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Beginning on February 2 2004, all Brazilian listed companies and other securities issuers, as well as underwriters, will have to comply with a new set of rules issued by the Brazilian Securities Commission (CVM) and aggregated in its Rule 400. These rules apply to the primary and secondary public offerings of securities.

Among the various innovations contained in the new regulation are:

  • In connection with the public offering of securities, CVM may, at its discretion, waive certain registration requirements or even registration itself. It will consider the conditions of the offering, such as the value of the securities being issued/sold, the rules applicable in other jurisdictions in which the offering is being conducted and the target investors towards whom the selling efforts will be steered.
  • Publication of an offering announcement, including more information about the issuer and the securities to be issued in the case of: (i) secondary offerings of listed shares carried out on stock exchanges; and (ii) leftovers of shares in capital increases. Further, in such circumstances CVM's analysis will take place on an expedited basis.
  • A shelf registration procedure was created, allowing corporations to register securities-offering programmes with a maximum two-year term. Offerings will be made possible by means of a fast-track procedure, under which a supplement concerning the specific offering must be presented along with updates of the filed information. Likewise, CVM's analysis in such circumstances will take place on an expedited basis.
  • It will be possible to increase the amount of the offering by up to 15% or 20% of the amount under registration with the CVM, should an excessive demand occur.
  • If the issuer fails to place the total amount of authorized securities during the offering, partial placement is allowed, contingent on the issuer providing a detailed description of the use of proceeds.
  • Stronger liabilities will apply for entities acting as underwriters in public offerings. In particular, underwriters will be responsible for enforcing and maintaining on file documented evidence of their due diligence and investigative practices in the context of preparing the offering and disclosing information concerning an issuer and its securities.
  • Underwriters will still be allowed to make contact with potential investors before filing a request to offer the securities with CVM, but on a limited basis. Bookbuilding procedures and other contact with investors while the request is under analysis must be detailed in the prospectus.
  • New trading prohibitions have been created regarding underwriters, issuers and offerors, insofar as trading in any kind of securities issued by an offeror or issuer is concerned, until completion of the offering procedure.
  • Underwriters and issuers will be prevented from disclosing any information to the press regarding a public offering until its completion.
  • Prospectuses are subject to additional requirements, including a detailed description of the use of proceeds, provisions of shareholders' agreements, environmental issues, relations between controlling shareholders and management and additional matters relating to real estate. Most of these requirements were already applicable under a self-regulatory initiative of the National Association of Investment Banks - Anbid.

The new rules will apply to most kinds of securities, such as shares, debentures, commercial papers and Reit shares, although the further obligation to comply with the specific rules governing the offering of each kind of security remains in place.

José Eduardo Carneiro Queiroz and Renato Schermann Ximenes De Melo

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