BRAZIL: CVM restricts Brazil short selling during public offers

Tuesday November 27 2012

The Brazilian securities regulator, the CVM, has published Instruction No. 530 of 22nd November, which restricts Brazil short selling transactions during public offers. Under the provisions of the instruction, it is prohibited to acquire shares in the context of public offerings of shares by investors who have carried out short sales in the offered shares on the date the pricing is fixed and in the five trading sessions that precede such date.

“Short sale” is defined as any transaction carried out by an investor who does not hold the offered shares, or whose ownership results from a loan or any other agreement having an equivalent effect.

Transactions of the investor are considered to include short sales and purchases of shares held in the investor`s own name or through any vehicle whose investment decision is subject to their influence.

Note that investment funds whose investment decisions are taken by the same manager will not be considered as a single investor for the purposes of the Instruction, provided that the transactions are classified in their respective investment policies of each Fund.

There are a number of exemptions to the prohibition, including:

• operations performed by legal entities in the exercise of the activity of market maker of the offered shares
• operations later covered by acquisition in the market of the total quantity of shares corresponding to the short position up to a maximum of two trading sessions before the date of fixing the offer price.

The rules mirror those existing in the US under Regulation M and Rule 105 adopted by the Securities and Exchange Commission.

Click on the above link for an unofficial translation of the measures.