On February 5, 2014, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) issued CVM Instruction No. 547 (CVM Instr. 547/2104), amending CVM Instruction No. 358, of January 3, 2002, that deals with the dissemination and use of information about relevant acts or facts (CVM Instr. 358/2002), and CVM Instruction No. 480, of December 7, 2009, that governs the registry of issuers of securities admitted to trading on regulated securities markets (CVM Instr. 480/2009).
CVM Instr. 547/2014 modernizes the regime for disclosure of information about relevant acts or facts (material events), adapting it to the current days, in which the Internet presents itself as an efficient and affordable means of disseminating news. In summary, the publicly-held corporations are exempted from publishing information about material events in newspapers of mass circulation, provided that such information is disclosed through news portals available on the World Wide Web.
The definition of material events is contained in article 2 of CVM Instr. 358/2002. Material events are any decisions taken by majority shareholders, general shareholders' meetings, or by officers of publicly-held corporations, as well as any other acts or facts of a political-administrative, technical, business or financial nature related to the relevant business that may significantly influence: (a) the market price of the securities issued by the relevant corporation or backed on them; (b) investors' decisions as to buy, sell, or preserve those securities; and (c) investors' decision as to exercise any rights inherent to titleholders of securities issued by the relevant corporation or backed on them.
According to the aforesaid definition, material events may include, but are not limited to: (i) signature of agreements or contracts regarding the transfer of the control of the company, even if under conditional provisions; (ii) changes in the control of the company, including entering into shareholders agreements and any amendment or cancellation thereof; (iii) signature, amendment, or cancellation of a shareholder agreement in which the company takes part in or is an intervenient party, or if such shareholder agreement has been registered in the appropriate book maintained by the corporation; (iv) admission or departure of shareholders maintaining contracts or operational collaboration regarding financial, technological or administrative issues with the company; (v) authorization for listing securities issued by the company in any domestic or foreign market; (vi) decision to go private; decision to promote the cancellation of the publicly-held corporation's register; (vii) amalgamation, merger or split-up involving the company itself or linked corporations; (viii) transformation or dissolution of the company; (ix) changes in the company's assets; (x) changes in accounting criteria; (xi) renegotiation of debts; (xii) approval of stock options plans; (xiii) changes of the rights and privileges of the securities issued by the company; (xiv) splits, reverse splits or the issue of share dividends; (xv) acquisition of shares for the purpose of increasing treasury stock or cancellation, and the selling of shares so acquired; (xvi) amount of profits or losses and the distribution of dividends; (xvii) signature or termination of contracts, or failure to close a deal, when the expectation for such is of public knowledge; (xviii) a project's approval, alteration or abandonment, as well as a delay in its implementation; (xix) starting, retaking or suspending the manufacturing or commercialization of products or of services rendered; (xx) discoveries, changes or developments regarding technology or companies' resources; (xxi) modification of disclosed projections by the company; and reorganization arrangements, bankruptcy, or any lawsuit that alters the corporation's financial situation.
Although the Brazilian Corporation Law (Law No. 6404, of December 15, 1976), do not order the publication of the material events, requiring only the dissemination of the information by the press, CVM traditionally demanded that the publicly-held corporations disclose their relevant information in the same newspaper of mass circulation which they usually use for their publications.
CVM acknowledged that, over the past few years, the electronic means of dissemination of news were gradually assuming the role of main mechanism of dissemination of information. The popularization of the Internet and mobile devices (smart phones and tablets) changed the way people communicate1. The Internet enables a large amount of information to be disseminated in a manner extremely fast and fair to a lot of people. Such characteristics make it an important channel to modernize the way through which the publicly-held corporations communicate with their shareholders and the market in general, thus allowing that the obligation of full and fair disclosure of the information, which is a basic principle of the capital markets regulation, be completely fulfilled.
The advancement of the Internet produced deep changes in the press in general. The main communication vehicles began to serve news not only for printed media, as well as by electronic means, notably on their own webpage. The press specialized in economic coverage developed new channels for dissemination of news, which reproduce almost in real time the information disclosed by companies on the Internet. Some of the main press vehicles have developed sophisticated tools that offer their customers a wide array of news (reports, articles, reviews) and data (such as, for example, the monitoring of stocks traded on the stock exchange daily). Such services are used by a significant portion of the market participants, mostly by intermediaries and professional and institutional investors2.
The ease of dissemination of news created by the Internet has reinforced the importance of specialized sources for maintaining a healthy capital market. The Internet has changed the way companies communicate with their shareholders and the market in general. The Internet is one of the communication tools used by the publicly-held corporations, initially with the construction of their own webpage and more recently through the various social networks.
The facts commented herein led CVM to re-examine the costs currently imposed on publicly-held corporations due to the obligation to publish material events in mass circulation newspapers and conclude that this requirement is no longer a proportionate and appropriate mechanism to ensure the wide dissemination of information. Furthermore, the replacement of the printed media by electronic means of dissemination of news do not cause any damage to the investors and the elimination of the requirement of publication of material events brings undeniable benefits to the publicly-held corporation.
These benefits are the following:
- firstly, the modernization of rules of disclosure of material events tends to reduce the costs of maintenance of publicly-held corporations, thereby increasing the attractiveness of the capital markets as an alternative of financing; and
- secondly, the flexibility now introduced by CVM has advantages of operational order, considering that to be published in the newspapers the announcements have to be sent to the agencies until a certain time limit, which often could not be fulfilled by the companies.
CVM Instr. 547/2014 is inspired in the legislation of other countries, like the United States of America, the United Kingdom and France, in which there is no obligation to publish information about material acts or facts in newspapers of mass circulation, without prejudice to the requirement that mechanisms be adopted to ensure rapid, complete and non-discriminatory dissemination of market-relevant information.
As already mentioned, the main change made by CVM in the applicable regulation consists in easing the rule of disclosure of information about material events, which will be disseminated not only in the newspapers of mass circulation normally used by the company but also cumulatively or alternatively by means of at least one new portal in webpage that provide full information in section available for free access (article 3, § 4th, items I and II of CVM Instr. 358/2002, as amended by CVM Instr. 547/2014)3.
CVM sought to prevent that such easing in disclosure of material events creates uncertainties for investors as to the place where such information can be found. In this sense, CVM requires that the disclosure policy and the registration form (formulário cadastral) include information about the channel(s) of communication which the company uses to disclose relevant facts. Any change in the communication channel used to disseminate information about any change to be implemented must be preceded by the disclosure of such in the form hitherto employed by the company to disclose its material events (article 3, paragraph 7th of CVM Instr. 358/2002, as amended by CVM Instr. 547/2014)4. Therefore, in that way investors can be sure if the material events will be published in the newspaper where the company makes its publications or will be made available in any electronic new portal, hypothesis in which the disclosure policy and the registration form should indicate which portal will be used.
These changes do not modify in any way the company´s obligation to forward to CVM notice of material events by means of the electronic system available in the CVM´s webpage. Material events may be disseminated by other means of communication, provided that the information is previously or simultaneously disclosed by the press (either the printed press or any electronic portal, in accordance with the company´s dissemination policy) and sent to CVM through its webpage.
To conclude, the changes introduced by CVM Inst. 574/2014 are limited to ease the means of communication to disseminate material events. All the other rules of CVM Instr. 358/2002 such as content and moment of disclosure of the material fact, for example, are the same and continue to be in full force and effect without any modification whatsoever. Furthermore, the criteria of relevance listed in article 2 of CVM Instr. 358/2002, which defines material events, remains unchanged.
Finally, CVM is perfectly aware that the use of the social media by the publicly-held corporations may also constitute another important contribution for a more transparent market, but it raises new concerns and specific discussions related to the use of these vehicles, which are presently being analyzed by a parallel and separate study of the regulator.
1. According to a recent estimate, approximately 34% of the world's population (2.4 billion people) had Internet access in June 30, 2012. On the same date, it has also been estimated that approximately 46% of the Brazilian population (88.5 million people) had access to the Internet and that 30% (55.6 million people) had a Facebook account.
This information is available at http://www.internetworldstats.com/stats2.htm#americas.
2. In order to ensure the maximum flexibility in the coverage of market agents, some news agencies have developed software designed to permanently access the pages of CVM and the Brazilian exchange on the Internet, to check if new information were filed by publicly-held corporations. Additionally, other initiatives have been taken to facilitate the flow of information among the disseminators of news. The Brazilian exchange, for example, instituted a news agency that evaluates the information filed by the listed companies and disseminates this information at a free Internet portal, as well as posts such news to some accredited institutions, including news portals and intermediaries. This information is available at http://www.bmfbovespa.com.br/Agencia-Noticias/ListarNoticias.aspx?Idioma=pt-br.
3. This provision reads as follows:
"§ 4th The disclosure of material act or fact shall occur by means of at least one of the following communication channels:
I - mass circulation newspapers usually used by the company; or
II - at least 1 (one) news portal with page on the World Wide Web that provide full information in a section available for free access."
4. The new wording of article 3, § 7th establishes that:
"§ 7th Changes in the channels of communication used must be preceded by the:
I - update of the policy of disclosure of material act or fact pursuant to art. 16 of this Instruction;
II - update of the registration form of the company; and
III - disclosure of the change to be implemented in the form hitherto employed by the company for disclosure of its material facts."
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