The objective of this proposal is to reach an accord on the minimum regulations which are held to be indispensable for promoting the integration of the securities markets. It was resolved to restrict the proposals to international operations which take place in the sphere of Mercosul over the stock of public companies from member countries. This Proposal for Minimum Regulations should also be seen as a goal to be attained by member nations on their domestic markets according to the economic prospects and realities of each country. There is also an emphasis on avoiding the duplication of controls within Mercosul countries, excluding public debt bonds.

1. Issuers of securities

1.1. Registration or authorization of the Issuing Company.

1.1.1. Definitions:

Companies are considered associated when one of them holds 10% or more of the other's stock, without controlling it.

One Regarded as "controlled" are the companies, natural persons, or combinations of natural persons and legal entities which, owing to special ties, hold rights which ensure them on a permanent basis the majority of votes in deliberations of the Annual Shareholders Meeting and the ability to elect the majority of the company Directors.

Companies are regarded as controlled when the controlling faction holds, either directly or through other controlled elements, the rights which ensure on a permanent basis the dominating influence in company deliberations and the power to elect the majority of the Directors.

1.1.2. Registration or authorization of the issuing company: The registration or authorization of the issuing company in the relevant State agency should be a fundamental condition for the negotiation of its stock on both stock exchanges and non-exchange markets alike and whether the markets are organized or not.

For registration or authorization, information has to be provided on:

• the type of company to which the issuer belongs, name, domicile, main activity, entry on the relevant registration, a copy of its articles of incorporation, members of the Board of Directors, the names of associate companies, both controlled and controlling;
• data on the capital stock: classes, types, the rights and number of shares issued and held by the public;
• the number of shareholders and the distribution of shares, if they are nominative or in the book-entry form;
• the names of those responsible for the internal bodies of administration and control, with domicile details, position and connections with other companies.
• the name of the person responsible for giving information to investors, to the regulatory / supervising State agency or to the agency recognized by the competent authority and, if appropriate, to the stock exchanges. The person responsible will be given the duty of updating the registration of the issuing concern according to item 1.1.3 of this document.
• the company's financial statements and, if appropriate, consolidated financial statements, accompanied by explanatory notes and the comments from independent external auditors registered in the appropriate entity (if applicable) on the last three financial years or, if the company has been in existence for less than three years, since its incorporation. If the company holds stock which is negotiated in other Mercosul countries, the explanatory notes which come with the financial statements should take heed of the accounting norms adopted by the company in its country of origin.
• the Minutes of all the general meetings held during the 12 months preceding the application for registration.
• if the company is in a pre-operational phase, a study on the economic / financial viability of the project, which should be sufficiently informative for the purposes of the relevant regulatory agency.

In the case of small and medium-sized companies, the relevant control agencies and stock exchanges may establish special conditions or arrangements.

1.1.3. Updating the information provided by the issuing company: Once the company has been registered or authorized by the relevant agency and on the stock exchanges, it should provide:

• annual financial statements and, when appropriate, annual consolidated financial statements, accompanied by a report from an independent external auditor;
• quarterly financial statements
• announcements and calls to attend Ordinary and Extraordinary (Special) General Meetings;
• the Minutes of the Ordinary and Special General Meetings;
• agreements of the shareholders, if they exist and are known;
• the Directors' report on the company's performance over the last reference period, which should attempt to explain the development of earnings, principal administrative factors and other relevant aspects.

The information should be provided within 45 days counted from the end of the quarterly period and within 90 days counted from the end of the financial year.

1.1.4. Cancellation of the issuer's registration or authorization: The appropriate agency should foresee the possibility that the company's registration or authorization may be canceled, as part of its duties or on request of the interested party. The application for cancellation has to be approved at a Special General Meeting called for this purpose.

1.2. Registration or authorization of stock for issue

1.2.1. Offering stock to the public: The issue of stock to the public should be made through stockbrokers or directly by the issuing company, provided the laws of the country where the offer will be made permit.

1.2.2. Calling a General Meeting: The advertisement announcing the call of a Meeting to make resolutions on the issue of stock for public offering should contain information on the class of stock to be issued, its characteristics and the nominal amount to be issued.

The Meeting should pass resolutions on at least the following requisites:

• characteristics of the stock to be issued;
• conditions for underwriting and issue price, or a delegated power to determine these in the appropriate administrative department.

1.2.3. Registration or authorization to issue by the appropriate agency: The application for registration or authorization to issue stock should be made by the company in accordance with the provisions in force in each country.

For permission to be given to offer stock for public offering, a prospectus containing the following information should be submitted to the appropriate agency:

• composition of capital before and after the offer to the public;
• information on the corporate structure in which the issuer participates, including associate companies, controlling and controlled companies and their respective holdings;
• information about the shareholders who, either as individuals or special associations, hold 5% (five per cent) or more of issued shares at the date of issue, members of the Board of Directors or equivalent internal body;
• principal activities developed by the company;
• basic characteristics of the issue:

- Shares: characteristics, rights, quantity to be issued, issue price and total amount offered;

- Bonds: basic characteristics of the bonds, such as: dates of issue, redemption, amortization, form and rates of interest, guarantees (if they exist), options to buy or sell, the rights of creditors and details of the fiduciary agent (if applicable), with his / her respective functions, rights and obligations;

• conditions for making the offer of stock and identification of the brokers;
• conditions for integration, dates at which the offer will begin and be completed;
• procedures to apply should there be a surplus demand or offer for issued stock;
• in the case of shares, monthly quotations, minimum, average and maximum quotations for the shares to be issued if there have already been similar ones on the market for at least a year, together with a brief description of the norms to be applied in relation to rights for preference and withdrawal;
• the issue price and the method to be used for fixing it according to the regulations provided by the appropriate agency;
• distribution costs;
• reasons for the issue of stock and main destinations of the resources gained;
• comparative financial statements for the company and, if required, consolidated financial statements, accompanied by the relevant explanatory notes and the report of independent external auditors registered in the appropriate agency (if applicable) for the last three financial years. An account should be enclosed of the accounting principles used for the preparation of the financial statements;
• the date of the General Meeting and the meeting of the Board of Directors (if applicable) which authorized the issue and their characteristics;
• a description of the origins, nature and effects on the activities of the company, financial results or stock negotiated on the market arising from legal actions taken against the company, its subsidiaries or affiliates which are still pending on the date the prospectus is issued (in accordance with the legislation of each country).

In the case of holding a public offer in Brazil, a study on the economical / financial viability of the project to be financed by the issue will also be required.

1.2.4. Publicity: The use of any type of publicity for effecting the issue through a public offer can only be realized once the issue has been authorized. If there are provisions in force which authorize the use of a preliminary prospectus or advanced publicity before authorization is given, the material must make clear its preliminary nature.

If there is publicity for the distribution, the dates for the beginning and completion of the respective periods should be specified.

1.3. Distributing information

1.3.1. Material events: Public companies should immediately notify, to the relevant agency and to the stock exchanges or authorized markets alike, any decision made by the General Meeting or administrative agencies or any factor in its business which could have a significant influence on:

a) quotations for the stock;

b) the decisions of the investors to negotiate this stock;

c) the resolution of the investors to exercise any of the rights inherent to their position as holders of the stock;

The following will be regarded as material events:

a) changes of control in the company;

b) transformation of a public company to a closed corporation;

c) merger, split, transformation or winding-up of the company;

d) significant changes to the composition of the company's assets and liabilities;

e) alterations to the rights conferred by stock issued by the company;

f) buying-up by the company of the shares it has issued;

g) delays in the payment of dividends or changes to the policy by which they are distributed;

h) completion, substantial modifications or cancellation of an important contract for the company;

i) a request for composition with creditors, a request for a declaration of voluntary bankruptcy, a summoning of creditors, bankruptcy, or claims against the company which, if sustained, could jeopardize its economic / financial position;

j) any finding or change to the development of technology or to the resources of the company which could significantly affect its performance;

k) any other relevant facts of political, administrative, technical, business or economical / financial character which could have significant effects.

Such information should be released immediately in the countries in which the stock is traded.

1.3.2. Standardization of information: For international negotiation in the Mercosul, the financial statements of public companies from member nations should be accompanied by a report from an external auditor which can allow investors from each country to perceive the differences in accounting criteria between their own country and the country where the company is based.

CONSIDERING the strong possibility that electronic systems will be installed which would enable a rapid finding and release of information, it is essential that such information be standardized.

For this reason, it would be desirable to use standard charts of accounts to show the statements of assets and liabilities and the statements of the income of companies. These could be introduced gradually and adopt norms which are already accepted internationally.

1.4. The rights of shareholders:

The signatory nations are in agreement that the respective legislation of each country should contain minimum regulations to protect investors, which should include at least the following:

1.4.1. The right to information: The shareholders should have access to the minimum information established by the relevant body and which should include, among other data, the financial statements and the Minutes from Meetings.

1.4.2. Rights of preference: Shareholders bearing shares of various types will enjoy the right to underwrite or buy new shares of the same type in proportion to the number they already hold. In exceptional circumstances, this right may be restricted or suspended. The particulars should appear in the prospectus.

1.4.3. Right to withdraw: When there is dissension against special decisions, those who do not attend, abstain or spoil their papers can enforce the right to withdraw. The particulars should appear in the prospectus.

2. Mutual Investment Funds or Entities of Collective Investment

2.1. Concept, incorporation and registration.

The concept of Mutual Investment Funds or Entities of Collective Investment should be standardized amongst the signatory nations with a view to ensuring the security and flexibility of their performance in the capital markets of the Mercosul.

For these entities to be able to succeed in the captation of resources in other Mercosul countries, the following are required:

• registration with the appropriate State body in the country where the entity was incorporated;
• the registered offices should be within the territory of a signatory nation;
• a distinction between the assets of the administrator or manager and those assets which are the object of management;
• restrictions on the involvement of the administrator or manager so as to limit eventual conflicts of interest;
• regulations for the diversification and composition of the entity's portfolio;
• specific authorization for activities of custody or deposit of goods which make up the portfolio.

2.2. Norms for transparency and information:

Collective Investment Schemes should make the following items available to the investor:

• information on the regulation of management in the entity;
• the value of each share;
• conditions of investment and redemption.

Within the time limits specified by the relevant legislation, the following information should be publicized and given to the regulatory agencies in the country where the quotas and proportional parts are offered:

• developments in the price of the shares;
• portfolio composition;
• a statement of income.

Legislation uniformity for the transparency of information given to the public and supervisory bodies for institutional investors has a significant bearing on the security and credibility of the integration of the capital markets of the Mercosul.

2.3. Norms for supervision:

Legislation uniformity for supervising the actions of these entities is desirable.

3. Exchanges, Markets and Brokers

3.1 Exchanges, Stock Markets and Organized Negotiation Systems:

The stock exchanges and organized negotiation systems which wish to quote negotiated stock on the markets of the Mercosul countries should be subject to supervision by the relevant governmental authority, which should:

• Authorize the incorporation and winding-up of stock exchanges and organized systems of negotiation;
• Approve the general norms which regulate the supervision and control by the stock exchanges and organized systems of negotiation over their members;
• Approve the regulations governing the clearing and liquidation of operations performed by their members and the custody of bonds;
• Determine the minimum information to be sent to the authority concerning the economic / financial circumstances of the entity and also the operations conducted in its sphere;
• Determine the minimum information to be given to the public on operations conducted in its sphere about both the issuers and the stock which is the object of the operations.
  

3.2. Brokers:

The brokers who wish to operate on an international scale in the Mercosul should be subject to supervision by the appropriate governmental authority.

The appropriate authority should:

a) Determine, either directly or indirectly, the norms which regulate the activities of the brokers;

b) Determine, either directly or indirectly, the minimum requirements of assets and liquidity needed to act within the Mercosul;

c) Determine, either directly or indirectly, the information system and registration of operations and buyers which should appear in the registers and remain at the disposition of the supervisory organ in such a way that clear identification is possible.

4. Independent external auditors:

The public companies, brokers and institutional investors who wish to participate in a market in a country of a different origin than their own should ask their auditors to make clear in their report the auditing norms adopted, the conditions in which they applied and the control system used by the appropriate agency (if applicable).

It is up to the discretion of the appropriate agency in the receiving market to accept the auditor's report under such conditions or not.

5. Systems for Clearing, Settlement, and Custody:

The systems for clearing, settlement and custody which come to operate in the Mercosul should be subject to supervision from the appropriate governmental authority, which should:

• Authorize their incorporation, workings and dissolution. They should be independent firms set up solely for this purpose;
• Approve the limits and uses of the guarantee funds;
• At any given moment, the authority has to be able to request the control registers for bonds deposited in custody and, further, the identification of the depositors.

The following recommendations have been developed for systems of clearing, settlement, and custody:

a) Adoption of mechanisms for the custody of securities on a scrip basis;

b) Adoption of integrated mechanisms for the registration of trade, custody, and financial settlement;