Slide sem t

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3rd Latin American Corporate Governance Roundtable
Disclosure and Transparency - A Market Requirement
Maria Helena Santana
São Paulo Stock Exchange - Bovespa
April 2002
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CausesTruly a market requirement

• The growing influence of institutional investors
• size (AUM)
• more demanding posture bad experiences
• increase in the supervision of pension fund
  administrators
• Globalization the influence of other markets
  with more transparent practices
• inflow of foreign investments
• companies listing on foreign exchanges, mainly on
  the NYSE (disclosure, yes investor rights, no)

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Responsesin the last two years

• Private sector - initiatives to stimulate the
  adoption of greater disclosure
• Public sector - laws and norms
• Companies - greater supply of information and
  improvements in Investor Relations activities

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Private Sector - BOVESPA

• 2001 - Novo Mercado, Levels 1 and 2
• Examples of additional disclosure required
• related party transactions
• trading and ownership of the companys shares by
  the managers and controlling shareholders
• improved Quarterly Reports, including
• consolidated financial statements
• cash flow
• limited audit review
• 2002 - Level 1 becomes the minimum standard for
  companies that list on the BOVESPA (although we
  dont expect any IPOs outside of Novo Mercado or
  Level 2)

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Private Sector - ANBIDNational Association of
Investment Banks

• 2002 - New Code of Self-Regulation for the
  Capital Market
• range all members
• scope prospectus for public offerings, with
  disclosure at international standards
• restriction the members may only carry out
  operations of equities and convertible bonds with
  companies that are listed, at least, at Level 1
  of the BOVESPA

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Private Sector - ABRASCABrazilian Association of
Public Companies

• Award for the Best Annual Report - 3rd edition
• Criteria for scoring points transparency in the
• analysis of economic-financial aspects (MDA)
• information regarding risk factors
• structures and practices of corporate governance

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Private SectorHarmonization of International
Accounting Norms and Practices

• A group is working to stimulate Brazilian
  adherence to the IFRS - International Financial
  Reporting Standards
• Brazilian presence at the IASB
• IBEF - Brazilian Institute of Financial
  Executives
• CFC - Federal Accountancy Council
• IBRACON - Brazilian Institute of Independent
  Auditors

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Public Sector

• Jan/2002 - Instruction 358 of the CVM (following
  the approval of the Corporate Law, in Oct/2001)
• disclosure of material information
• disclosure of information in public offerings and
  large acquisitions
• disclosure of information about trades by
  managers
• policies for disclosure of information and for
  trading with the companys shares (insiders)

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Public Sector

• In process (in the Congress) Bill no. 3741
• Focus on financial statements adherence to the
  IASB standards, and
• cash flow
• value added
• extension to all companies with revenues above
  R 100 MM of the same disclosure obligations as
  those required of public companies

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Public Sector

• In hearing - First draft of CVM Recommendations
  on Corporate Governance
• mandatory disclosure, in annual reports, of which
  recommendations have been adopted by the company
• Two examples of recommendations
• disclosure, in quarterly financial statements, of
  the discussion and analysis of the factors that
  influenced the result
• adoption of a rotation system among auditing
  companies and restrictions to the contracting of
  the firm for other services

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Companies

• The number of companies that voluntarily disclose
  additional information is growing
• Study of 112 companies (excluding those at L1 and
  NM)
• 21 present cash flow statements
• of the 93 in which consolidation is compulsory in
  the annual financial statements, 61 already
  present quarterly consolidated statements

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Companies

• Internet - IR sites
• already maintained by a substantial number of
  companies
• participation in the Latin Finance/MZ Consult
  Award (2001) Brazil - 161 sites evaluated
  Argentina - 18 Chile - 27 Mexico - 74
• Teleconferences
• becoming more frequent, for discussion of
  quarterly results and/or relevant facts

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Conclusion - Brazil

• What we have today is still not enough
• What else can be done?
• stimulate the adoption of international
  accounting standards in Brazil
• work for the approval of the Bill that improves
  the financial statements (PL 3741) in Congress
• stimulate the companies listed on the BOVESPA and
  new listings to migrate to the Levels and the
  Novo Mercado
• develop and help to develop the technological
  infrastructure so that the information may be
  accessed with greater ease and rapidity