By: Moema Giovanella

On May 11, 2023, the Securities and Exchange Commission (CVM) issued (i) the CVM Resolution 182, which changes the rules for issuing Brazilian Depositary Receipts (BDR); and (ii) the CVM Resolution 183, which changed the CVM resolutions 80 and 160. These rules deal with the registration of securities issuers and the public offering regime, respectively, and were changed primarily due to the changes promoted by CVM Resolution 182. The changes come into effect on June 1st.

Among the main changes in relation to the text that had been presented for comments and suggestions, the following stand out:

• Public offerings of BDRs in sponsored programs Level I and Level II: it was decided to maintain the possibility of public offerings of Level I and II BDRs aimed exclusively at professional investors.
• Relaxation of requirements related to obtaining registration: quantitative levels of 25% of outstanding shares and R$ 25 million of average daily financial volume – required of issuers seeking registration based on the fact that they already have securities traded in other jurisdictions – were reduced to 10% and R$ 10 million, respectively.
• Brazilian issuer's debt BDR: admission of the possibility that the security representing the debt of a Brazilian issuer, even when not traded on an organized market, represents collateral for BDRs traded in Brazil.
• Integration with the regulatory framework for public offerings: rules for public offerings of BDRs were integrated into the general rules for public offerings provided for in CVM Resolution 160, seeking to preserve, whenever possible, the consistency of the requirements applicable to BDR offerings and offerings of the security that serves as collateral for the BDR.
• Additional change to CVM Resolution 160: in view of the concomitant changes in CVM Resolution 160, the CVM at the same time modified the rule to remove the restriction on trading in the secondary market of securities subject to public offering (“lock-up”) in the case of securities representing fixed income and traded within the scope of repurchase agreements without free movement. 

Furthermore, in order to issue BDRs, the issuer headquartered abroad must meet the following characteristics:

• own legal personality;
• liability of its shareholders limited to the issue price of the shares subscribed or acquired;
• admission of issued securities to trading on the securities market;
• record keeping with a local supervisor who is also responsible for supervising it;
• delegated administration, with a collegiate body as the highest authority; and
• shareholders' right to vote and receive dividends, with limitations and differences between types and classes of shares issued.

Under the previous rule, to obtain registration as a foreign issuer, in addition to having headquarters abroad, the foreign issuer needed to have less than 50% of its assets and revenues in Brazil.

With the new rule, only the headquarters requirement was maintained and the CVM now provides for three alternatives on which the foreign issuer may base its application for registration in Brazil as an issuer of securities:

• the foreign issuer must have as its main trading market a stock exchange that is headquartered abroad and in a country that has entered into a cooperation agreement with the CVM or is a signatory to the multilateral memorandum of the International Organization of Securities Commissions (IOSCO). In addition, the stock exchange must be classified as a recognized market; or
• the issuer must have been a foreign issuer for more than 18 months and, in the previous 18 months, have maintained, without interruption, at least 10% of shares in circulation and an average daily amount of financial volume of trading abroad equal to or greater than R$ 10 million; or
• the issuer must be headquartered in a country whose local supervisor has signed a specific bilateral agreement with the CVM aimed at cooperation, the exchange of information and increasing the effectiveness of inspection and supervision measures, including those relating to issuers of securities headquartered in that country.

Another new feature was the creation of additional disclosure rules for investment entities – as defined in accounting standards – in cases where these entities are issuers of Level I sponsored BDRs. The changes introduced by resolutions 182 and 183 were relevant to expand the possibilities of access by foreign issuers to BDRs, without leaving aside the security of the investor when acquiring this security.