Corporate Governance Practices and Novo Mercado
In 2000, B3 introduced three trading segments with different levels of corporate governance practices, called Level 1, Level 2 and Novo Mercado, designed to encourage companies to follow best corporate governance practices and disclose more information than what is required by law. The listing segments were designed for the trading of shares issued by companies that voluntarily agree to follow corporate governance practices and meet disclosure requirements that exceed those imposed by Brazilian law. These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders. Novo Mercado is the most rigorous listing segment, requiring the most stringent corporate governance practices.
Companies that join the Novo Mercado segment voluntarily submit to certain rules that are stricter than those imposed by Brazilian law, undertaking, for example, to: issue only common shares; keep at least (i) 25% of its capital stock outstanding; or (ii) 15% of its capital stock outstanding, provided that the average daily trading volume (ADTV) of the shares issued by the Company remains equal to or higher than twenty-five million reais (R$25,000,000.00) in the trades in the last 12 (twelve) months; set up an Audit Committee; approve the Charter of the Board of Directors and its advisory committees; and establish an internal controls area, among others. Companies join the Novo Mercado segment by signing a contract with B3, in addition to adapting the Company’s Bylaws in accordance with the Novo Mercado Regulations.
When signing contracts, companies must adopt Novo Mercado rules and practices. The rules imposed by Novo Mercado aim to provide the market with transparency on the companies’ activities and economic situation, as well as greater powers for minority shareholders to participate in the management of the companies, among other rights.
Stock trading on B3
The shares will grant their subscribers/purchasers the same rights, advantages and restrictions as those granted to the current holders of common shares issued by the Company, under the terms of Brazilian Corporate Law, the Novo Mercado Regulations and the Company’s Bylaws. The common shares issued by the Company will start to be traded in the Novo Mercado segment of B3 as of the next business day after the disclosure of this Announcement of Commencement, under the code “MDNE3”.
On February 10, 2020, the Company entered into the Novo Mercado Listing Agreement, adhering to the Differentiated Corporate Governance Practices of Novo Mercado, a special segment of B3 governed by the Novo Mercado Regulations, which establish differentiated corporate governance practices and rules on the disclosure of information to the market to be observed by the Company that are stricter than those established in Brazilian Corporate Law, in force as of the date of publication of the Announcement of Commencement. The main rules related to the Novo Mercado Regulations are briefly described in the Company’s Reference Form, incorporated by reference to the Final Prospectus that is available to investors.
Regulations of the Brazilian Capital Market
The Brazilian securities market is regulated by the Brazilian Securities and Exchange Commission (“CVM”), which has the authority to supervise and issue general rules on the disciplinary power and management of stock exchanges and financial institutions registered with the CVM, members of the Brazilian securities market, as well as by the National Monetary Council (“CMN”) and the Central Bank of Brazil (“BACEN”), which have powers to authorize the constitution and operation of securities brokers and to regulate foreign investments and foreign exchange transactions, among other things.
The Brazilian securities market is regulated by the Securities Market Law, Brazilian Corporate Law and regulations issued by the CVM, the CMN and the BACEN. These laws and regulations determine the disclosure requirements, restrictions on stock trading related to insider information and price manipulation, and the protection of minority shareholders, among other things. However, the Brazilian securities market does not have the high level of regulation and supervision seen in the U.S. securities markets.
According to Brazilian Corporate Law, a company is classified as publicly held if its securities are admitted to trading on the Brazilian securities market and as privately held if their securities are not publicly traded on the Brazilian securities market. All publicly held companies must be registered with the CVM and are subject to regulatory and information disclosure requirements.
A company registered with the CVM may trade its securities on the Bovespa or on the Brazilian over-the-counter market. Companies need to apply for registration with the Bovespa and the CVM in order to have its shares listed on the Bovespa. The shares of companies listed on the Bovespa cannot be traded simultaneously on the Brazilian over-the-counter market. The shares of companies listed on the Bovespa may also be traded in private transactions, subject to several limitations.
The Brazilian over-the-counter market, organized or not, consists of trades between investors through a financial institution registered with the CVM and authorized to operate in the Brazilian capital market.
No special requirements are imposed on the trading of publicly traded securities on the non-organized over-the-counter market. The CVM requires the respective intermediaries to provide notice of all trades carried out on the Brazilian over-the-counter market.
Securities trading on the Bovespa may be interrupted at the issuer’s request before the publication of a material fact. Trading may also be suspended at the initiative of the Bovespa or the CVM, based on or due to indications that the company has provided inadequate information in relation to a material fact or has provided inadequate responses to inquiries made by the CVM or the Bovespa, among other reasons.