ACSDA International Seminar Johannesburg, South Africa November 19-21,2003 Corporate Governance and Transparency Amarílis Prado Sardenberg Amarílis Prado Sardenberg November 21, 2003 November 21, 2003

CorporateGovernance at CBLC

CORPORATE GOVERNANCE AT CBLC CBLC Self-regulatory organization under the supervision of the Brazilian Securities Commission (CVM) and the Central Bank Self-regulatory organization under the supervision of the Brazilian Securities Commission (CVM) and the Central Bank For-profit corporation For-profit corporation Entity owned by market participants Entity owned by market participants

CORPORATE GOVERNANCE AT CBLC OWNERSHIP STRUCTURE

CORPORATE GOVERNANCE AT CBLC MANAGEMENT STRUCTURE General Assembly - shareholders General Assembly - shareholders Board of Directors – 7 members Board of Directors – 7 members Executive Board – 3 members Executive Board – 3 members

CORPORATE GOVERNANCE AT CBLC BOARD OF DIRECTORS’ COMPOSITION 7 effective members 7 effective members 6 shareholders representatives 6 shareholders representatives 3 banks (2 effective members and 1 alternate) 3 banks (2 effective members and 1 alternate) 3 brokers (2 effective members and 1alternate) 3 brokers (2 effective members and 1alternate) 3 BOVESPA representatives 3 BOVESPA representatives 2 effective members and 1 alternate 2 effective members and 1 alternate CBLC’s Chief Executive Officer CBLC’s Chief Executive Officer

CORPORATE GOVERNANCE AT CBLC ACCESS CONDITIONS All criteria for participation are publicly disclosed and clearly defined, assuring market participants the same access conditions in accordance with their functions All criteria for participation are publicly disclosed and clearly defined, assuring market participants the same access conditions in accordance with their functions

CORPORATE GOVERNANCE AT CBLC COMMON REQUIREMENTS FOR DIRECT PARTICIPANTS - DEPOSITORY AGENTS AND CLEARING AGENTS : Institution approved by the Central Bank and the Brazilian Securities & Exchange Commission Institution approved by the Central Bank and the Brazilian Securities & Exchange Commission Compliance with the capital requirements defined by the regulatory bodies and by CBLC itself Compliance with the capital requirements defined by the regulatory bodies and by CBLC itself Agreement with CBLC rules Agreement with CBLC rules Admission approved by the Board of Governors / Board of Directors Admission approved by the Board of Governors / Board of Directors Contract with CBLC Contract with CBLC Minimum technological standards and a contingency plan Minimum technological standards and a contingency plan

CORPORATE GOVERNANCE AT CBLC ADDITIONAL REQUIREMENTS FOR CLEARING AGENTS Acquisition of CBLC shares Acquisition of CBLC shares Contract with a Settlement Bank Contract with a Settlement Bank Contribution to the Settlement Fund Contribution to the Settlement Fund Pledge of collaterals Pledge of collaterals

“New Market” and the Corporate Governance Segments

WHY SÃO PAULO STOCK EXCHANGE (BOVESPA) CREATED THE NEW CORPORATE GOVERNANCE SEGMENTS? The Corporations Law reform ( Law nº. 9457, 1997) did not go far enough in what concerns: The Corporations Law reform ( Law nº. 9457, 1997) did not go far enough in what concerns: minority shareholders rights minority shareholders rights information disclosure information disclosure enforcement of rules enforcement of rules NEW CORPORATE GOVERNANCE SEGMENTS

WHY SÃO PAULO STOCK EXCHANGE (BOVESPA) CREATED THE NEW CORPORATE GOVERNANCE SEGMENTS? Bovespa aimed to build up a benchmark on corporate governance standards Bovespa aimed to build up a benchmark on corporate governance standards NEW CORPORATE GOVERNANCE SEGMENTS NEW MARKET: THE STATE-OF-THE-ART

NEW CORPORATE GOVERNANCE SEGMENTS WHAT ARE THE NEW CORPORATE GOVERNANCE LISTING SEGMENTS? Set of rules over and above the Corporations Law reflecting market demands and requirements Companies commitment to the highest standards of corporate governance Set of rules over and above the Corporations Law reflecting market demands and requirements Companies commitment to the highest standards of corporate governance Companies commitment to the highest standards of corporate governance Companies commitment to the highest standards of corporate governance Private sector initiative, based on and enforced by a contract established between the issuer and BOVESPA Private sector initiative, based on and enforced by a contract established between the issuer and BOVESPA Adhesion is voluntary and market driven Adhesion is voluntary and market driven

NEW CORPORATE GOVERNANCE SEGMENTS OBJECTIVES: Assure minority shareholders protection Assure minority shareholders protection Increase transparency and market confidence Increase transparency and market confidence Provide companies with lower cost of capital Provide companies with lower cost of capital Increase stock market liquidity Increase stock market liquidity

NEW CORPORATE GOVERNANCE SEGMENTS Companies will qualify for one of the four listing segments, according to their standards of corporate governance … Companies will qualify for one of the four listing segments, according to their standards of corporate governance … BOVESPA ’s current listing requirements BOVESPA ’s current listing requirements Corporate Governance Segment 1 Corporate Governance Segment 1 Corporate Governance Segment 2 Corporate Governance Segment 2 New Market New Market IPOs have to be at least on the Segment 1 IPOs have to be at least on the Segment 1 Currently listed companies may migrate to Segment 1, 2 or directly to the New Market Currently listed companies may migrate to Segment 1, 2 or directly to the New Market

CORPORATE GOVERNANCE SEGMENTS 1 & 2

CORPORATE GOVERNANCE SEGMENT 1 Segment 1 companies have most of the same requirements as the existing BOVESPA listing rules Segment 1 companies have most of the same requirements as the existing BOVESPA listing rules But Segment 1 companies will be required to improve their disclosure, like But Segment 1 companies will be required to improve their disclosure, like More comprehensive financial statements More comprehensive financial statements Information on trading by the insiders and on self dealing Information on trading by the insiders and on self dealing Plus: 25% free float Plus: 25% free float

CORPORATE GOVERNANCE SEGMENTS 1 & 2 CORPORATE GOVERNANCE SEGMENT 2 Must comply with almost all the New Market requirements Must comply with almost all the New Market requirements but may continue to issue non-voting shares but may continue to issue non-voting shares these shares will have voting rights in exceptional circunstances these shares will have voting rights in exceptional circunstancesSO... What are the New Market rules? What are the New Market rules?

NEW MARKET

RULES (I) Full voting rights for all shares Full voting rights for all shares Much higher disclosure standards Much higher disclosure standards Delistings: Public tender offer at economic value Delistings: Public tender offer at economic value Tag along rights Tag along rights Board of Directors will have a unified mandate of 1 year and a minimum of 5 members Board of Directors will have a unified mandate of 1 year and a minimum of 5 members

NEW MARKET RULES (II) 25% minimum free float 25% minimum free float Announcement of General Meetings of Shareholders at a minimum period in advance Announcement of General Meetings of Shareholders at a minimum period in advance Improved public offering rules Improved public offering rules Retail distribution of new shares required Retail distribution of new shares required Prospectus according to international standards Prospectus according to international standards Lock up period for controlling shareholders (100% in the first 6 months, 60% in the following 6 months after the IPO) Lock up period for controlling shareholders (100% in the first 6 months, 60% in the following 6 months after the IPO) Annual financial statements in an internationally recognized standard (US GAAP or IAS) Annual financial statements in an internationally recognized standard (US GAAP or IAS) Enforcement: BOVESPA Supervision and Arbitration Panel Enforcement: BOVESPA Supervision and Arbitration Panel

NEW MARKET MARKET ARBITRATION PANEL Established in July, 2001 Established in July, 2001 Settle conflicts out of court between shareholders, companies and their management, controlling shareholders and BOVESPA Settle conflicts out of court between shareholders, companies and their management, controlling shareholders and BOVESPA Field of action: Corporations Law, capital markets’ regulations, listing rules and companies by-laws Field of action: Corporations Law, capital markets’ regulations, listing rules and companies by-laws Members profile: reputable lawyers, economists, accountants and business administrators with a renowned knowledge of capital markets and related matters Members profile: reputable lawyers, economists, accountants and business administrators with a renowned knowledge of capital markets and related matters Advantages: Advantages: Greater agility and cost reduction Greater agility and cost reduction High specialized arbitrators High specialized arbitrators Confidentiality Confidentiality

SUMMING UP… More Disclosure More Disclosure 29 companies 29 companies Rights to Investors Rights to Investors More Disclosure More Disclosure 3 companies 3 companies Only Voting Shares Only Voting Shares Rights to Investors Rights to Investors More Disclosure More Disclosure 2 companies 2 companies

BRAZILIAN CORPORATE GOVERNANCE REFORM (II) LAW nº , 2001 Assured effective rights for the non-voting shares Assured effective rights for the non-voting shares Guaranteed tag-along rights to the holders of voting shares Guaranteed tag-along rights to the holders of voting shares Determined that minority shareholders have the right to elect board members Determined that minority shareholders have the right to elect board members Established that manipulation and insider trading are criminal offenses Established that manipulation and insider trading are criminal offenses CVM INSTRUCTION Nº. 358, 2002 Enhanced the information disclosure Enhanced the information disclosure Established restrictions on trading by the insiders during sensitive periods Established restrictions on trading by the insiders during sensitive periods CVM INSTRUCTION Nº. 361, 2002 Regulated tender offers in case of delisting Regulated tender offers in case of delisting

BRAZILIAN CORPORATE GOVERNANCE REFORM (II) THE NEW CORPORATE GOVERNANCE REFORM INCORPORATED SOME OF THE NEW CORPORATE GOVERNANCE SEGMENTS’ RULES BUT NEW MARKET IS STILL A BENCHMARK

Transparency and Information Disclosure Relationship among Bovespa, CBLC and Issuers

RELATIONSHIP BETWEEN BOVESPA AND THE ISSUERS Issuers are required by law to provide information to the Brazilian Securities and Exchange Commission (CVM) and to BOVESPA Issuers are required by law to provide information to the Brazilian Securities and Exchange Commission (CVM) and to BOVESPA TRANSPARENCY AND INFORMATION DISCLOSURE CBLC HAS AN AGREEMENT WITH BOVESPA TO RECEIVE ALL THE INFORMATION PROVIDED BY THE ISSUERS

RELATIONSHIP BETWEEN BOVESPA AND THE ISSUERS Close relationship Close relationship Development of an institutional, operational and technological infrastructure to support the relationship with the issuers Development of an institutional, operational and technological infrastructure to support the relationship with the issuers TRANSPARENCY AND INFORMATION DISCLOSURE ALL INFORMATION IS PROVIDED BY THE ISSUERS IN ELECTRONIC FILES (WORD OR PDF) SENT THROUGH A ELECTRONIC SYSTEM AVALAIBLE IN THE INTERNET

TRANSPARENCY AND INFORMATION DISCLOSURE Issuer CVMBOVESPA CBLC CVM-BOVESPA ELECTRONIC SYSTEM (Edgar like) The issuer sends the information through the electronic system. Both CVM and Bovespa receive it The issuer sends the information through the electronic system. Both CVM and Bovespa receive it The information is promptly available in the CVM website The information is promptly available in the CVM website After an accuracy evaluation the information is available in the Bovespa website After an accuracy evaluation the information is available in the Bovespa website The information related to corporate actions and reorganizations is sent to CBLC The information related to corporate actions and reorganizations is sent to CBLC

INFORMATION PROVIDED BY THE ISSUERS TO BOVESPA Financial Statements (trimestrial and annual)Financial Statements (trimestrial and annual) AnnouncementsAnnouncements Communications to the market, public releases, etcCommunications to the market, public releases, etc Resolutions (of General and Board meetings)Resolutions (of General and Board meetings) Press releasesPress releases Other InformationOther Information TRANSPARENCY AND INFORMATION DISCLOSURE ALL INFORMATION RELATED TO CORPORATE ACTIONS IS SENT TO CBLC DEPOSITORY SERVICE WITHIN THE ELECTRONIC SYSTEM IN A REAL TIME BASIS

INFORMATION PROVIDED BY CBLC CBLC provides to the custodians: CBLC provides to the custodians: information on corporate actions to be paid to their clients in the level of the beneficial owner information on corporate actions to be paid to their clients in the level of the beneficial owner information on instructions and operational procedures to be adopted in case of voluntary corporate actions information on instructions and operational procedures to be adopted in case of voluntary corporate actions Issuers and custodians receive information related to taxes obligations calculated for each final investor Issuers and custodians receive information related to taxes obligations calculated for each final investor TRANSPARENCY AND INFORMATION DISCLOSURE

INFORMATION PROVIDED BY CBLC Information, deadlines and forms related to cash and securities corporate actions and reorganizations are available in the CBLC proprietary network (daily updated) Information, deadlines and forms related to cash and securities corporate actions and reorganizations are available in the CBLC proprietary network (daily updated) Alerts sent by TRANSPARENCY AND INFORMATION DISCLOSURE

GENERAL CONCLUSIONS New Market became a international reference to market players and regulators regarding corporate governance BOVESPA and CBLC have a close and comprehensive relationship with issuers HIGH STANDARDS OF INFORMATION DISCLOSURE AND MARKET TRANSPARENCY