Making Markets Viable The Market Institutions to Develop Securities Markets

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Making Markets Viable - The Market Institutions
to Develop Securities Markets

• Gilberto Mifano
• São Paulo Stock Exchange

WASHINGTON, FEBRUARY 5, 2001
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How to make capital markets viable

• adequate legal framework
• proper regulatory and supervisory framework
• efficient infra-structure for trading securities
• efficient and reliable clearing and settlement
  systems

ROBUST CAPITAL MARKET
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Macroeconomic level should provide a healthy
environment for the development of a sound
microeconomic structure
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Major challenges for the Exchanges
Cross border trading Issuers and investors are
expanding their horizons beyond their home markets
International cross-listing Cross-listing of
companies in the U.S. and also in other markets
CHALLENGES FOR EXCHANGES COMPETITIVENESS

• Competition from ECNs and ATSs
• Reduced costs
• Extended trading hours
• Links to multiple exchanges

• New demands from investors
• Prominent role of institutional investors
• Demand for anonymous block trading

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Latin Americas DRs volumes and values are
increasing
Billions
USD Billions
Source Citibank (until 1999) 2000 estimated
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Exchanges in Latin America ought to build an
efficient infra-structure for the Capital Markets
in line with regulatory and supervisory bodies
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Exchanges need to improve

• Accessibility
• opportunity for a wider range of investors
• adequate infra-structure for
• individual investors
• institutional investors
• Efficiency
• minimize fiscal burdens
• efficient settlement conditions
• local market consolidation
• Transparency
• enhance Corporate Governance
• Liquidity

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Several improvements at the São Paulo Stock
Exchange and other Latin American exchanges have
been noticed
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Exchanges need to improve Accessibility

• Electronic Trading System - Mega Bolsa - NSC
• Utilized by 17 Exchanges in the world
• Home-Broker/ After-Market
• Internet trading
• Connectivity

• Device for remote access and broader
  connectivity
• Promotes retail investors trading
• Possibility of linkage to routing and trading
  systems

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Exchanges need to improveEfficiency

• National integration of the 9 stock exchanges
• One independent clearing house (CBLC) and
  restructuring of Brazils payment system
• Electronic trading for fixed income securities

• Consolidation less price fragmentation
  (domestically) and cost reduction for market
  participants
• Efficient settlement routine
• Migration to an electronic trading environment

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Exchanges need to improveTransparency
Protection to minority Shareholders
Benefits of efficient CG In Brazil, investors
would pay 22.9 above the stock price
Corporate Governance
Disclosure
Source McKinsey
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Exchanges need to improveLiquidity

• Novo Mercado
• Fixed income electronic trading
• International alliances
• Evaluation of technical and regulatory conditions
  
• Discussion with main partners

• Main concept protection to shareholders means
  liquidity and greater value for companies stocks
• Agreement with the MAE (Argentina), BEVSA
  (Uruguay) and BVRJ plans for markets integration
  in the near future
• Regional integration with Latin America
• GEM - Global Equity Market
• Nasdaq-Latin America proposal

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Accessibility, transparency, efficiency and
liquidity to build a sound and viable
marketThese features are core issues to discuss
what to do next steps