After an IRB case, CVM warns that “compression” is a form of market manipulation; company denies being involved in the movement

SÃO PAULO – In a statement on Friday morning (29), the Brazilian Securities and Exchange Commission (CVM) warned that anyone who acts with a “deliberate objective” of influencing the operation of the market may be penalized by autarky and also by the common Justice.

Despite not citing the case of investors in Brazilian stocks who tried to make the same move as the “GameStop effect” that occurred in the United States, the alert came a day after IRB shares (IRBR3) rose 17.82 %. The measure was due to the creation of a group in the Telegram messaging application, organizing a “joint purchase” of the papers with the intention of generating a “short squeeze” effect in the market, promoting a rise in prices of the Loss-making assets for those who are short (that is, benefit from paper write-off). In addition to IRB, there is a movement of investors in other social networks to do the same with Oi (OIBR3; OIBR4), Cogna (COGN3), Cemig (CMIG4), among others.

CVM points out that the so-called squeeze, which can be configured in situations in which one or more investors artificially cause the price of securities to rise, in order to cause losses to third parties or obtain undue benefits for themselves or other market participants, one of the modes of market manipulation.

“In Brazil, depending on the characteristics of the case, these strategies can be classified, in administrative terms, as ‘price manipulation’, a definition that encompasses the use of any process or device designed, directly or indirectly, to raise, maintain or lower the price of a security, inducing third parties to buy and sell it, there are other types in the regulation that also aim to repress practices that violate the regularity of the market, ”said the municipality.

The CVM also indicated in the note that market manipulation is subject to penalties in the criminal sphere, according to the crime established in art. 27-C of Law 6,385 / 76. It affirmed that it continuously monitors the market to identify illicit practices and routinely institutes sanctioning processes and applies sanctions for the practice of illicit acts of this nature.

“As already shown in the CVM precedents, the actions of a group of people can contribute to the characterization of the manipulation, acting under a common interest, all of them being, at least in theory, responsible for the conduct prohibited by the law. CVM instruction 8 ”, he says.

CVM also reported that, together with B3 and BSM, the self-regulatory arm of the Stock Exchange, it has been dedicated to observing (i) the trading rules applicable to cases of increased volume, liquidity and volatility, as well as (ii) exposure limits in future settlement markets, including securities lending.

The members of the Telegram group on IRB themselves stated in statements in the group that it was necessary to be careful so that they “do not commit the crime of market manipulation”, also pointing out that the guidelines “will never be for a purchase or sale order, but rather for investment strategy ”. The creator of the group also stated that he is not a securities analyst and that he exclusively contributes personal opinions and his own investment portfolio. However, in the debates, information on dates and prices of operations was the subject of publications (see more here).

This Friday, amid strong volatility, B3 announced that the trading of IRB shares will be auctioned during the day, noting that, in times of volatility, the auction mechanism promotes better price formation. IRB shares were up for auction until around 11am and opened with gains of around 1.43%, then returned to the auction.

Previously, in a clarifying note to the CVM to clarify the strong fluctuation of the shares, the IRB stated that it was not aware of any fact or act related to its activities that has not been informed to the market that it could have justified. the oscillation of the actions.

However, he pointed out that he became aware, through the press and information available on social networks, of a movement of investors that involves the shares issued by the company. Likewise, he stated that he has no participation or interference in this movement – not even being able to verify the veracity of the information reported – “since all the information he has in this regard is that which is publicly available on social media and in the press.” .

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