NOTICE TO THE MARKET: CVM Instruction 561

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São Paulo, March 24th, 2017 – Fulfilling its role as a driver of best practices in the capital markets, the Association of Market Investors – Amec – hereby calls the attention of its members and investors in general to the following.

2017 is a very important year for the Brazilian equity market, considering the mandatory adoption of the distance voting procedures by several companies, as set forth in the CVM Instruction 561.

The advancements introduced by the mentioned instruction are significant and unquestionable as they will enable the distance voting, leading to a substantial reduction in costs and streamlining the bureaucratic proceedings involved in the exercise of the political rights inherent to the listed companies’ shares.

As we get closer to the so-called “season of shareholders’ meetings” (most of them are held in April), Amec has been interacting with several market participants to understand how listed companies have been implementing CVM’s new regulation. Throughout this process, we have been noticing that, despite the efforts towards meeting the new rules, many fund managers do not consider to be properly prepared to exercise the distance voting.

In our conversations, we have noticed that most custody agents have already established the procedures – yet rudimentary in some cases – to enable the exercise of such right. However, not all decision makers have access to the necessary information, what can lead to the misuse of the tool.

With this in mind, Amec recommends that its members and institutional investors in general interact with their internal areas – primarily the backoffice– with a view to making the tools for the exercise of voting rights available for decision makers. Theoretically, this right must be as simple as exercising a subscription right. However, during this initial stage of the applicability of the new regulation, it’s crucial that routines are created or adjusted to make voting rights feasible to be exercised.

We also recommend that institutional investors interact with their custodians to eliminate any obstacles that may exist. Finally, we highlight that the CVM Instruction 561 establishes not only the distance voting system, but also the possibility that shareholders suggest the inclusion of items in the meetings’ agendas, including the names of candidates in the proxy card, in compliance with the requirements set forth in the instruction. The exercise of such right depends on specific deadlines and communications that do not mix with the votes themselves. It’s of utmost importance that investors learn the procedures and ensure that their systems are working properly, also through tests.

The exercise of voting rights is an important principle of Amec Stewardship Code. However, it’s important to remember that, even in the case of nonsignatories, the fiduciary duties owed to their clients assume diligence and consistency with their internal policies, including voting ones.

AMEC remains at the disposal of its members to help encourage and promote the adoption of best practices.

 

MAURO RODRIGUES DA CUNHA

CEO