Overview

The Brazilian securities market is regulated by Law No. 6.385 /1976 (“Securities Market Law”), Law No. 6.404/1976 (“Brazilian Corporation Law”), rules and instructions issued by the Brazilian Securities and Exchange Commission (“CVM”), the Brazilian Monetary Council (CMN) and the Brazilian Central Bank (“BACEN”). These laws, regulations, instructions amongst other documents determine the reporting requirements, stock trading restrictions through the use of insider information, price manipulation, and minority shareholders protection. However, the Brazilian securities markets are not as highly regulated and supervised as the US securities markets.

According to the Brazilian rules, CVM has the authority to oversee and issue overall rules on the discipline and management of stock exchanges and financial Institutions registered and composing the Brazilian securities market, as well as CMN and BACEN, which among others, have powers to authorize the setup and operation of brokerage houses, regulate foreign investments and foreign exchange operations.

The Brazilian Corporation Law defines two types of a corporation: (i) a listed corporation, whose securities are accepted for trading on the stock exchanges or over-the-counter (OTC) market, therefore, it shall be registered and have its securities registered before CVM and subject to regulatory and reporting requirements; and (ii) a closely-held corporation, which does not issue securities tradeable on these markets. A company registered at CVM is authorized to have its securities publicly traded, both at the Brazilian stock exchange, and the OTC market. A corporation shall request a registration with B3 S.A. – Brasil, Bolsa, Balcão (B3, former BM&FBOVESPA) and CVM, so that is shares are listed on B3. Shares of companies listed on B3 cannot be simultaneously traded on the Brazilian OTC market but can be traded privately, observing certain limits.

The Brazilian OTC market, organized or not, consists of investors trading through a financial institution authorized to operate in the Brazilian capital market, registered with CVM. No special requirement is necessary, besides the registration with CVM for a publicly-held company to trade its securities on the non-organized OTC market. CVM requires that respective brokers deliver a notice about all the trades carried out on the Brazilian OTC market.

The trade of securities on B3 can be suspended upon request of the issuer before the publication of a material fact. Trades can also be suspended by an initiative of B3 or CVM, based on or due to, among other reasons, indications that a company has provided improper information relating to a material fact or has provided inappropriate answers to inquiries made by CVM or B3.

B3 Novo Mercado is Brazil’s highest corporate governance standard listing segment, only composed of companies issuing common shares (ON), ensuring the voting right for all shareholders.

The Novo Mercado Rules sets forth the adoption of corporate governance practices additional to those required by Brazilian laws, such as the right of all shareholders selling their shares at the same price as the controlling shareholder, in the event of sale of control, availability of annual financial reports in an internationally accepted standard, minimum of two or 20% of members of the Board of Directors shall be independent, whichever is the greatest, with a combined term of office of at most, two years, amongst others.

Each common share entitles to one vote at resolutions of the General Meeting, Annual or Extraordinary Shareholders’ Meeting. Also, according to the Company’s Bylaws and the Brazilian Corporation Law, common shareholders are entitled to receive full dividends or other distributions made in relation to common shares at the ratio of their interest in the Company’s capital stock.

In the event the Company is liquidated, shareholders shall receive the payments relating to capital reimbursement, at the ratio of their interest in the Company’s capital stock, after settlement all their obligations. Shareholders are not required to subscribe future capital increases in the Company, however, they have preemptive rights to subscribe for new shares, at the ratio of shares held by each one, as authorized by Brazilian Corporation Law.

The CVM Resolution 44/21 provides for the disclosure and use of information about material facts or facts relating to publicly-held companies, regulating on the following:

• It defines the concept of material fact, including in such definition any controlling shareholder’s decision, resolution at the general meeting or management bodies of a publicly-held company, or any other act policy-administrative, technical, business, economic-financial fact or act occurred or relating to the company’s businesses that may considerably influence (i) securities price; (ii) investors’ decision to buy, sell, or hold these securities; and (iii) investors’ decision to exercise any rights inherent to their condition as holders of securities issued by the Company;
• It provides examples of act or fact potentially relevant that may include, amongst others, the signature of agreement or agreement to transfer the company’s controlling interest, entry or withdrawal of partner maintaining an agreement with the company, or operational, financial, technological, or administrative collaboration, incorporation, merger, or spin-off involving the Company or affiliates;
• It requires the Investor Relations Officer, controlling shareholders, officers, members of the fiscal council, and any bodies with technical or advisory duties to communicate any material fact to CVM;
• It requires the immediate disclosure of a material fact across all the markets in which the company has its shares listed for trading;
• It requires the acquirer of the publicly-held company’s controlling interest to disclose a material fact, including its intention of de-registering the publicly-held company within one year of acquisition;
• It sets the rules concerning the disclosure of acquisition or sale of relevant interest in a publicly-held company; and
• It restricts the use of insider information.