requirements which go beyond the stipulations of Brazilian legislation. The main innovation of this market is that non-voting shares may not be issued. Since many of the companies currently listed on the BOVESPA either cannot (e.g., they have non voting shares on issue) or do not wish to comply with these requirements, the Novo Mercado introduced different corporate governance levels to accommodate companies which cannot meet the full Novo Mercado requirements. A company can belong to level 1 if it maintains a 25% free float, uses public offering mechanisms that promote dispersion of capital and takes on additional disclosure and reporting duties. To receive a level 2 classification, a company must adhere to level 1 rules, and also adopt a broader range of corporate governance rights and minority shareholder rights, including annual balance sheet disclosure according to US GAAP or IFRS, tag along rights for common shareholders, voting rights for preferred shares in certain situations. Currently, 18 companies are listed on the Novo Mercado.

After a quiet period, there has been an increase in the level of activity in the Brazilian market since mid-2004 to which the Novo Mercado appears to have contributed. In 2005 there were 20 new share issues, including 9 initial public offerings. All issuers have either been listed on the Novo Mercado or meet the higher corporate governance requirements of levels 1 and 2 on the exchange. The performance of companies listed on the Novo Mercado has also been encouraging. The IGC index (corporate governance index) which includes the 18 companies listed on the Novo Mercado together with the 47 other companies listed in levels 1 and 2 has risen by 43.7% in 2005, well outperforming the benchmark IBOVESPA index which registered a 27.7% increase in the same period.

In Asia, several markets have tried to emulate the Nasdaq model. Two important markets are KOSDAQ in Korea and the Growth Enterprise Market (GEM) in Hong Kong, founded in 1996 and 1999 respectively. KOSDAQ has a broad focus on knowledge-based ventures, high-tech companies and SMEs, and has different listing requirements for venture companies and non-venture companies. The listing requirements are simpler than those of the Korea Stock Exchange, and the government of Korea has diversified requirements and relaxed regulations for listing on the market so that large telecommunications companies and other similar firms can be listed as well. The total number of companies listed on the KOSDAQ has grown from 331 in 1996 to 879 in 2003, and the market capitalization has grown in that time frame from US$6.3 Billion to US$30.8 Billion, so that within a few years the market has grown to represent 10% of the Korean stock exchange value (as of 2003).

GEM in Hong Kong focuses more narrowly on companies with growth potential, and does not require a solid record of profitability for listing. GEM balances that by imposing more stringent listing requirements than other Asian second-board markets, and promotes itself as offering a “high growth, high risk” paradigm, appealing to professional and informed investors. GEM requires companies to use a “sponsor” for the first two years after listing, and has stringent disclosure and business practice rules that firms must adhere to. However, GEM has not performed as anticipated in the years since the dot-com bubble burst. The GEM 22