20th, 2023
The Publicly Traded Companies Newsletter aims to provide information on the main media news, trends, cases and legislation concerning Traded Companies matters, in Brazil and abroad. This material is for informational purposes and should not be used for decision making. Specific legal advice can be provided by our lawyers.
NEWS – BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (“CVM”)
REGULATION
CVM amends rules on BDR
On May 11, 2023, the Brazilian Securities and Exchange Commission (“CVM”) issued CVM Resolutions 182 and 183, which alter the regulations applicable to the Brazilian Depositary Receipts (“BDR”) programs, in order to modernize the protection mechanisms for the Brazilian capital markets and its investors.
CVM Resolution 182 regulates the aspects relating to the backing of BDR, their classification into different levels, and the requirements to register the programs, replacing CVM Instruction 332. Furthermore, CVM Resolution 183 amends the provisions of CVM Resolutions 80 and 160 for registration of foreign issuers.
The main amendments established by the new regulation are as follows:
- BDR relating to the Brazilian issuer’s debt: CVM Resolution 182 now allows that the debt security issued by a Brazilian issuer, even when not traded in an organized market, represents the backing of BDR traded in Brazil.
- Investment entities: CVM Resolution 182 established rules for the disclosure of differentiated information to issuers classified as investment entities.
- Requirements to obtain issuer registration: Annex A of CVM Resolution 183 introduced three possibilities for foreign issuers to obtain registration. In addition, the new rule excluded requirements relating to the location of the issuer’s assets and revenues.
- Public offerings of BDR in sponsored programs – Level I and Level II: the possibility of public offerings of BDR – Levels I and II, destined exclusively to professional investors, was maintained.
- Flexibility of requirements to obtain registration: CVM Resolution 183 decreased the quantitative levels of issuers that apply for registration, considering that these issuers already trade securities in other jurisdictions. The number of free float shares decreased from 25% and BRL 25 million of the average daily financial volume, to 10% and BRL 10 million, respectively.
- Integration with the regulatory framework for public offerings: as a result of CVM Resolution 183, the rules for public offerings of BDR were included in the general rules for public offerings provided for in CVM Resolution 160. The purpose of this integration is to preserve, as applicable, the consistency of the requirements for BDR offerings and securities offerings that are used as backing for BDR.
- Exclusion of the lock-up rule: CVM Resolution 183 amended CVM Resolution 160 to exclude the restriction on trading in the secondary market of securities that are subject to a public offering (lock-up), in the cases of securities that represent fixed income and are traded within the scope of repo operations without “free tradable” agreement.
CVM Resolutions 182 and 183 entered into force on June 01, 2023.
In addition, our team will prepare a specific material about the new regulatory framework for BDR.
READ CVM RESOLUTION 182 IN FULL.
READ CVM RESOLUTION 183 IN FULL.
GUIDELINES
CVM provides guidelines on issuer registration flow and public offerings for distribution
On May 03, 2023, the Superintendence of Company Relations (“SEP”) and the Superintendence of Securities Registration (“SRE”) of CVM published the Joint Circular Letter CVM/SEP/SRE 1/2023 (“Letter”). The Letter aims at providing guidelines to issuers of securities and coordinators of public offerings on the registration flow of issuers and public offerings for distribution, in view of the updates introduced by CVM Resolutions 80 and 160.
In addition, the Letter contains a flowchart to simplify the understanding on the deadlines and procedures for registration of issuers, with simultaneous application for registration of public offerings for distribution. In addition, SEP and SRE will inform the issuer and the offerors about the insufficiency of documents submitted, if any, and what information is pending.
READ THE CIRCULAR LETTER CVM/SEP/SRE 1/ IN FULL.
CVM extends changes of CVMWeb system to June
On May 12, 2023, the Superintendence for Oversight of Institutional Investors (“SIN”) of the CVM informed that the changes to CVMWeb related systems, as set forth in Circular Letter CVM/SIN 1/2023, were extended to June 19, 2023.
READ THE CIRCULAR LETTER CVM/SIN 1/2023 IN FULL.
CIRCULAR LETTER
CVM publishes guidelines to coordinators of public offerings for refund or offsetting of inspection fees
On May 11, 2023, the Superintendence of Securities Registration (“SRE”) and the Collection and Recovery Management (“GEARC/SAD”) of CVM published the Joint Circular Letter CVM/SRE/GEARC 5/2023 (“Joint Letter”), providing instructions on the procedures to be adopted regarding the refund or offsetting of inspection fees involving public offerings of securities distribution.
In addition, the Joint Letter provides an access link to the guidelines available on CVM’s website and highlights the procedures to be adopted by the coordinators of public offerings and the measures required, depending on the offering.
READ THE CIRCULAR LETTER IN FULL.
ACCOUNTING RULES
CVM opens three public consultations for revision and update of accounting rules and guidance, with no change on the merits
On May 12, 2023, CVM opened three public consultations on the revision of Technical Guidance OCPC 7 and CPC Technical Statements 12 and 18 (R2).
The resolution aims at amending Technical Guidance OCPC 7 and providing for the repeal of CVM Resolution 152. In addition, the resolution makes Technical Guidance OCPC 7 (IR) referring to the evidencing in the disclosure of financial reports for general purposes and concerning publicly traded companies.
The amendment to CPC Technical Statement 12 provides for the revocation of CVM Resolution 138 and makes CPC Technical Statement 12 (IR) mandatory. The CPC Technical Statement 12 establishes the basic requirements to be considered for the calculation of adjustment to the current value of credit and debt elements, at the time of preparing the financial statements. This amendment is intended to settle some controversial issues arising from the former procedure.
In addition, the amendment to CPC Technical Statement 18 provides for the repeal of CVM Resolution 118, making the CPC Technical Statement 18 (R3) mandatory for publicly traded companies. The statement establishes the accounting for investments in affiliates and subsidiaries and defines the requirements for applying the equity accounting method at the time of accounting for investments in affiliates, subsidiaries and joint ventures, which is mandatory for publicly traded companies.
Suggestions and comments were sent to the Superintendence of Accounting and Auditing Rules (SNC) of CVM by June 12, 2023.
READ THE TECHNICAL GUIDANCE OCPC IN FULL.
CVM rules on PAS filed to investigate irregularities in businesses of JBS S.A. and FB PARTICIPAÇÕES S.A.
On May 29, 2023, the CVM ruled on Sanctioning Administrative Proceeding (“PAS”) No. 19957.005390/2017-90, filed to investigate the liability of Joesley Mendonça Batista (“Joesley”), Wesley Mendonça Batista (“Wesley”) and J&F Investimentos S.A. (“J&F” and, together with Joesley and Wesley, the “Defendants”) for several irregular practices on the trading of shares of JBS S.A (“JBS”), which is the successor of FB Participações S.A. (“FB”).
The PAS is a result of an Administrative Inquiry (“IA”) and the Prosecution alleged price manipulation, insider trading, trading of assets during a prohibited period, violation of the duty of loyalty, and abuse of controlling power.
According to the Prosecution, Wesley and Joesley used the Share Buyback Program, approved by JBS, to purchase shares issued by the company, while the controlling company FB was selling these same shares, maintaining the price stability. These purchases influenced third parties to pay an artificial price for the shares. The technical areas of the CVM held the Defendants liable for price manipulation, abuse of controlling power, and trading of JBS shares during a prohibited period.
On May 03, 2018, before filing their defenses, the Defendants presented a Settlement Agreement Proposal encompassing the PAS and the IA, but it was dismissed by the Collegiate Board of CVM. The Reporting Officer, Otto Lobo, voted for the liability of FB for trading JBS shares during a prohibited period, considering that this practice represented a breach of the controlling shareholder’s duty of loyalty.
The Reporting Officer voted to hold J&F liable to pay a monetary fine. However, he voted for the acquittal of the Defendants in relation to insider trading, price manipulation, breach of the duty of loyalty, and abuse of controlling power. The trial session was stayed due to a request for examination of the records, made by Officer Flávia Perlingeiro.
READ THE VOTE BY REPORTING OFFICER OTTO LOBO IN FULL.
CVM rules on PAS filed to investigate transactions with interest rate derivatives agreements, with possible use of unfair practices
PAS No. 19957.003549/2018-12 was filed by the Superintendence of Sanctioning Proceedings (“SPS”) and the Specialized Federal Attorney’s Office, with the CVM (“PFE-CVM” and, together with SPS, the “Prosecution”) to investigate the liability of Emerson Fernandes Loureiro (“Emerson”), Joesley Mendonça Batista (“Joesley”) and J&F Participações S.A. (“J&F” and, together with Emerson and Joesley, the “Defendants”) for irregular practices relating to the trading of interest rate derivative agreements carried out by Banco Original S.A. (“Bank”).
The PAS is a result of an IA filed on May 02, 2019, which sought to investigate alleged unfair practices by the Bank in the trading of interest rate derivative agreements, which were carried out prior to the release of news on plea bargainings by the Bank’s controllers.
The Prosecution highlighted that on May 17, 2017, news was released about the plea bargaining agreements entered into by brothers Joesley and Wesley and other persons linked to JBS. In the course of the IA, the Prosecution identified irregularities such as a relationship/contact between Emerson and Joesley, motivation and self-benefit with the use of unfair practices, the bank’s unusual transactions, the timing of Emerson’s transactions, and inconsistencies in the arguments presented.
The Prosecution considered that there was serious, accurate and concurrent evidence to held Emerson and Joesley liable for unfair practices by both of them, as well as J&F for being a beneficiary of such practices. However, the Reporting Officer, Otto Lobo, voted to dismiss the Defendants from the charge in relation to unfair practices. The trial session was stayed due to a request for examination of the records, made by Officer Flávia Perlingeiro.
READ THE VOTE BY REPORTING OFFICER OTTO LOBO IN FULL.
READ THE ANBIMA ARTICLE IN FULL.
CVM rules on PAS filed to investigate possible liability for transactions with unfair practices
PAS No. 19957.005388/2017-11 was filed by SPS and PFE-CVM (together with SPS, the “Prosecution”), to investigate the possible liability of Wesley Mendonça Batista (“Wesley”), JBS S.A., Eldorado Brasil Celulose S.A. (“Eldorado”) and Seara Alimentos Ltda. (“Seara”), for alleged transactions involving unfair practices in violation of CVM Instruction No. 8, of October 08, 1979, in force at the time.
The PAS originated from an IA filed on May 2, 2019, which sought investigating the alleged use of insider trading by JBS S.A. in the trading in future dollar agreements, while the second IA aimed at investigating the possible use of insider trading by Eldorado Brasil Celulose S.A. and Seara Alimentos Ltda. in the trading of derivative dollar agreements.
The technical areas of the CVM understood that Wesley was in control of the currency hedging transactions and ordered the purchase of derivative dollar agreements by defendant companies, based on confidential information from the plea bargaining agreement entered into by executives of JBS S.A. The Prosecution pointed out that Wesley was previously informed of the content of the agreement, was aware of the political and market impact that the disclosure would cause, and that decisions to buy or sell dollars at JBS were influenced by his will.
The potential results of transactions carried out on behalf of JBS, Seara and Eldorado would be BRL 520,039,078 billion, BRL 4,716,800 billion and BRL 64,692,160 billion, respectively. However, Reporting Officer Otto Lobo voted for the acquittal of the Defendants in relation to the unfair practice, alleging lack of sufficient evidence. The trial session was stayed due to a request for examination of the records, made by Officer Flávia Perlingeiro.
NOTICE TO THE MARKET
CVM alerts for irregular activities of Ontega, Green Pole Ltd, Rehoboth Ltd and Ontega Brasil
On May 19, 2023, CVM alerted the capital markets and the public in general about the irregular activities of broker Ontega, under the responsibility of companies Green Pole Ltd and Rehoboth Ltd and Ontega Brasil.
The CVM identified that the company sought to attract clients residing in Brazil, however, the company was not authorized by CVM to intermediate securities or raise funds from investors for investment in securities.
By means of CVM Declaratory Act 20.884, the Agency ordered the immediate suspension of any public offering of securities intermediation services, in a direct or indirect way, to the broker and the three companies.
In case of non-compliance with the Declaratory Act, the company and the persons identified as participating in the irregular acts will be subject to a daily fine in the amount of R$ 1,000.00.
READ THE DECLARATORY ACT 20,884 IN FULL.
CVM alerts for irregular activities of XTB International Limited
On May 23, 2023, CVM alerted the capital markets and the public in general about the irregular activities of XTB International Limited (“Broker”).
The CVM identified evidence of activities carried by the Broker, seeking to attract clients in Brazil and hiring promoters of its activities in Brazil relating to securities transactions. However, the Broker is not authorized by CVM to intermediate securities or raise funds.
Through the CVM Declaratory Act 20.886, the CVM ordered the immediate suspension of any public offering of securities intermediation services provided by the Broker. In case the CVM’s order is not adopted, the broker and the persons identified as involved in the irregular activities will be subject to a punitive fine of BRL 1,000.00.
READ THE CVM DECLARATORY ACT 20,886 IN FULL.
DISCUSSIONS
CVM and the Ministry of Finance discuss on taxation of assets abroad
On May 18, 2023, the CVM and the Ministry of Finance held a meeting to discuss aspects relating to Provisional Measure 1171/2023, which changed the taxation regime of assets abroad and its impacts on the capital markets.
CVM was represented at the event by its President João Pedro Nascimento and the President’s Chief of Staff, Pedro Castelar. On behalf of the Ministry of Finance, the Extraordinary Secretary for Tax Reform, Bernard Appy, and the Officer of the Extraordinary Secretary for Tax Reform, Daniel Lória, attended the event.
Black Rock launches first BDRs of Multi-Asset ETFs on B3
On May 08, 2023, BlackRock, a global financial asset manager, launched 18 new assets for individuals on B3. Among the assets are the first BDRs of Multi-Asset ETFs, an allocation mix between international fixed and variable income for the Brazilian market.
The BDRs are classified in four risk levels, and vary according to the investor’s profile and the distribution between fixed and variable income. The additional products encompass corporate and government segments, as well as the commodities sector.
BDRs of ETFs are assets that replicate foreign index funds listed and traded on foreign exchange markets, through the use of shares, directly on B3. In practice, investors acquire in the Brazilian stock exchange market a set of assets listed in foreign exchange markets, diversifying their portfolio, sector and currency without having to take their money out of Brazil.
BSM proposes new monitoring model to optimize audits and get closer to market participants
On May 10, 2023, BSM Supervisão de Mercados (“BSM”), the civil association responsible for self-regulation, monitoring, oversight and inspection activities in the Brazilian capital markets, proposed a new model for monitoring market process and control data, aiming at optimizing the oversight and assisting in the prevention of future problems.
Within the scope of inspection activities, BSM carries out regular, specific, pre-transactional and follow-up audits with market participants.
In the new model, participants will be required to submit reports or files to BSM with data required for process monitoring. The purpose is to catalog and standardize the files that must be submitted, their respective formats, content, and periodicity of submission by the market participants.
All files must be sent via the BSM Portal and, once submitted, must be used to generate the information required for the supervision work. After the analysis of the data, and according to possible findings, participants will receive the necessary guidance and the enforcement measures will be adopted. The next files to be delivered will be prioritized by topics, including: client registration, suitability, settlement, Retail Liquidity Provider (RLP), compulsory settlement, prevention of money laundering, investment advisors, among others.
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