CVM Explanatory Note 25/82

CVM EXPLANATORY NOTE NO. 25/82.
Ref.: CVM Instruction No. 20, of January 29, 1982, which regulates the disclosure of information in the acquisition of voting shares of open companies.

The regulation of recent laws on Corporations and the Securities Market was based, among other things, on the principle of information disclosure, with the aim of ensuring that the investing public has timely and efficient access to the information necessary for their decision-making regarding investment or divestment in a particular security.

The improvement of this information disclosure system will lead to the enhancement of the ethical conduct of participants in the securities market and, consequently, to the achievement of a more efficient and reliable market.

In this sense, the CVM, as the regulatory body of the securities market, has been exercising the competence delegated to it to ensure public access to information about securities traded and issuing companies, seeking to implement competitiveness, visibility of operations, reliability, generated by the ethical conduct of its participants, and curbing the occurrence of inequitable practices.

From another angle, the development of the securities market cannot do without stimulating the democratization of capital, inducing companies to become open.

This objective can only be achieved if there is an adequate regulatory framework that preserves the social function of the company, safeguarding the company from a sudden and harmful intervention by third parties in its command structure, which could result in the distortion of social interests.

The Instruction in question came to regulate the disclosure of formations by the investor, from the moment they begin to hold a significant position in the voting capital of the company, imposing on them the duty to declare their intentions to the public.

It is known that the quotation price of shares reflects available information. Thus, the regulatory rule functions as a mechanism for balancing the parties involved in the market, avoiding the privileged use of information, allowing the adjustment of share prices according to the interest manifested by the investor.

The regulation aims to reach two primary recipients - the investor and the company. For the market investor, it enables the option to sell their shares at a fair price, or not to sell their titles, if they deem a change in the company's structure undesirable. For the company, because it prevents a sudden intervention by third parties in the direction of its business, which could operate to the detriment of the interest of the majority of shareholders and affect the community in which the company is inserted.

CVM EXPLANATORY NOTE NO. 25/82.
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It does not represent, on the other hand, a restriction on free initiative, limiting itself to establishing market rules.

The investor who intends to acquire control of a company may rely on the public offer mechanism, or buy in the market the shares they need to assume a relevant position in its administration, provided they provide the required information.

In view of the observation of rules in force in other countries on the matter, and of the corporate norms themselves, which give prominence to the shareholding position above 5%, it was imposed, in Art. 1, on the person or group of persons who hold participation of this amount in the voting capital of the company, the duty to disclose the basic information contained in its four items.

The provision in Art. 1 applies to the cases where the persons referred to, through any form of share acquisition, private or through the stock or over-the-counter market, or through the exercise of subscription rights or the right to convert debentures into shares, in one or more operations, reach participation equal to or greater than 5% in the capital represented by shares of open companies, of species or class with voting rights.

Section 1 provides, in exemplary terms, in the sense of the presumption that affiliated, controlled, associated, or linked societies are always acting together in any form, as well as institutional investors in relation to the entities to which they are linked, without prejudice to other persons being identified as members of the same interest group.

Section 2 of Art. 1, in the sense that the investing public remains informed about significant changes in the shareholding position of the persons subject to the rule, imposes the duty to disclose whenever persons already holding participation equal to or greater than the percentage mentioned in the "caput" of this provision increase their position by 2%.

Art. 3 established that the rules regarding the place of disclosure in the common press, already established in the Corporations Law and CVM Instruction No. 02, of 05.04.78, must be observed.

Art. 4 admitted the possibility for the CVM to waive the disclosure requirement, given the degree of share dispersion in the market, and the acquirer's declarations that their purchases do not aim to alter the composition of control or the administrative structure of the company.

Art. 5 provided for joint liability of the recipients of the regulatory requirement, even in the case where the group of persons, acting together or representing the same interest, exercises the right to designate a person responsible for fulfilling the disclosure duty.

Art. 7 contains a transitional provision, providing for the application of the regulatory rule to persons who, on the date of entry into force of the Instruction, already hold the shareholding participation mentioned in Art. 1, immediately after the acquisition, which results in an increase in their shareholding.

Published in the Official Gazette (D.O.) 08/02/1982, Section I, pages 2360/2361