CVM publishes resolution with new rules for BDRs

The Securities and Exchange Commission (CVM) issued, in August 2020, Resolution / CVM No. 3/2020, effective from September 1, 2020

The Securities and Exchange Commission (CVM) issued, in August 2020, Resolution / CVM No. 3/2020, effective from September 1, 2020, presenting changes to some CVM Instructions, regarding the rules associated with Brazilian Depositary Receipts (BDRs). Noteworthy, among others, the issuance of BDRs backed by quotas of index funds and other securities; change in the definition of foreign issuer; and acquisition of Level I BDRs by non-qualified investors.

BDRs, certificates of deposit of securities, constitute a form of indirect investment in financial assets represented in them, which allows the diversification and exposure of part of the investment portfolio to the foreign market, without the need for direct investment in other markets. In summary, BDRs are securities issued and traded in Brazil that represent another security traded abroad.

One of the recent changes concerns the flexibility regarding the possibility of BDRs being backed in addition to the shares traded abroad issued by foreign issuers, by quotas (ideal fraction of equity) of the index fund, traded in organized securities markets, and in custody in countries whose regulatory bodies have entered into a cooperation agreement with the CVM, in addition to fulfilling other requirements; or by securities representing debts listed or admitted to trading abroad and issued by foreign issuers or by Brazilian public companies registered with the CVM.

Resolution 3/2020 also changed the definition of a foreign issuer. Thus, it is understood that issuer that has its headquarters outside Brazil. In this sense, BDRs may be issued by foreign issuers that are subject to the supervision of the capital market regulator of their main trading market, who have less than 50% of their assets and revenues in Brazil or whose main trading market ( for issuers with shares or stock certificates admitted to trading, the one with the highest volume of trading in the last 12 months; for issuers in the process of conducting an initial public offering, the one who has received the listing request and obtains most of the shares. ongoing offering resources) meets specific requirements.

These requirements relate to the requirement that the main trading market of the foreign issuer be a stock exchange that: (1) is headquartered outside Brazil and in a country whose regulatory body has entered into an agreement with the CVM on consultation, technical assistance and assistance mutual exchange of information, that is to say a signatory to the IOSCO multilateral memorandum of understanding; and (2) is classified as a “recognized market” in the regulation of an organized securities market management entity approved by the CVM.

BDRs are classified in “Programs”, according to their characteristics of information, distribution and trading, and the existence, or not, of sponsorship by the companies issuing the securities, which are the object of the deposit certificate. The sponsoring companies, in turn, are public or similar companies, headquartered abroad and subject to the supervision of the sector’s regulatory body, issuing those securities. In this way, BDRs programs are divided between those sponsored or not by the company that issued the securities.

The sponsored BDR program, instituted by a single depositary institution, contracted by the issuing company of the securities, which is the object of the deposit certificate, is classified into levels with different rules regarding BDR trading, information disclosure, company registration, acquisition variable according to the type of investor and distribution by public offering.

Level I is characterized by trading on an unorganized over-the-counter market or in specific segments for BDR Level I of an organized over-the-counter market entity or stock exchange, with the obligation to disclose, in Brazil, by the depositary institution, the information that issuing company is obliged to disclose in its country of origin, among others.

In this context, Resolution No. 3/2020 innovated by providing that the acquisition of Level I BDRs is allowed to unqualified investors, under certain conditions, since this possibility was previously restricted to qualified investors and employees of the sponsoring company or company of the same economic group.

In this way, it is required that the market with the highest trading volume of these assets, in the previous 12 months, be classified as a “recognized market” in the regulation of an organized securities market management entity approved by the CVM and that the issuer of the securities securities that support the BDRs is subject to the supervision of a regulator of that market.

By: Wilson Sales Belchior