On July 8 2003 the Brazilian Securities Commission (the Comissão de Valores Mobiliários) issued regulations easing certain restrictions on the ability of listed companies to issue and trade options on shares of the listed company itself.
Among other changes giving listed companies more leeway in issuing and trading share options, the new rules:
- increased the maximum number of shares that listed companies may hold or be required to purchase upon the exercise of any put option from 5% to 10% of the outstanding shares of any class; and
- increased the maximum term to maturity of a share option from 90 to 365 days.
The new rules also permit listed companies to issued share options for cash settlement only, although enabling regulations must first be issued by the relevant stock exchanges.
The existing restrictions that remain in effect with respect to share options include the following:
- The share options may only be exercised on the maturity date (that is, the options must be European-style options); and
- The share options may only be issued on qualified stock exchanges and the company may not issue customized over-the-counter share options.
The new rules expand disclosure requirements relating to share options to address the Brazilian Securities Commission's concerns regarding the potential for manipulation of share prices by listed companies. The corporate approval of the issuance or trading in share options triggers a requirement of immediate, detailed disclosure. Additional disclosure is required to be included in the company's annual and quarterly reports to the Brazilian Securities Commission.
The new rules also modify existing regulations pertaining to share repurchase programs to extend their maximum, permissible duration from 90 to 365 days.