Independent Regulatory Agencies in the Brazilian Capital Market

Since 2004/2005 the Brazilian economy has "suddenly" entered into the circle of leading countries as regards the size and dynamic of their economy. Brazil's GDP already ranks ahead of that of Italy, and Brazil will certainly outperform Spain and France in the coming years. However, this development did not occur overnight. Through a painful adaptation process, Brazilian monetary and fiscal policy transformed the country's economy into a lasting, nearly inflation free zone producing constant payment surpluses. Since 2007, Brazil has been a net foreign creditor. This remarkable development on the macroeconomic level - from a serious debtor to a creditor - was accompanied by fundamental changes on the microeconomic level, in particular as regards the regulation of financial markets. The Brazilian capital market is the only one on which the global financial crisis has had almost no impact. Knowing that 2007 was the Brazilian financial market's best year in its history, the robustness of the market during the crisis becomes even more remarkable. From 2004 through the first half of 2008 the Brazilian capital market, in particular the stock market, was one of the most dynamic equity markets worldwide. The market capitalisation of all companies listed on BOVESPA rose from 51% of the Brazilian GDP to 124.6% in 2007. This rise was triggered by higher stock prices of already listed companies and more than 150 initial public offerings. The path for this impressive development was paved by a substantial change of the regulatory framework. Key actors in this process have been the Brazilian Securities and Exchanges Commission (CVM) and the stock exchange (BOVESPA) itself which acts as a "regulated" selfregulation body. The implementation of the U.S. model of independent regulatory agencies is not limited to the securities markets, but is used in many areas of Brazilian law. The reason for creating the agencies was to replace the old model of Brazilian economic policy that had been based on large stateowned companies until the end of the 1980s. Using the legal status of the securities regulator as an example, this fundamental change in economic governance will be discussed in the present article. The essential findings can be summarised as follows: CVM's competence to set up and enforce new regulation(s) is extensive, and its independence from the Brazilian Central Bank and the minister of finance has been strengthened substantially since it was founded in 1976. Nevertheless, CVM can still not be characterised as an independent regulatory commission in the strict sense.