BM&FBovespa Seeks to Exclude Penny Stocks From Brazilian Market

BM&FBovespa SA, the operator of Brazil’s equity exchange, plans to no longer allow trading in stocks valued at less than 1 real, potentially affecting about 10 percent of listings in Latin America’s biggest economy.

The exchange’s proposal, being considered by securities regulators, would “mitigate the risk of the penny stocks market, which is more subject to volatility, as any cent up or down may represent a significant percentage, and of speculative trading,” the company said in a statement to Bloomberg News. Newspaper Valor Economico reported on the plan earlier today.

Among the companies that would be affected are former billionaire Eike Batista’s OGX Petroleo e Gas Participacoes SA and OSX Brasil SA. Fifty-five of the 485 stocks that are currently trading on the Brazilian market are priced below 1 real, data compiled by Bloomberg show.

Under the proposal, companies that are already listed will have a period of 12 months after the rules are adopted to meet the new requirements. Companies could choose to pursue reverse stock splits, under which the number of outstanding shares is reduced to increase the par value of the stock.

BM&FBovespa is scheduled to announce changes in the way it determines the relative importance of individual stocks in the Brazilian equity benchmark, the Ibovespa, by Sept. 13. OGX is the only stock on the index to trade below 1 real.

Before it's here, it's on the Bloomberg Terminal.