Circular Letter CVM/SRE 01/2019: Guidelines on the Application of CVM Resolution 809/2019

SECURITIES COMMISSION OF BRAZIL (CVM)
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Circular Letter No. 1/2019/CVM/SRE
Rio de Janeiro, February 19, 2019

To securities offerors and intermediaries

Subject: Guidelines regarding the application of CVM Resolution No. 809/2019

Dear Sirs,

We refer to CVM Resolution No. 809/2019 (“Resolution”), issued by the Board of this Agency on 02/19/2019, with the objective of providing the following guidelines, aiming to ensure that regulatory obligation discounts contained in CVM Instructions No. 400/03 and 480/09 (respectively “CVM Instruction No. 400/03” and “CVM Instruction No. 480/09”), arising from the aforementioned resolution, are best utilized by participants.

We remind you that the issuance of the Resolution establishes an experimental regulatory environment, which will allow observation, for a certain period – namely, until the publication of the new Instruction that will reform the regulatory framework for public distribution of securities – the functioning of the proposed procedures. Thus, it is understood that the empirical verification of costs and benefits may support the eventual inclusion of the provisions contained in the Resolution in the aforementioned new regulatory framework.

Furthermore, it is worth pointing out that through these clarifications, the possibility of occurrence of cases that justify the maintenance of regulatory burdens, which we now seek to attenuate through the provisions established by the Resolution, is sought to be mitigated.

We emphasize that this Circular Letter must be read together with Circular Letter No. 2/2019/CVM/SEP, intended for securities issuers, in cases of registration requests for offers, concurrent with registration in Category A, submitted confidentially.

1. Manifestation of confidentiality in the presentation of the request

When requesting the reserved analysis of requests for registration of public distribution of shares, the lead intermediary institution must pay attention to the signaling of the reserved nature of that request.

In accordance with Joint Circular Letter No. 1/2019/CVM/SEP/SIN/SMI/SNC/SRE, since 01/07/2019, the new model of digital protocol of documents presented to CVM has been in operation, through which these are forwarded directly to the destination Organizational Component.

At the time of requesting the protocol, an electronic form called “Digital Document Protocol” is filled out, with the data of the subject application and indication of the filed documents.

The reserved nature of the request must be signaled at this time in the following fields:

i) In item 1 - “Document Data”: in the “Request Description” field, after specifying the registration request for the offer, the applicant must insert the phrase “under reserved treatment, in accordance with CVM Resolution No. 809/19”; and

ii) In item 2 - “Files”: the “Confidential” checkbox must be marked.

Without prejudice to the above, the initial petition requesting the analysis of the registration of the public distribution offer must (i) make express reference to the submission of the request under reserve, in accordance with CVM Resolution No. 809/19, and (ii) present a declaration by the issuer justifying the secrecy of the request, including the reasons why the disclosure of the request may represent a competitive advantage to other economic agents or put at risk the legitimate interest of the company.

It is the sole responsibility of the lead intermediary to identify the reserved nature of the request, which will necessarily be granted if the aforementioned procedures are followed.

We particularly emphasize that, in cases of subsequent confidential offer registration requests, the lead intermediary institution must arrange with the issuer that it indicates the period during which information about the public distribution of shares registration request must remain confidential, in the event of withdrawal or denial, as provided by the Resolution. This applies even if it concerns a secondary distribution offer.

Finally, we alert that the guidelines to be subsequently provided by the Brazilian Association of Financial and Capital Market Entities – Anbima regarding the identification of the submission under reserve of requests for prior registration analysis of offers, in accordance with the procedure of CVM Instruction No. 471/08, through the agreement with that entity, must also be observed.

2. Potential breach of the confidentiality of the information

We emphasize that in the event that information about the registration request for public distribution, submitted under reserve, escapes control, it is the responsibility of the offeror and the lead intermediary to act so that appropriate communication to the market is promoted, including acting with the registered issuer so that it proceeds with the immediate disclosure of the registration request, observing the provisions of CVM Instruction No. 358/02, as well as CVM Instruction No. 471/08, if applicable.

We remind you that the adoption of such measures does not exempt the investigation of eventual responsibilities for the leak of information, as well as the eventual suspension of the analysis of the offer request.

In this regard, we emphasize that the offeror and the lead intermediary of the distribution must take care with their interlocutors, in order to guarantee that the intention to carry out a public distribution of shares is kept confidential until its regular and broad disclosure to the market.

3. Duty of cooperation of the issuer

In the environment of requests submitted under reserve, in cases of requests for registration of secondary public offers, it is important to alert that the issuer's duty of cooperation, stipulated by art. 47 of CVM Instruction No. 400/03, must be exercised observing the reserved nature of the request.

In this sense, the lead intermediary as well as the offeror must take the necessary measures to ensure that the issuer, when preparing and providing the information that will support the distribution offer, does so maintaining the confidentiality of the information about the registration request.

4. Responsibility for the information provided in the offer documentation

The advent of the flexibility of the period prohibiting the granting of registration for public distribution of securities, prohibition contained in art. 14, § 4 of CVM Instruction No. 400/03, represents an opportunity to reinforce certain responsibilities already provided for in that Instruction, regarding the completeness and adequacy of the information provided within the scope of distribution offers.

With the central objective of providing the greatest possible update to the information used in the advertising of the offer, the aforementioned rule prohibiting the approval of registration of distribution of securities in the 16 days prior to the disclosure of any periodic information of the issuer has as a secondary effect to safeguard the offer and investors regarding potential informational asymmetries concerning possible discrepancies between the results contained in the offer documents and the subsequent accounting information.

Indeed, art. 56 of CVM Instruction No. 400/03, which disposes on the duties of verification of the truthfulness, consistency, and sufficiency of the information provided, to which offerors and intermediaries are subject, provides important safeguards to mitigate potential information asymmetries between those involved in the preparation of the offer, the issuer, the offeror, and intermediaries, and the external public, the investors.

However, it follows from the provisions of art. 14, § 4 of CVM Instruction No. 400/03, the impossibility of obtaining offer registration in the 16 days prior to the disclosure of accounting information, so that the distribution of securities does not occur on the eve of the disclosure of financial information by its issuer.

Thus, by establishing the possibility that such a restriction is not observed, it is urgent to alert to the applicability of the provisions contained in the aforementioned art. 56, in the sense that the offeror is responsible for the truthfulness, consistency, quality, and sufficiency of the information provided upon registration and provided to the market during the distribution.

Thus, the lead intermediary must take all precautions, responding for lack of diligence or omission, to ensure that the offeror observes its duty of responsibility for the information provided and also to guarantee that the information provided to the market throughout the entire distribution period, including any eventual or periodic information that may integrate the prospectus, is sufficient.

Finally, it is worth noting that art. 41 of CVM Instruction No. 400/03 provides that, once identified after the date of obtaining registration, any inaccuracy or significant change in the information contained in the prospectus, notably resulting from informational deficiency or any fact not considered, the offeror and the lead institution must suspend the distribution, until the due disclosure to the public of the completion of the prospectus is carried out. In turn, according to the sole paragraph of such article, changes to the prospectus resulting from the update of information must be submitted to CVM and will cause the possibility of revocation of acceptance of the offer by investors, in accordance with art. 27 of the Instruction in question.

Sincerely,

Digitally signed by
DOV RAWET
Superintendent of Securities Registration