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Ensuring Effective Enforcement

Second Latin American Corporate Governance Roundtable. Ensuring Effective Enforcement. GILBERTO MIFANO BOVESPA - SÃO PAULO STOCK EXCHANGE BUENOS AIRES, MARCH 2001. Changes in the Brazilian Environment.

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Ensuring Effective Enforcement

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  1. Second Latin American Corporate GovernanceRoundtable Ensuring Effective Enforcement GILBERTO MIFANO BOVESPA - SÃO PAULO STOCK EXCHANGE BUENOS AIRES, MARCH 2001

  2. Changes in the Brazilian Environment • At present, there is a project within the National Congress to reform the Corporate Law, aimed at adapting it to the changes that have occurred in the capital markets in recent decades • The same project also seeks to strengthen the Brazilian Securities and Exchange Commission - CVM, giving it greater financial and functional independence • The Brazilian legal system does not have an appropriate structure for settlement of conflicts between shareholders and corporations, but recognizes arbitration

  3. BOVESPA as a self-regulatory body • BOVESPA - the São Paulo Stock Exchange - is a self-regulatory organization supervised by the Brazilian Securities Commission • Our self-regulatory powers basically reach the member brokers and traders, and are very limited towards the listed companies

  4. BOVESPA’s monitoring of companies on the traditional market • Real-time surveillance of trading, observing the behavior of prices and quantities • Monitoring of company information to the market: • analysis of information • monitoring of all press coverage • Request for explanations • Suspension of trading in extreme cases

  5. The Novo Mercado • Section for the trading of companies committed to greater transparency and better corporate governance practices • Voluntary adhesion, via contract, to the Regulation • Private solution • Anticipates some of the desired regulatory changes

  6. Novo MercadoListing Requirements - I • Issue of voting shares only • Board of Directors: unified one year terms for all members • General Meetings: minimum 15 days notice • Tag Along: tender offer should be extended to all shareholders within the conditions obtained by the controlling shareholders • De-listing: mandatory tender offer at the economic value

  7. Novo MercadoListing Requirements - II • Annual balance sheet in US GAAP or IASC GAAP • Minimum free float of 25% • Disclosure: • acts and contracts between the company and related parties • stock options programs • trades carried out by managers and controlling shareholders with company’s shares and derivatives • any shareholders agreements

  8. Special Corporate Governance Levels • Level 1 - greater transparency • Level 2 - greater transparency and better corporate governance • Voluntary adhesion, via contract, to the Regulation • Directed to companies already listed at BOVESPA • Non voting shares are admitted

  9. Level 1Requirements • Additional disclosure requirements, as on the Novo Mercado rules • Minimum free float of 25% • Calling of General Meetings with 15 days notice

  10. Level 2Requirements Level 1 requirements plus: • Board of Directors: unified one year terms for all members • Tag along: same conditions for holders of common shares and 70% of the amount for preferred shares • Public offer to de-list at the economic value • Adhesion to the Market Arbitration Chamber • Concession of voting rights to holders of preferred shares on specific matters • Balance sheet in US GAAP or IASC GAAP

  11. Novo MercadoEnforcement BOVESPA enforces the listing requirements through a contract: • Pecuniary fines • Suspension of trading • De-listing

  12. The Market Arbitration Chamber BOVESPA created the Market Arbitration Chamber, where disputes between participating members must be settled: • Companies listed on the Novo Mercado • Company controlling shareholders • Company management and directors • Shareholders • BOVESPA

  13. Global Ranking 2000 Shareholders’ Rights • USA 12 points • Brasil - current situation 5 points • Novo Mercado 15 points Source: Merrill Lynch

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