The Brazilian Securities Commission (CVM) has submitted to public hearing a draft amendment to the regulation on public offerings, namely, CVM Rule 400, dated December 29 2003, as amended. The proposed Rule 400 will harmonise the regulation of public offerings with the regulation recently enacted addressing public offerings of securities distributed with limited underwriting efforts, namely, CVM Rule 476, dated January 16 2009. Moreover, the proposed new Rule 400 is already in line with the proposed new regulation on the registration of listed companies, which will (i) enter into force in 2010 and (ii) adopt a shelf-registration system and the automatic registration of public offerings of "well-known seasoned issuers".
A main development in the proposed Rule 400 is the reduction of the cases in which a feasibility study will be required. Theoretically, this requirement increases the liability of an issuer when its securities are offered outside Brazil, since the feasibility study should comply with the regulations of the relevant foreign jurisdiction. Under the proposed Rule 400, feasibility studies will only be mandatory (i) if the offer is conducted for the purposes of the set up of a new company, or (ii) if the issuer is in a pre-operational stage.
In addition, the proposed Rule 400 will clarify the rules on the beginning of quiet periods. In accordance with Rule 400, statements in relation to an offer are prohibited from the moment the offer is planned up to its termination. In certain cases, however, the starting point is not clear. Thus, the proposed Rule 400 expressly provides that the quiet period starts 60 days before the first filing with the CVM.
Another development is being introduced in relation to conflict of interest rules applicable to underwriters. The proposed Rule 400 will set forth that underwriters can act as market makers of securities under their underwriting activities.
Furthermore, the proposed Rule 400 restricts the exemption of registration applicable to issuers of securities´ indivisible single lot. This type of offer will remain automatically exempt from registration, provided that a four-month period between public offerings of this type, by the same issuer, is observed.
Comments and suggestions can be presented to the CVM until May 26 2009.
José Eduardo Carneiro Queiroz and Alexei Bonamin