Regional Seminar on NBFI in Latin America Challenges for Domestic Equity Markets December 4 -6 Santiago, Chile
Challenges for Domestic Equity Markets Contents • • Overview of Brazilian Equity Markets The Four Objectives Recent Reforms CVM Recomendations on Corporate Governance • Key Points for Further Debate
Challenges for Domestic Equity Markets Overview of the Brazilian Equity Markets • Market Capitalization and Liquidity • ADR Listings • Primary and Secondary Offerings
1998 1999 2000 2001 2002 (october) Market Capitalization (US$billion) 160. 9 228. 5 225. 5 185. 4 114. 07 Daily Volume - Bovespa (US$million)¨ 377. 3 497. 1 334. 1 265. 3 142. 9 Concentration (10 most negotiated) 77% 55% 54% 60% 1998 1999 2000 2001 2002 (jan-oct) FDI (US$bi) 23. 73 25. 56 28. 63 22. 64 13. 91 Foreign Investment Portfolio (US$bi) (2. 46) 1. 1 (1. 83) (0. 728) 1. 3 1998 1999 2000 2001 2002(jan-oct) 3. 42 1. 54 0. 72 0. 58 0. 36 18. 81 8. 26 8. 37 8. 8 4. 0 1. 53 1. 05 6. 21 2. 04 2. 19 15 15 16 12 4 527 478 459 428 405 Market Size source: CVM/BOVESPA Foreign Investment source: bacen Registration of Public Distributions Primary - Equity (US$bi) Primary - Fixed Income (US$bi) Secundary ( in units) Bovespa listed Companies
Challenges for Domestic Equity Markets Key Differences from Developed Markets • • Defined control Majority non-voting shares History of poor enforcement/low protection Lack of equity culture/incipient activism
Challenges for Domestic Equity Markets Simplified Rationale Flow • Old Paradigm: Top Down----Macro Variables— Price—Buy • New Paradigm: Good Co. – Good Governance— Good Rules– Confidence(Macro &Price)— Buy(Active Investor)
Challenges for Domestic Equity Markets The Four Objectives • • Corporate Law Reform Corporate Governance Sheraholder Activism Enforcement
Challenges for Domestic Equity Markets CVM recommendations on Governance • Transparancy of Ownership and Control, shareholder meetings: e. g. 30 days --- list of shareholders—description and details to be discussed---- voting process • Structure and Responsabilities of The Board of Directors: e. g. Composition, term , committees and by-laws, minority shareholders • Minority Shareholder Protection: e. g. Tag-Along, Transactions Among Related Parties, Arbitration to Solve Divergences
Challenges for Domestic Equity Markets CVM recommendations , continuation: • Accounting and Auditing : e. g. MD&A and factors/risks performance, Fiscal Board Access to Information, Auditing/ Other services • For complete guide please refer to WWW. CVM. COM. BR
Challenges for. Domestic Equity Markets Key Points For Further Discussion: • Sarbanes-Oxley Act of 2002 • NYSE Corporate Accountability and Listing Standards for non-US issuers • Auditing Standards – IAS or USGAAP • Bovespa Novo Mercado • The Role of Development Banks • Shareholder Activism—Brazil’s Experience
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