The Brazilian Securities Commission (CVM) introduced on June 10 of this year, through the CVM Resolution 135, the possibility of carrying out transactions with large lots of shares and securities representing shares in specific segments or trading procedures in exchange and organized over-the-counter markets.

According to paragraph 1 of Article 95 of CVM Resolution 135, transactions with large lots are considered to meet, cumulatively, the following conditions:

  • the minimum lot is not less than that disclosed by CVM in relation to the respective securities;
  • occur with single and indivisible lot of securities; and
  • participation of a member of the securities distribution system.

Since the publication of the resolution, the market has been waiting for the CVM to disclose the methodology to be applied for the definition of large trading lots, which occurred on October 4, in view of the decision of the CVM Board that approved the proposal presented by the Superintendence of Relations with the Market and Intermediaries (SMI).

The proposal made by SMI, after interactions with the market, was inspired by the European regulations for the definition of so-called "Large in scale orders" or LIS, calculated from the average volume traded per asset. According to the technical area, the European model was considered more appropriate for the Brazilian market, since it considers the different liquidity patterns of the shares.

It was defined as this:

Frequency of disclosure – The shares and securities representing shares that can be traded in large lots and their respective minimum lots will be disclosed, in principle, every four months, through the Circular Letter of SMI (it should be noted that CVM Resolution 135 will be amended at this point because it initially provided for annual disclosure).

Criteria – The following criteria will be used in the disclosure of minimum lots for the trading of large lots:

  • the median daily volume traded during the base calculation period, making it unnecessary to exclude the trades carried out on the first trading day of the calculation basis; and
  • the minimum number of trading sessions in which there has been trading for the purposes of meeting the eligibility criterion shall represent 25% of the trading sessions of the base calculation period.

Minimum lot definitions for trading large lots – The following table will be used for the definition of shares and securities representing shares that can be traded through transactions with large lots:

BELT Volume median  daily Negotiated Minimum lot for trading  in   a  specific segment or through specific procedures Number of Tickers included in the belt
  • 1
 Greater than R$ 1.5 billion R$ 8.5 million 2
  • 2
 Between R$ 800,000,000.01 and R$ 1.5 billion R$ 7 million 2
  • 3
 Between R$ 300,000,000.01 and R$ 800 million R$ 6 million 15
  • 4
 Between R$150,000,000.01 and R$ 300 million R$ 4 million 21
  • 5
 Between R$ 80,000.00.01 and R$ 150 million R$ 3 million 36
  • 6
 Between R$ 20,000,000.01 and R$ 80 million R$ 2 million 61
  • 7
 Between R$ 5,000,000.01 and R$ 20 million R$ 1 million 65
  • 8
 R$ 5 million or less R$ 500,000 225

 

With the permission to set up specific trading segments or procedures for conducting trades with large lots of stocks and other securities representing shares to be made in the stock and over-the-counter markets, the regulator seeks to offer an alternative to mitigate any market impacts deriving from the harmful volatility in the price of a given asset, depending solely on the existence of an offer with a large-volume transacted.

The changes promoted do not represent a fence for the use of the mechanisms previously existing for the trading of large amounts of shares and securities representing shares.

This is the case, for example, of special negotiation procedures that were provided for in the CVM Instruction 168/91 (revoked), in case of transactions involving substantial blocks or quantity of shares or direct offers higher than the daily media traded in the last trading sessions – with CVM Resolution 135, the rule of these procedures became included in the regulation of the stock exchange's managing entity.