The Novo Mercado is Bovespa's latest attempt to bring Brazilian equity markets up to western standards of transparency, liquidity and governance. It is modelled on Germany's Neuer Markt, but so far hasn't had any listings. When companies do come to market, if they choose the new market they will have to do away with the invidious Brazilian practice of issuing preference shares rather than common stock, which allow families with tiny shareholdings to control companies. Two-thirds of a company's equity can be in the form of preference shares, which don't carry voting rights, which means that 50.1% of the common stock would be just 16.67% of the company as a whole. That controlling stake can then be put into a holding company, and a family can hold a majority of shares in that, and so on.
"Our economists here that have been following the new market are extremely optimistic, but I think it's a learning process," says Merrill Lynch managing director, Richard Rainer. "You have a situation where you still have a lot of companies that are family controlled or group controlled that really have to learn to deal with the market and corporate governance and so forth.