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The time for innovation in the Brazilian securities market


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One of the main concerns when developing innovative business models, especially in sectors of the economy with significant regulatory burden, is legal certainty. In the securities market, which deals with fundraising from popular savings, it is no different.

This market is subject to strict rules for the authorization of public offerings of securities and high standards of conduct addressed to asset managers. Such rules aim, above all, to minimize problems related to informational asymmetry and potential conflicts of interest.

Although the importance of this set of rules cannot be underestimated, in certain circumstances, it can represent a barrier to entry into the securities market.

The costs for adapting the activities to the current rules are substantial, especially for startups, who may be trying to embark on an innovative activity that does not strictly fit the current framework. This ends up contributing to less competition in the securities market, which can ultimately mean less well-being in economic terms.

Aware of this scenario, the Securities Commission (CVM) has adopted fruitful measures in order to open the doors of the securities market to innovation. We live in a unique moment and the market has a lot to gain from it.

New business models such as investment robots, investment platforms in small and medium-sized companies, secondary markets for alternative assets, activities that make use of blockchain, artificial intelligence and big data, are being promoted by the autarchy.

In August 2019, CVM created an exclusive communication channel to receive and discuss financial innovations: the “Innovation Bridge”. Through this vehicle, the CVM started to allow direct and unbureaucratic contact with entrepreneurs, dedicating an internal working group to the initiative.

Although incipient, this dialogue between the regulator and the agents, meant a concrete attitude of the autarchy in the sense of paying attention to the theme. Added to this initiative are the agreements that the CVM has signed with educational institutions, more recently with UFPR, whose scope, in this case, involves stimulating the production of academic studies for doctoral students with a focus on financial innovations.

Another initiative that cannot go unnoticed was the public hearing launched on March 26, 2020, which proposed improvements in the regulatory framework for collective investment platforms (crowdfunding investment).

According to the municipality, only in 2019, this business model contributed to the raising of R $ 59,043,689 via internet, a value entirely directed to small and medium-sized companies. In addition, as weighted by the CVM, the rate of complaints from investors in relation to this type of business is low and, to date, no fraud has been identified.

This finding encouraged the CVM to propose in public hearing the expansion of funding limits, the expansion of the possibilities for disclosing investment opportunities and the flexibility of rules related to the dynamics of conducting offers.

The product of these measures may represent a revolution in the way small and medium-sized companies raise capital, since they will now have a vehicle to access the capital market.

Not only that, the CVM wants to discuss the possibility of investment platforms acting as a secondary market, offering liquidity for assets acquired in a virtual environment. In practice, the platforms would act as an “alternative stock exchange”, allowing investors to purchase and sell assets in real time.

If approved, this measure is able to encourage the use of blockchain in the securities market, as this technology contributes to the security of transactions, acting as a kind of automated "clearing house".

Here we are not speculating excessively, the use of blockchain as a way to raise funds is already a reality. We are also not only talking about the already known ICOs – Initial Coin Offerings, but also about offering alternative assets via blockchain, such as precatories (see Bitcoin Market) and real estate credits (see ReitBZ, an initiative linked to BTG Pactual).

Finally, on the 15th, the CVM published the awaited Instruction No. 626, which regulates the constitution and operation of the experimental regulatory environment (sandbox regulatory). Inspired by successful international experiences – especially in the United Kingdom, Singapore and Hong Kong – the CVM will allow entrepreneurs to “play” in the “sandbox” of the securities market, in a supervised testing environment.

In practice, the CVM will grant temporary authorizations so that selected legal entities can implement innovative models in the scope of the securities market, with a reduced regulatory burden.

This opportunity can enable the entry of several transforming businesses, whose impacts on the market are still difficult to predict. But the trend is to increase competition, reduce costs for market players and better prices for investors.

The measures that have been taken by the CVM demonstrate a real commitment to innovation as an instrument of transformation. In general, these actions are expected to favor the democratization of the Brazilian securities market, contributing to a greater role in this space.

Entrepreneurs win, who can innovate and exercise their activities with greater legal certainty; wins the regulator, who can closely monitor and accumulate important lessons during his supervisory activities; and wins the market, with increased competition and possibly greater financial inclusion of the population.

About the author

Ciro Martins is a lawyer at Borba, Simões Barbosa, Bessone and Cristofaro Advogados, with a master's degree in law from UERJ, in the line Company and Economic Activities, a degree in accounting from PUC-MG and a degree in finance from Alumni COPPEAD.

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