On May 11, the Brazilian Securities and Exchange Commission (CVM) issued CVM Resolution 182, which amends current regulation on issuing Brazilian Depositary Receipts (BDR). BDRs comprise securities issued in Brazil, backed by underlying assets issued abroad by a foreign or Brazilian issuer of either shares,  deposit certificates (CDA), or debt instruments,.

On the same date, CVM issued CVM Resolution 183, which amended CVM resolutions 80 and 160. Such resolutions provide the basis for the regulation of public offerings  and issuer registration before the CVM.

CVM resolutions 182 and 183 enter into force on June 1st and primarily alter the rules regarding categorization of foreign issuers before the CVM and the requirements for obtaining registration for foreign issuers, as a mandatory step for the issuance of Level II and III BDRs.

In order to issue BDRs, foreign-based issuers must meet the following standards:

  • exist as a legal entity;
  • shareholder liability limited to the issuing price of subscribed or acquired shares;
  • issued securities traded on regulated exchange;
  • subjection to oversight of regulating body;
  • delegated management, subject to a collegiate board or similar body; and
  • shareholder rights regarding voting and dividends, with certain allowed limitations and differentiations given types and classes of shares.

Under previous regulation, in order to obtain registration as a foreign issuer, in addition to having foreign headquarters, issuers were subject to having less than 50% of assets and revenues in Brazil.

Under current regulation, solely the requirement for foreign headquarters was kept, and the CVM has provided three alternatives under which foreign issuers may base their request for registration in Brazil as an issuer of securities:

  • foreign issuers’ shares must trade on a stock exchange headquartered abroad, in a country that has either 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
  • prove status asa foreign issuer for more than 18 months and, in the previous 18 months, prove uninterrupted maintenance of at least 10% of shares in circulation and an average daily trading volume equal to or greater than R$ 10 million; or
  • headquarters located in a country whose local supervising authority has signed a specific agreement with the CVM encompassing bilateral cooperation, exchange of information and effectiveness of inspection and supervision measures, including those referring to issuers of securities based in such jurisdiction.

Further regulatory alterations comprise additional disclosure requirements for investment entities – as defined by accounting standards – when such entities issue Level I sponsored BDRs.

With respect to BDR offerings, changes promoted in CVM Resolution 160 refer to:

  • registration rites of BDR offerings; and
  • removal of restrictions on the secondary asset trading of subsequent offerings of Level I and II sponsored BDRs backed by shares and initial offerings of sponsored BDRs backed by debt instruments, notwithstanding specific rules set forth by CVM Resolution 182.

For simplification purposes, we have systemized the available regimes for offerings involving BDRs. Regarding the qualification of the accessed investors, the following offerings must also observe the same restrictions imposed on the initial public offering of the underlying securities of the BDRs:

BDR classification Underlying asset Type of offering Offering rite Target investors
  • BDR Level I

Shares or CDA

Initial Ordinary Professional investors
Subsequent Automatic Professional investors
Debt securities              Automatic Professional investors
  • BDR Level II
Shares or CDA Initial Ordinary Professional investors
Subsequent Automatic Professional investors
Debt securities   Automatic Professional investors
  • BDR Level III
Shares or CDA Initial Ordinary No restriction
Subsequent Automatic

– Professional investors

– Qualified investors, upon presentation of prospectus and termsheet (Lâmina)

– General public, via self-regulatory oversight

Debt securities   Automatic Professional investors
Ordinary No restriction

Alterations promoted by CVM Resolutions 182 and 183 are relevant towards the expansion of possibilities and access of foreign issuers to BDRs, without compromising investor protection.