Capital Markets for SMEs and Corporate Governance Novo Mercado and BOVESPA MAIS

1. Capital Markets for SMEs and Corporate GovernanceNovo Mercado and BOVESPA MAIS COSRA Meeting Cartagena Maria Helena Santana BOVESPA – Brazil’s Stock Exchange 9/1/05

2. Agenda • Facts about BOVESPA • Background: The Brazilian Market Before the Novo Mercado • Strategy • Results • A Step Further: BOVESPA MAIS

3. BOVESPA – Brazil’s Stock Exchange • Since 2000, Brazil’s only liquidity center for equity trading • Specialized trading systems for equities and corporate bonds • Direct Market Access facilities (16% of the trades) • 383 listed companies (Jul/05) • US$ 372 billion market capitalization • Daily average trading value: US$ 594 million • 68% of the trading in Latin American exchanges • 2nd market in the world for equity options (number of contracts)

4. Background • BOVESPA’s Mission • Providing liquidity to listed shares • Offering an alternative source of financing to the Brazilian companies (the overwhelming majority of them are Small or Medium Enterprises - SMEs) • Brazilian market reality was very different • Primary market totally stagnated

5. Primary Market Activity # of IPOS

6. Background • Performing this mission depended on reactivating the primary market • And reaching SMEs involved further pre-requisites • Investors: only QIBs, largely international • Low interest in smaller deals • No individual investors • Smaller intermediaries not engaged in underwriting operations • Large investment banks do not perform deals below US$ 100 million

7. BOVESPA’s Strategy • Broaden the investor base and the exchange’s institutional role • Market Popularization Campaign: “BOVESPA where you are” • Raise awareness on stock market by Congress, the judicial branch and government bodies • Improve the ‘quality of the product’: investor protection, disclosure / transparency and better corporate governance

8. The Novo Mercado and CG Levels • Private sector initiative based on and enforced through a contract with BOVESPA • Joining is voluntary and market driven • Companies committed to the highest standards of corporate governance • Set of rules over and above the Corporations Law, reflecting market demands and requirements

9. What was the outcome?

10. Primary Market Activity

11. Share offerings (2004/2005) * IPO (1) Preliminary data

12. A Market for IPOsThe success of the Novo Mercado • Better corporate governance contributed to broaden investor interest • Increased confidence, specially from foreign investors • More favorable pricing, stimulated new IPOs • Offers occurred at multiples much higher than the market average

13. A Market for IPOsThe success of the Novo Mercado • Better corporate governance contributed to reduce resistance to secondary offerings • Made the exit through a stock exchange listing feasible, even in IPOs • Important for recycling private equity/venture capital portfolios • These players tend to “prepare” and “direct” companies to the access market

14. A Step Further • Creating an alternative for a greater number of companies, especially SMEs

15. BOVESPA MAISPillars Companies committed to CG requirements Investors with medium-term horizons BOVESPA programs to support companies Greater flexibility in trading

16. BOVESPA MAISAn Overview • New listing segment of the organized OTC market managed by BOVESPA • Public companies registered with CVM and BOVESPA • Signature of a contract with BOVESPA • Compliance with listing rules • Mandatory use of arbitration for shareholder/company disputes

17. BOVESPA MAISListing rules • Investor rights (one share one vote; tag along rights) • Disclosure (cash flow statements; insider trades; related party transactions; annual corporate events schedule) • 6 month lock-up period after IPO • Ongoing requirements in terms of: • Minimum free float (7th year on) • Financial-Economic Performance (minimum soundness)

18. BOVESPA MAISFlexible trading • Electronic trading through the same platform of the BOVESPA’s main board • Trading rules adapted to liquidity levels: • Calls (electronic auctions) at set times during the trading session and a closing call • Number of calls can increase in accordance with rise in liquidity • Continuous trading for shares with high liquidity or employing market makers

19. BOVESPA MAISSupport to Listed Companies • Program to Enhance Company Exposure on Market • Fostering regular coverage by analysts and investors in order to improve demand for shares • Professional Training Program • Building the internal culture of a public company • Discounts on annual listing fees paid to BOVESPA • 100% in 1st year, with a gradual reduction through the 4th year after listing

20. Our perception onHow to develop the access market • It is first necessary to activate the main market • Without investors there is no market mechanism that will work • Larger companies attract more attention from investors • Divulge success stories and inspiring examples • Strengthen the intermediation industry • Today, there are much better conditions for the success of the access market for SMEs in Brazil • BOVESPA is now working to make it happen!

21. THANK YOU! Maria Helena Santana Listings and Issuer Relations Executive Officer Phone: 55 11 3233-2150 www.bovespa.com.br e.mail: msantana@bovespa.com.br