Latin American Capital Markets

448 MIKELUBRANONovo Mercado and Level 2 companies, but not Level I companies, must settledisputes using the Market Arbitration Panel. (In anticipation of the Novo Mercado,the Brazilian legal reforms explicitly strengthened the legal standing of voluntary arbitration,making the enforcement of arbitral awards easier) Obviously, the establishmentof the Market Arbitration Panel reflects market doubts about the effectivenessof the Brazilian judiciary to deal with shareholder disputes in a fair and expeditiousmanner 13/Any Takers?Since Bovespa launched its corporate governance initiative, several public and quasipublicentities have taken supportive action. BNDES, the Brazilian national developmentbank, has devised a simple formula for offering progressively lower interest rateson loans to companies that follow the requirements of Level I, Level 2, and the NovoMercado. The pension fund and insurance company regulators allow pension fundsand insurance companies to invest a larger proportion of their assets in companieslisted on Level I, Level 2, or the Novo Mercado, creating another incentive for companiesto move to these listing segments.The Novo Mercado listing rules were officially launched in December 2000,but it was not until February 2002 that Companhia de Concessoes Rodoviarias(CCR), a highway concession manager; became the first company to make an IPOon the Novo Mercado. As of December 15, 2002, two companies qualified for a fullNovo Mercado listing. Meanwhile, 24 companies have joined Level I, and three havejoined Level 2 (with several others announcing their intention to move to Level 2 inthe near future). By focusing on transparency and disclosure, rather than shareholderrights, Level I was envisaged as a stepping-stone to Level 2. Certain institutional investorshave begun to pressure companies to adhere to the Market Arbitration Panel,including most notably Bradesco-Templeton's Fondo de Valor e Liquidez, further encouragingcompanies to move up the ladderAd Hoc Contracting in Brazil before and after the ReformsEvery time a company issues securities, it enters into a set of voluntary explicit andimplicit contracts with investors concerning the company's governance.The company's13 The Market Arbitration Panel appears to represent a significant shift of power to shareholders and is reported toCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubbe perhaps the greatest single obstacle to persuading companies to adhere to Level 2.