Brazil’s regulators are looking to
overcome a market slump and increasing regional competition by
simplifying rules and streamlining listing
In 2014 Brazil's market were stalled. Few companies were able
to make issuances, events like the football World Cup
temporarily halted the flow of deals, and questions about
corruption and poor corporate governance raised red flags with
In the year ahead the country is looking to move past this
slump. Regulators are taking steps to align their systems more
closely with international standards and make new products
available to generate liquidity. Issuers can look forward to
more simplified rules in the future to help them raise capital
more easily and attract more foreign investors.
Leonardo Pereira, Chairman of Brazil's securities regulator,
CVM discusses the plans to address the market's hurdles.
What are the main regulatory changes on the horizon?
In the process of reviewing and updating our rules, the
Brazilian Securities and Exchange Commission (CVM) mandatorily
takes into consideration the integration of the securities
markets, and the consequent need to align our rules with
international standards. The increasing relevance of capital
markets as a source of finance also demands the simplification
of investment structures and the preservation of the safety of
Accordingly, we have been implementing a number of
enhancements to our rules, including: (i) the successful
convergence of the Brazilian GAAP to the international
accountancy standards (IFRS) issued by the International
Accounting Standard Board – IASB; (ii) advances in
disclosure rules, particularly in terms of quality and
objectivity of information provided by companies; (iii) the
review of the normative framework of funds; and, (iv) measures
resulting from the conclusions of a committee (Comitê
Técnico de Ofertas Menores) formed by the CVM,
Brazilian Securities, Commodities and Futures Exchange
(BM&FBovespa) and other market institutions, to promote the
access of small and medium sized companies to the capital
Nonetheless, we are fully aware that the review and updating
of our normative framework is a constant process, which leads
our regulatory agenda to have some sensitive issues submitted
to public hearing proceedings or to be discussed in the near
In this sense, we have already submitted to public hearing,
among other topics, the review of the norms applicable to
securities portfolio managers, the new rules regarding remote
voting, and the distribution of COE (Certificado de
Operações Estruturadas), a newly issued
instrument, similar to the structured notes adopted in the
There are also some other relevant themes currently studied,
as part of the review of our norms regarding the activities of
fiduciary agents and consultants, investments in participation
funds, and the establishment of a framework properly addressing
What are you doing to attract more issuers to the exchange?
How has competition from other regional markets affected the
We are facing a situation where the role of capital markets
has gained importance considering the shortage of conventional
sources of finance. This is thanks to the stricter capital
requirements adopted by banks after the 2008 crisis and to the
governments' necessity to invest in infrastructure, create jobs
and deliver sustainable growth, without affecting the fiscal
In Brazil, this situation is even more concrete, considering
that there is a very big need to finance infrastructure
projects and support a sustainable development of small and
medium sized companies.
In this sense, we are not unaware that Brazil is among the
largest economies in the world, but has a capitalisation level
lower than its potential. Whereas in countries with more
expressive stock markets that capitalisation represents about
78% of its GDP, in Brazil this index represents only 57%.
Based on this assessment, the CVM has been fine-tuning its
regulation to ensure the safety and sustainability of capital
markets' development, attracting new investors, favouring
long-term investments and removing hurdles to the access of
small and medium sized companies to the capital markets, and
enhancing its attractiveness to domestic and foreign
We recently adjusted, for instance, our rules regarding the
safety and credibility of market infrastructures, designing a
chain of obligations and liabilities of market agents who work
in the clearing, settlement, and recording of transactions. The
new rules (CVM Instruction No 541, 542 and 543) ensure the
integrity of securities issues, mitigating the risks associated
with their safekeeping and transfer.
The establishment of a solid market infrastructure, for
sure, is a mandatory feature of an attractive capital market.
This is clearly aligned with the discussions held on global
forums, particularly post-crisis, which suggest the
strengthening of market infrastructure, preventing a new
The abovementioned successful conversion of our corporate
internal reporting rules to the international accountancy
standards is also evidence of our commitment to align our
regulation and practices to the international standards.
Through this change we are constituting a safe and credible
environment for domestic and foreign investors, creating, by
consequence, attractive conditions for companies.
The importance of consolidating these advantageous points is
even more relevant considering that the competition with other
regional markets has intensified in recent years. This has come
about in light of the satisfactory economic indicators and the
implementation of regulation enhancements of some of our
neighbours, such as Chile, Colombia and Peru.
In my view, the development of these markets must not be
seen as a concern for us, but as a real lever for the Brazilian
capital markets, enabling the strengthening of profitable
partnerships, and, ultimately, lifting South America to a more
prominent place in the securities market's global outlook.
Are there any possibilities of regional or global
partnerships with other exchanges?
The integration of the securities markets is a reality and,
therefore, regulators and policy makers must jointly try to
reduce and mitigate the risks of regulatory fragmentation. This
is not possible without the strengthening of global financial
regulatory institutions and an effective coordination.
Actually, in this sense, the CVM has been actively
participating in the most relevant international forums (that
is, IOSCO, FSB, and IFRS Monitoring Board), in a constant
exchange of experiences and ideas with representatives of other
In 2009, the CVM signed the IOSCO Multilateral Memorandum
concerning consultation, cooperation and exchange of
information, setting forth principles and mechanisms aiming for
the fullest mutual assistance among more than a hundred
domestic regulatory bodies. Such adhesion helped strengthen the
CVM's supervision by providing a faster and safer way of
sharing information regarding investigations of misconduct in
the capital markets.
Furthermore, we also have a number of bilateral cooperation
agreements with other regulatory bodies, including the SEC
(US), ASIC (Australia) and several members of the EU, with
These agreements are helpful tools for improving the
effectiveness of across-board investigations and enforcement
activities, and, given the benefits, we are constantly working
on strengthening those partnerships and on establishing new
What are you doing to address the slow IPO market?
We are aware of the challenging times that the Brazilian
economy, and, ultimately, our capital markets, are passing
through. Given the circumstances, including the restructuring
of premises and economic strategies, it is natural that
investors would be wary in their decisions, postponing and
reducing investments. Our mission, as regulators, is, on the
one hand, to assure the resumption of confidence of those
investors, and, on the other, to provide effective mechanisms
to encourage companies to enter the capital markets.
We recently reviewed our regulation, enabling companies to
launch public offerings of stocks and convertible debentures
distributed with restricted efforts. Those offerings differ
from standard offerings, in that there is no need to request
registration of the plan with the CVM. Only qualified investors
can participate in these public offerings with restricted
efforts, and the deals cannot be marketed through road shows or
The main benefit that has arisen from these proceedings, in
my opinion, is the resulted celerity of the public offering,
especially considering that, in difficult times, companies
cannot afford to miss out on windows of opportunity.
Regulatory adjustments of this nature, along with the
development of a consistent financial education, a solid
investor protection policy, and the strengthening of our
compliance and enforcement mechanisms – which have
been top priorities for us – will certainly contribute
to the safety and credibility of the Brazilian capital markets,
and, consequently, pave the way for future growth.
How is fast track listing for stocks affecting the market?
Do you anticipate any expansion or changes to this
As I mentioned before, fast track listing for stocks is,
primarily, a need in times when windows of opportunity are
scarce, and so cannot be missed by market agents.
In this sense, the recently adopted rule was well accepted
by the market, and we have had positive feedback from bankers,
companies, government officials and lawyers, who are seeing it
as a way to help companies raise capital in a challenging
In the short-term, I think it is safe to say that such
facilities will be mainly used by registered companies to
introduce subsequent offerings, once the exemption of the
offering register has increased the celerity of the process. I
believe the predicted success of these special proceedings,
with their facilities and reduced bureaucracy, teamed with the
stabilisation of the economy, and the return of investor
confidence, will lead to numerous IPOs by non-registered
Can the market expect to see more complex or structured
products entering or returning? What type of limitations or
requirements do you plan to place on them?
The Brazilian market is reacting well to the COE
(Certificado de Operações Estruturadas),
the recently issued instrument that I previously referred to.
It is a hybrid security including several financial products,
usually a stock plus a derivative, which enables the offering
of different investments for clients who wants to diversify
risks, gathering fixed and variable incomes.
Statistics on 2014 activities show that this instrument has
already achieved big investment figures. Last year, as I
previously mentioned, the CVM submitted to a public hearing a
proposal to include the COE in the list of assets that can be
publicly offered with restricted efforts, to heighten the
attractiveness of the product.
With the possibility of more complex and structured products
in the marketplace, the CVM will always try to adequately
balance market initiatives and ensure that safety levels are
preserved focusing on investor protection and saved conduct
Should we expect to see increases in investor
We understand that the safe and sustainable development of
capital markets should be built primarily on certain pillars.
This includes the promotion of investor education and
protection, a well-balanced risk based supervision plan for
compliance purposes and a solid and credible enforcement
Firstly, we are implementing a policy focused on the
expansion of financial education. This involves increasing the
population's awareness of the opportunities to invest,
improving understanding of the risks inherent to those
investments, and attracting more resources to the market, on
the basis that there will be more investors willing to trust
the market with their savings.
In this sense, we already have adopted various initiatives,
including the free distribution of thematic booklets on capital
markets topics. A blog has also recently been created to
disseminate academic papers and promote discussion on themes
related to the capital market, approaching investors, students,
teachers, researchers and other interested parties.
It seems clear to me that investors are more able to make
conscious and grounded decisions to the extent they are better
informed about companies' affairs, notably their financial
situation and steps taken to sustain business in the long term.
This is why we are constantly reviewing and enhancing our
regulation to ensure the competitiveness and transparency of
the market, providing a full and clear disclosure of
information, aligned with the market and investors' needs.
For capital markets to achieve sustainable growth, investors
need to feel safe, and this atmosphere of credibility will pave
the way for more investment in Brazilian securities.
On the other hand, we also understand that the quality,
strength and degree of our enforcement process are important
indicators of credibility. We are committed to ensuring that
our enforcement activities are consistent, efficient,
proportional and capable of providing prompt responses.
Ultimately, this encourages market participants to work within
agreed rules of conduct, and sends a clear message to investors
in terms of protection.
Are there other markets' regulatory and enforcement
practices that you look to as an example?
As I previously stated, the CVM has been taking part in the
most relevant global forums and discussions, as well as
effectively collaborating with other regulatory bodies.
This data exchange influences the redesign of our
regulation. We are constantly looking forward to align our
norms to the international standards, and, at the same time,
following well-established practices in specific areas,
adapting them to our reality and needs.
Likewise, having identified through the review of our
processes some bottlenecks in our monitoring of compliance and
enforcement systems, the CVM has been implementing some
improvements. This includes better use of technology and the
strengthening of partnerships, at the domestic level, with
public bodies, and self-regulatory and other independent
Considering the aforementioned increasing activity in the
securities and derivatives markets, we make good use of our
relationships with foreign organisations and bodies, which
contributes to faster and safer sharing of information during
investigations of misconduct in the capital markets.
Furthermore, the review of our enforcement rules also
contemplates the implementation of practices that have already
produced practical results in other jurisdictions, such as
leniency agreements. A draft law has subsequently been proposed
on this matter.
Leonardo Porciuncula Gomes
Securities and Exchange Commission of Brazil
Rio de Janeiro, Brazil
T: 55 21 3554-8242 / 55 21 3554-8245
F: 55 21 3554-8531
Leonardo Porciuncula Gomes Pereira is the chairman
of the Securities and Exchange Commission of Brazil
(CVM). He took office on November 5 2012 and his term
expires on July 14 2017.
He represents CVM internationally at the IOSCO
Board, Financial Stability Board and at the IFRS
Monitoring Board. In Brazil, he has a seat at the
Brazilian Technical Commission of Currency and Credit
(COMOC) and at the Brazilian Committee of Financial
Before becoming CVM chairman, Pereira was executive
vice president/CFO and a member of the executive board
of Gol Linhas Aereas Inteligentes. Pereira has served
as an officer and as a director in companies in
different sectors of the Brazilian economy, including
aviation, communications and agro business. He worked
at Citibank for 13 years, in a number of roles in
Brazil, Asia, Latin America and the US.
Pereira was also a member of the Latin America Round
Table on Corporate Governance under the auspices of the
OECD and of the corporate governance committee of the
American Chamber of Commerce in Brazil.