Strength in Numbers

Carlos Ignacio Rojas and Alejandro Vera
Winter 2011

Tom Harrison Photography

The expansion of free-trade agreements has created a global market of goods and services that has led to better resource distribution. Capital markets seem to be following suit, but in emerging economies the lack of depth remains a challenge. The limited number of securities, the lack of liquidity and the slow emergence of derivatives markets create one-sided markets, where there are only potential buyers or sellers, but not both.

In these cases, the next logical phase of capital market development is deepening stock markets by allying them to other strategic markets and increasing their efficiency. This was the step taken by Colombia, Peru and Chile when in 2009 they agreed to merge their stock exchanges and form a common stock market. The initiative, which will become functional in 2011, already holds great promise for the participating countries, a complement to their economic growth and business development.

Each of the markets involved in the merger offers complementary features so integration is likely to be successful. This is already evident in the type of sectors included in the new stock exchange as well as by the number of companies listed. At the same time, the expansion of the markets as a result of consolidation is in itself beneficial. The exchange can now offer investors the advantages of economies of both scale and scope. Issuers and investors from the three countries will receive a higher aggregate value in financing terms without increasing transaction costs. Once the market integration is fully consolidated—a process that will take several years—future negotiations with other important financial centers of the region, such as Mexico and even Brazil, will become possible.

But to understand the benefits of the Colombia-Peru-Chile stock market merger, it’s important to look at Europe’s experience. As in Europe, this integration requires a significant effort to attain regulatory standardization through the consolidation of individual regulations and trading systems. Only a unified market will yield significant increases in stock market capitalization and trades at the transnational level.

Access the full text of this article at AmericasQuarterly.org.

Carlos Ignacio Rojas is president of Fiduagraria and Alejandro Vera is vice president of the Asociación Nacional de Instituciones Financieras, ANIF. Both live in Bogotá, Colombia.

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