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					Comissão de Valores

   Marcos Galileu Lorena Dutra
   Market Oversight Manager

   Programa de Visitas do Grupo de Especialistas em
   Gerenciamento de Dívida Pública da América Latina e Caribe

   Brasília, October 9th 2008

   The regulation of Brazilian Capital Markets:
    the role of CVM;
   Regulation of Stock Markets;
   Regulation of Investment Funds;
   Regulation of Foreign Investments;
   Final Remarks.
    1990s - The Brazilian equity market
   Trading Value at BOVESPA .. shrinking
        1997: 15.9 US$ bi
        2000: 8.5 US$ bi

   Trading of Brazilian Companies’ ADRs in the NYSE
    (as a % of the total) .. growing
        1997: 1.2%
        2000: 33.2%

   Delistings
        589 listed companies at BOVESPA in dec/1996
        495 listed companies at BOVESPA in dec/2000
 1990s - The Brazilian equity market
 8 IPOs between 1995 and 2000
 Only one company went public between 2001
and 2003
 Only large deals with dual listing in the NYSE
were deemed feasible
   The American regulatory environment was more attractive to the
  investors than the Brazilian one
 Only a few international banks led equity
offerings there
 Basically institutional investors were targeted
  In the recent years …

64 new listings in 2007 (111 since 2004)
 more than 70% (average) bought by foreign
institutional investors
 2 listings of foreign issuers (BDRs)
 São Paulo was the 5th market in absolute
financial volume of share offerings in world
  behind the New York, Shanghai, London and Hong
  Kong stock exchanges (source: WFE)
           Brazilian Market
Securities Offerings (US$ bi)
      Brazilian Market
Equity Offerings (US$ bi)
          Brazilian Market
Number of Equity Offerings
               Brazilian Market
Corporate Bond Offerings (US$ bi)
Regulatory Framework



                         CENTRAL BANK OF BRAZIL

The Commission

   The CVM deals today with a with the full spectrum
    of financial instruments and market players such
    as securities in general, futures markets,
    derivatives, all types of funds from money market
    to hedge funds, listed companies, market
    consultants, analysts, broker dealers and other
    intermediaries, SRO’s amongst others

   the CVM also deals with such aspects of market
    life as company reporting, offerings registration,
    accounting and auditing and investor education
Main Objectives

 DISCIPLINE   THE MARKET (regulation)
 ENFORCEMENT         (transparency and minority
 investor’s rights)
 SUPERVISION     (market watch against abuse)
 DEVELOPMENT         (market growth through a
 stable and modern legal framework based on
 international principles and standards)
 Structure Law (6385)
 Independent Agency to accomplish the policies set
forth by the National Monetary Council

 Directed by a Board of Commissioners – composed
by a Chairperson and four Commissioners, all
appointed by the President of Brazil and approved by
the Federal Senate for a fixed mandate of 5 years (one
replacement per year)

 The Board of Commissioners makes administrative
decisions on a vote-basis, subject to appeal

 Approximately 700 staff members
The Commission
   Major changes that led to the current well-established
    environment of CVM:
       Macroeconomic stability: provided the basic support and metric to players
        starting their activities’ plans;
       Investor protection and disclosure concerns to regulating the complete
        basic market spectrum of products and market activities;
       Gradual consolidation of an extensive track record of enforcement
        decisions and rule interpretations: provided investors with a stability
        assurance of the Commission’s rules;
       Self-regulatory environment and the consolidation of a “caring” market
       Micro regulatory reforms in different areas of market activities
       Results of the changes: increase of registered market deals, number of
        IPO’s, growth in private equity, venture capital and ABSs
   Other examples of qualitative changes in the market: regulation of
    fund disclosure requirements, their ability to invest in international
    assets, accounting convergence to IFRS
  International Affairs

         International Securities Organizations
 International Organization of Securities Commissions-IOSCO

 Iberoamerican Institute of Securities Market - IIMV

 Inter-American Securities Regulators Council - COSRA

         International Affairs – Other Activities

MERCOSUL      FTAA/ALCA     WTO        OECD       UNO    IFIAR
International Affairs
        28 Memoranda of Understanding
   South Africa          China           Greece                Paraguay
   Germany               Singapore       Hong Kong, China      Peru
   Argentina             Ecuador         Israel                Portugal
   Australia             Spain           Italy                 Romania
   Bolivia               USA (SEC)       Luxembourg            Russia
   Canada (Quebec)       USA (CFTC)      Malaysia              Thailand
   Chile                 France          Mexico                Taiwan, China

                      Type of Information
 Assistance to support regulatory agencies’ investigations
(market frauds) and due diligences

    Co-operation on market development
The regulation of stock exchanges
   Regulatory definition of “Organized markets of
       the physical space or electronic system designed for the
        trading or registration of operations with securities by a
        certain number of people authorized to trade, whether they
        are acting on their own account or on behalf of a third
       The operation and dissolution of organized markets
        depends on CVM prior approval.
   They comprehend the stock exchanges,
    commodities and future exchanges and the
    organized over-the-counter markets.
   Exchanges are self-regulatory organizations.
Self-Regulation Pros and cons
   Self-regulation potential pros
       Familiarity and knowledge of businesses and
       Agility (possibility to act faster)
       Flexibility
   Self-regulation potential weaknesses
       Too much familiarity
       Lack of willingness to enforce rules
       Lack of resources to perform the job, due to
        short term commercial interests
Statutory SROs
   New rules for exchanges and organized
    over-the-counter markets
       More independence (separate governance
        structure and budget from the market itself)
       Provision of the necessary resources to self-
        regulation (annual work plan and budget
        submitted to the CVM)
       Use of legal mandate of the SRO to effectively
        enforce rules
       Periodic reporting of activities to the CVM
   Close monitoring by the Commission
   One of the pillars of CVM’s risk-based
    supervision policy
Brazilian Stock Market – Traded
Brazilian Stock Market – Market
                           US$ 1,552.01 bi

Investment funds

   Fully regulated by CVM since 2001;
   Investment funds must be registered with
   Different cathegories subject to different
    regulatory approaches;
   11,4 million shareholders in August 2008;
   8,390 registered funds;
   General rule: CVM Rule #409.
Investment funds regulation –
regulatory approach
   Investor protection;
   Disclosure of material facts;
   Relevant information available at CVM’s
   Conservative advertising;
   Performance fees: limitations;
   “Private” credit risk management;
   Retail x Qualified Investor.
                                    Brazilian Market
                                      Investment Funds

  11.4 mm         net asset value
shareholders        US$ 708 bi         8.3 thousand funds
               (45% of 2007* GDP)

Foreign Investors Regulation
 Concept      of non-resident individual or collective
    investors, according to relevant regulations:
       private bodies or legal entities, funds or other collective
        investment entities that have residence, principal place of
        business or domicile abroad.
 Non-resident      investors may invest in the same
    products available for local investors.
   They may also invest in CVM regulated funds, with
    free-transit from equity-related to fixed income
    investments and vice-versa (as long as observed
    the differences in the tax treatment)
   Both institutional and individual investors may invest
    in Brazil.
Foreign Investors Regulation

   Prior to starting its operations in Brazil, non-residents must
    appoint a representative that will be responsible for the provision
    of information and filings with the Central Bank and CVM
   The financial assets and securities as well as other types of
    investments must be registered, maintained under custody or in
    deposit accounts in institution authorized for such purposes or
    yet, in registration, settlement and custody systems recognized
    or authorized by CVM or the Central Bank.
Operational Aspects

 Prior to starting its operations in Brazil, a non-resident
  investor must appoint one or more representatives in
  the country.

 When   such representative is an individual or a non-
  financial institution the investor must also appoint a
  financial institution or institution authorized to operate
  by the Brazilian Central Bank that will be jointly and
  severally responsible for the performance of the
  representative’s obligations.
Representative’s main responsibilities
   Maintain under its safeguard and submit to the Central Bank and
    CVM whenever requested the Non-resident Identification Form,
    as well as the representation and custody contracts entered into;
   Effect and maintain current the registrations with CVM and the
    Central Bank;
   Immediately notify the Central Bank and CVM of the termination
    of the representation contract as well as observing the relevant
    competencies, and the occurrence of any irregularity that may
    come to its knowledge;
   Monthly present to CVM information bulletins on the portfolio
   Inform to the Central Bank the transfers of foreign investment
    under Resolution No. 2689/2000 for the Depositary Receipt
 After filling out the identification form, the non-resident
  investor should, through its representative, obtain
  registration at CVM. The application is made
  electronically. CVM will respond to the registration
  within 24 hours from the application made by the
Investor Classification
 The non-resident investor must qualify under one of the following
    classifications to be registered with the Central Bank and the
   Commercial banks, investment banks, savings and loans
    associations, global custodians and similar institutions, regulated
    and supervised by the appropriate government authorities;
   Insurance companies regulated and supervised by the
    appropriate government authorities;
   Corporations and entities acting as underwriters or traders in
    negotiation of securities, acting on their own account or third
    parties registered and regulated by a CVM recognized body;
   Pension funds regulated by the appropriate government
   Non-profit institutions as long as they are regulated by the
    appropriate government authorities;
Investor Classification

   Any entity whose purpose is the investment in of funds in money
    and capital markets whose participants are exclusively
    individuals and legal entities residing and domiciled abroad, as
    long as registered and regulated by a CVM recognized body;
   Any entity whose purpose is the investment of funds in money
    and capital markets whose participants are exclusively
    individuals and legal entities residing and domiciled abroad as
    long as the portfolio management is carried out at the discretion
    of a professional manager registered and regulated by a CVM
    recognized entity;
   Other funds or collective investment entities;
   Legal entities organized abroad;
   Individuals residing abroad.
Contracting and Registration with
 Non-resident investors intending to operate as account
  holder must sign, directly or through their
  representative, a contract for provision of securities
  custody services with an institution authorized by CVM
  to provide such service.
Registration of Non-resident Investor with
Local Brokerage Firm

 Non-resident    investors as well as resident investors
    must effectuate the registration with a local brokerage
    firm and keep it updated. In case of non-resident
    investors there are two options:
   Simplified Registration for Foreign Investor ( CVM
    Instruction 419/2005)
   Registration for Foreign Investor ( CVM Instruction
Operational Restrictions
 Non-resident   investors are forbidden to acquire or
   Securities of publicly listed companies by other
    means than the trade at the stock exchanges,
    electronic systems or organized over-the-counter
    market authorized by CVM;
   Securities traded in non-organized over-the-counter
    markets or organized by entities not authorized by
   Securities of closely held companies (permitted
    indirectly only via quotas of CVM-registered
    investment which regulation considers them).
Profile of the portfolio of Foreign
   Total value of portolfio: US$ 232,2 Bi
    (August 2008)
       Fixed income assets: 29,8%
       Stock Market: 67,3%
       Derivatives: 1,2%
       Corporate bonds: 0,14%
       Others: 1,61%
Comissão de Valores

   Marcos Galileu Lorena Dutra
   Market Oversight Manager

   Programa de Visitas do Grupo de Especialistas em
   Gerenciamento de Dívida Pública da América Latina e Caribe
   Brasília, October 9th 2008

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