Amec questions the issue of ‘creative’ securities

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In February, Amec sent a letter to CVM’s Superintendência de Desenvolvimento de Mercado – SDM (Office of the Superintendent of Market Development) calling the body’s attention to the serious problems resulting from the growing issue of “creative” securities in the capital market.
Although this financial innovation opens new possibilities for companies and investors, the issue of unusual securities brings negative consequences for institutional investors subject to specific regulatory restrictions. Many times, a significant number of investors are banned from purchasing these securities and have to waive from their subscription rights.
Brazilian companies’ shareholders are protected by law against unjustified dilutions, primarily through the preference right in the subscription of shares and other securities. However, securities with specific characteristics that conflict with the regulation or self-regulation systems can, on a practical basis, eventually eliminate this protection. In the event the economic value of these securities is significant, what usually happens, this restriction leads to a forced dilution of investors in favor of those that are not subject to such restrictions.
Amec has listed a number of transactions affected by this problem, but made no judgment of the actual losses incurred or the reasons that may have led companies to take such measure. However, the association thinks it is important to call the regulator’s attention to this problem and convey to the companies that such issues may be considered at least questionable if they lead to losses or to the unjustified dilution of specific types of investors. The debate is open.
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