Rafael Tridico Faria
Lawyer at Marcos Martins Advogados
On August 11, 2020, the CVM published CVM Resolution 3, which amended CVM Instructions 332, 359, 480 and 555, on the Brazilian Depositary Receipts (BDR) program.
BDRs are certificates issued by a depositary institution in Brazil and representing securities issued abroad, i.e. if a foreign company has shares listed on the New York Stock Exchange and wants to list its shares on the Brazilian market, this will be done through BDRs. This way, by acquiring a BDR, Brazilian investors can acquire foreign securities without having to go through a lot of red tape to buy the asset on foreign stock exchanges.
The new rules brought in by CVM Resolution 3 make it easier for foreign companies to list BDRs and also expand the public that can trade these certificates. Among the new rules, the highlights are[1]:
– BDRs are allowed to be backed by (i) shares issued by foreign issuers with assets or revenues in Brazil or (ii) debt securities, including those issued by Brazilian publicly traded companies. Until the reform, only shares issued by publicly traded companies, or similar, with headquarters and assets predominantly located abroad, could serve as backing for securities traded in Brazil.
– Permission for investors who are not considered qualified to trade in BDR Level I securities, depending on the market in which they are listed.
– Provision for the issue of BDRs backed by shares in index funds admitted to trading abroad.
– Reduction of obligations related to the translation of information produced by foreign issuers or index funds, given the technological advances that have increasingly facilitated the processing of information in a foreign language by local investors.
– Provision for the disclosure of the composition of the reference index of index funds to take place up to 3 months after the date to which they refer, in order to preserve the intellectual property of index providers on the indices they develop and supply, thus increasing the range of products on offer to local investors.
– Elimination of the obligation to disclose the full contract between the index fund and the index provider, given the commercial nature of the content of these contracts.
– Automatic registration of BDR programs backed by index fund shares, speeding up the launch of new products.
– Extension of the possibility of issuing BDRs backed by debt securities to public companies registered with the CVM, allowing local investors to participate in issues often carried out abroad.
The new rules will come into force on September 1, 2020.
CVM Resolution 3 is part of the CVM’s Regulatory Agenda, as determined by Decree 10.139/2019, aimed at reviewing and consolidating normative acts and simplifying the many rules in force in Brazil. We monitor CVM regulatory updates on a daily basis and are ready to assist our clients in any way necessary.
Questions? Talk to our lawyers and receive guidance.
[1] CVM. CVM updates BDR rules. Available at: http://www.cvm.gov.br/noticias/arquivos/2020/20200811-1.html. Accessed: Aug. 14, 2020.
