The Brazilian Securities and Exchange Commission (“CVM”) published, last Thursday, August 23, Instruction 601 (“ICVM 601”), which amended: (i) CVM Instruction 400, (“ICVM 400”), which regulates public securities offerings; and (ii) CVM Instruction 476 (“ICVM 476”), which regulates public securities offerings with restricted distribution efforts.

Under ICVM 400 (and also ICVM 476) the main change was the restriction of the use of the green shoe overallotment of public offers exclusively for price stabilization, forbidding the practice usually performed by the market using the green shoe overallotment as a way of meeting the excess of demand from public offerings, so that the underwriter will only have the option of distributing the green shoe overallotment in the event that a stabilizing agent gets engaged immediately following the offer.

ICVM476 suffered major amendments. One of them was to allow the exercise of the green shoe overallotment, up to the limit of 15% of the initial offer, as well as the matter discussed above regarding the price stabilization.

Additionally, it was extended the four-month blackout period for new public offerings from the same issuer, now encompassing the event of cancellation of such offer (and not only for concluded offers as it was previously), provided that they are the same type of securities (some exceptions excepted).

The following obligations were also included in article 11 of ICVM 476 (which deals with the duties of the lead underwriter): (i) to ensure that the offer is targeted exclusively to professional investors; (ii) to ensure that the limits set forth in article 3 are met (i.e. number of potential investors to be addressed, maximum number of investors per offer, among others); (iii) to take measures to verify compliance with the restriction provided in article 9 (which set forths that the offeror may not make another public offering of the same type of securities within a period of four months from the closing date of the offer, unless the new offer is subject to registration before the CVM); and (iv) to ensure that the conditions set forth in article 9-A, section I and paragraph 2 (which provides that the public offering of primary distribution of shares, warrants, convertible debentures or certificates of deposit of such securities distributed with Restricted efforts may happen excluding the right of first-refusal or with a term for the exercise of the preemptive right in less than five days, provided that priority is given to shareholders in the subscription of 100% of the securities, and the offer shall provide for a term of at least five business days counted after the disclosure of the relevant fact informing the offer so that the shareholders can exercise their right of priority in the subscription of the securities), are fulfilled.

Aiming at also providing a safer environment for public offerings with restricted efforts, CVM enacted the obligation for the issuer to disclose the audited financial statements of the last three fiscal years, and such disclosure must be made on the issuer’s website as well as in B3’s system.

Finally, it is now possible to forego the 90-day lock-up period for all securities that may be offered under this rule (except for: shares, subscription warrants and sponsored Brazilian Deposit Receipts Level I, Level II and Level III programs) purchased by the underwriter in his underwriting activities.

If you have any question or need further clarifications on this matter, please contact us:

Leandro Zancan – lzancan@zancan.com.br