Novo Mercado is a listing segment designed for shares issued by companies that voluntarily undertake to abide by corporate governance practices and transparency requirements in additional to those already requested by the Brazilian Law and CVM (Brazilian Securities and Exchange Commission).

It is based on the premise that stock valuation and liquidity are positively impacted and assured by shareholder’s rights and by the quality of companies´ information.

The admission to Novo Mercado implies the compliance with corporate rules, known as "good practices of corporate governance", which are more rigid than those required by the current legislation in Brazil.

These rules, consolidated in the Listing Regulation, increase shareholder's rights and enhance the quality of information commonly disclosed by companies. Additionally, the Market Arbitration Panel for conflict resolution between investors and companies offers a safer, faster and specialized alternative to investors.

The main innovation of Novo Mercado concerns the capital stock, which must be solely represented by common shares (voting shares). In brief, publicly-held companies listed on Novo Mercado have the following additional obligations:

1. How was Novo Mercado – NM created?

The idea of creating a market with distinct listing rules initially stemmed from the study “Challenges and Opportunities for the Brazilian Capital Market”, authored by professor José Roberto Mendonça de Barros, professor José Alexandre Scheinkman and Leonardo Cantidiano, Ph.D., among other distinguished professionals. The study concluded that an overall improvement in local capital markets would be fundamental to ensuring that this sector effectively fulfills its role in financing economic growth.
The objective behind NM is creating a more propitious environment for companies to afford investors a higher level of accountability through good corporate governance practices and greater transparency, and, as a consequence, reduce funding costs.

2. What steps should a company with preferred shares take to be listed on NM?

A company with publicly-traded preferred shares has two alternatives: converting preferred shares into common stock or buying back the preferred shares currently in market hands.

3. If a company opts to convert its preferred stock into common shares, what is the conversion ratio?

The conversion ratio is the company’s decision, but must first be approved by stockholders. BM&FBOVESPA does not have a pre-established conversion ratio.

4. Do Novo Mercado’s rules override the prevailing Limited Liability Corporation Laws?

First and foremost, it is important to stress the fact that none of the Novo Mercado’s rules conflict with existing legislation, nor any of the Norms (Instrução) released by the Brazilian Securities and Exchange Commission (CVM). Several requirements previously included in the Novo Mercado’s regulations were later omitted, due to their inclusion in Law 10.303 and CVM’s Norm 358, currently in effect. One example is the rule prohibiting founders´ shares or that establishing a mandatory 15-day notice before calling a general meeting, both included in Law 10.303.

5. Does participation in NM imply higher maintenance costs for publicly-held companies compared to a traditional listing on stock exchanges?

The only difference in costs for a company listed on NM will be those related to preparing annual balance sheets in accordance with international accounting standards. At the moment, many companies traded on BM&FBOVESPA already comply with international accounting standards.

6. Is there any minimum or maximum value to carry out an Initial Public Offering (IPO) on NM?

To join NM, public, primary or secondary offers must be a minimum of R$ 10 million. There is, however, no maximum IPO value.

7. Is there any index measuring the performance of stocks listed on NM?

Yes, IGC - Differentiated Corporate Governance Stock Index (Índice de Ações com Governança Corporativa Diferenciada), which includes companies complying with both Levels 1 and 2 of Corporate Governance.

8. What’s IGC methodology? How is stock weighing conducted?

IGC is composed of NM companies, and Levels 1 and 2 of Differentiated Corporate Governance. Weighing is conducted using the market value of the outstanding stocks (free-float) of the respective companies. NM companies are assigned a weight of 2, Level 2 companies a weight of 1.5 and Level 1 companies a weight of 1. IGC is calculated and disclosed in real time. For more information, click here.

9. Will NM be a new stock exchange?

No. NM is a segment of BM&FBOVESPA with distinct listing rules.

10. What benefits do NM companies enjoy?

As far as companies are concerned, those complying with NM rules should enjoy better stock pricing on the market, and, as a consequence, lower funding costs. This assumption is based on several studies and empirical evaluations demonstrating that investors are willing to pay more for stock in companies that adopt good corporate governance practices and are more transparent in their dealings with the market.

11. What are the benefits for investors?

For investors, NM will represent the opportunity to purchase a specialty “stock product”. Only common stocks will be traded on NM, enabling the investor to enjoy a more active role as his/her vote is proportional to his/her interest in the company. NM’s purpose is to provide investors with more guarantees through high standards of corporate governance and a greater degree of transparency, in conjunction with a Market Arbitration Panel for dispute resolution.

12. Was NM based on any international model?

Yes and no. The study “Challenges and Opportunities for the Brazilian Capital Market” shows Germany’s Neuer Markt experience as an important benchmark in the use of a private contract between a company and the Stock Exchange as a means of establishing additional rules.
However, the Neuer Markt, like other similar markets in Europe such as Nouvéau Marché (France), TechMark (England), Nuovo Mercato (Italy) were exclusively founded to attract companies from fast-growing markets and high tech areas, such as Internet, telecommunications, media, biotechnology, et cetera. BM&FBOVESPA’s NM, on the other hand, places no restriction on field of activity, nor is it reserved for small companies.

13. Is there any set profile to be listed on NM?

There is no restriction on the sector, nor the size of a given company. However, in order to join NM, the company’s senior management and controlling stockholders are required to sign a contract with BM&FBOVESPA agreeing to comply with NM Listing Regulations.

14. Can companies currently listed on BM&FBOVESPA move to NM?

Yes, provided that they sign a NM contract and comply with established rules.

15. What happens if a company does not uphold the contract?

In the event that a NM-listed company fails to comply with Listing Regulations, BM&FBOVESPA will notify the company in writing, stipulating a deadline for rectification of the irregularities. The company may also be subject to the following consequences: fines, suspension of shares from trading, and, in more serious cases, cancellation of its NM registration. The Regulations on Fines set forth by BM&FBOVESPA are designed to direct the punishment or warning to those responsible for the infraction. Therefore, the company, in itself, is not the sole object of punishment.
Furthermore, the Market Arbitration Panel affords the investor a more agile and effective means of settling disputes and issues related to compliance with NM Listing Regulations, in addition to any other corporate matters.

16. What are NM’s main rules?

For further information, see NM Listing Regulations.

17. Why are companies only allowed to issue common stocks?

The goal is to ensure that all stock is voting capital. In other words, all stockholders will have the same rights proportionally.

18. What does lock-up period mean?

The lock-up period is a six-month period following the initial public offer during which controlling stockholders (original stockholders) must abstain from trading their stocks. Companies listed on NM must observe the following rules: controlling stockholders may not sell any shares for six months after the initial offer; and from seven to twelve months after issuance, controlling stockholders may sell a maximum of 40% of their holdings.
The objective is to grant investors greater security that in making a public offer entrepreneurs do not intend to dispose of the company’s stocks but, on the contrary, search for partners to finance the company’s business expansion.

19. What does tag-along mean?

This is the jargon for the mechanism that grants minority shareholders the same treatment as controlling stockholders in the event of the sale of the company’s controlling interest to other stockholders.

20. Why is a minimal percentage of free float required? Why 25%?

Liquidity constitutes one of the main attributes of shares; and it is a widely known fact that the higher the percentage of outstanding stocks, the higher the daily trading volume. Therefore, by establishing a minimal percentage of stocks in free float, trading on the secondary market increases.
This minimal percentage is also known as free-float and the international standard is around 20%.

21. Why must the board of directors have a unified one-year term and at least five members?

Under the Limited Liability Corporation Law, shareholders are allowed to use mechanism known as the multiple vote, which works as follows: a stockholder owning at least 10% of capital stock and who is entitled to vote may request the adoption of the multiple vote process.
By using the multiple vote, an investor may attempt to concentrate all of his/her votes on a single candidate in order to elect that individual to the board of directors. In a system in which board terms are unified and renewed yearly, the multiple vote mechanism becomes less efficient.
As there are at least five members on the board, if stockholders holding as much as 20% of stocks vote collectively, they may elect only one director to the board.
It is important to point out that all members can be re-elected successively. The goal of the one-year term is to enable all new investors to more easily and quickly elect a director, if they so desire.

22. What benefits can companies get by preparing their financial statements under US GAAP or IAS?

A company preparing and disclosing its accounting statements under internationally recognized standards obtains greater visibility among foreign investors. This is an important because, in many cases, certain categories of investors may fail monitor or invest in companies lacking financial statements reported according to Generally Accepted Accounting Principles. On the other hand, for Brazilian investors, the adoption of international standards provides more possibilities for comparison with similar companies in other countries. The presence of foreign investors on BM&FBOVESPA has been significant in the last few years.

23. Why must controlling stockholders and senior management report their dealings with the company’s stocks?

Controlling stockholders and senior management have privileged information on the company. That is why their dealings in the market are regarded as vital information.

24. Why must contracts between controlled, associated companies and companies in which the controlling stockholder has some equity interest be reported to the Stock Exchange and to the market?

It is highly important that investors be aware of nature of contracts between companies of a same group and companies in which the controlling stockholder has some equity interest. With this information, investors are able to assess whether or not the company in question is being adversely impacted by these contracts.

25. Should all information disclosed by NM companies be published in a newspaper?

No. NM additional requirements on disclosure are made available to BM&FBOVESPA, which will, in turn, publicize this information on its website.

26. Will stocks at NM be traded separately?

No. Stocks on NM will be traded in BM&FBOVESPA’s electronic trading system, Mega Bolsa. The difference is that NM companies will have a greater exposure and will be distinguished by their trading codes.

27. Can a NM listed company be a part of Ibovespa?

Yes, provided that it observes the requirements for participation in the Ibovespa index.

28. Is it possible to trade stocks of NM listed companies through Home Broker?

Yes. Stocks of NM listed companies can also be traded through Home Broker (trading via Internet at the online broker’s site - http://www.homebroker.com.br).

29. What is the basic difference among Level 1, Level 2 and Novo Mercado?

Corporate Governance Levels also have differentiated listing rules. Such rules are similar to NM listing Corporate Governance Levels also have distinct listing rules. These rules are similar to the NM listing requirements.
Level 1 includes transparency rules and stock dispersion as set forth at NM.
Level 2 covers both transparency rules and stock dispersion and balance of rights among controlling and minority stockholders.
What distinguishes Level 2 from the Novo Mercado is precisely the possibility of having preferred stocks in the company’s capital structure.
- Click for more information on Level 1 and Level 2.

30. How many and what are the companies that take part in NM?

To see the list on BM&FBOVESPA’s site, click here.

31. What are Differentiated Levels of Corporate Governance and what is the goal of creating special listing segments?

The goal is to create alternatives for those companies with preferred stocks in their capital stock but are willing to become more transparent and a provide more guarantees to their investors.
Accordingly, BM&FBOVESPA has established a set of listing rules with transparency requirements and good corporate governance practices designed for companies, senior management and controlling stockholders. These requirements are considered important for valuation of stock and other securities issued by the company. These rules have been defined as “Differentiated Corporate Governance Practices”.
Compliance with these Practices distinguishes the Company as Level 1 or Level 2, depending upon the degree of commitment assumed by the company. - Click for more information on Level 1 and Level 2.

32. Are levels 1 and 2 of the corporate governance a part of Novo Mercado – NM?

No. They are three special listing segments: Level 1, Level 2 and NM. Companies can be listed in the traditional market, at Level 1, Level 2 or NM.

33. Can Level 1 and 2 companies have preferred stocks?

Yes.

- Click for more information on Level 1 and Level 2.

BOVESPA sets a series of standards for the conduct of companies, managers and controlling shareholders considered as important for valuation of shares and other assets issued by the company. The adherence to these practices distinguishes a company as either Companhia Nível 1 (Level 1 Company) or Companhia Nível 2 (Level 2 Company), depending on the degree of commitment assumed by the company.

The adherence to BOVESPA's "Special Corporate Governance Levels" better advertises the efforts of the company to improve the relation with its investors and increases the potential for appreciation in asset value.

Companhias Nível 1 largely undertake to improve methods of disclosure to the market and to disperse their shares among the largest number of shareholders possible. Thus, the principal practices required of a Companhia Nível 1 are:

To be classified as a Companhia Nível 2, in addition to the obligations of Nível 1, the company and its controlling shareholders must adopt and observe a much broader range of corporate governance practices and minority shareholder rights. In brief, the criteria for listing as a Companhia Nível 2 are:

BOVESPA MAIS (Bovespa Plus) is a segment of BM&FBOVESPA Organized OTC Market where only those publicly traded companies duly registered with CVM can be listed.

It's been designed to welcome companies whose strategy is to gradually gain access to the capital markets, thereby ensuring their exposure to such market and supporting their evolution in terms of transparency, enlarged base of stockholders and liquidity.

On the other hand, to be eligible to take part in such new segment, companies are supposed to permanently work on the construction of a strong and dynamic market to their securities, thus demonstrating their intent to reach higher levels of exposure on the capital market.

And above all: companies will take on the commitment to guarantee more rights and information to investors, adhere to the advanced practices of Corporate Governance, whose rules are similar to Novo Mercado's. In other words, to achieve a sustained growth and offer maximum safety to investors.