Latin American Capital Markets

10 VALERIANO F. GARCIA AND LUIS ALBERTO GIORGIOInstitutionalizationThe number of individuals investing directly in capital markets has increased significantly,but is still dwarfed by the numbers in pensions, insurance and mutual funds, andspecial investment funds. In fact, a large part of the current capital flows are savingschanneled by institutional investors.DematerializationThe information revolution has led to technological innovation in the way documentsare created and processed. Capital markets have not remained absent from thisprocess; there is a plethora of electronic documents and processes for registering, ordering,clearing, settling, and custody of many types of transactions.This new technologyhas led to a huge reduction in transaction costs. In the world of emerging capitalmarkets, the legal profession has somewhat lagged behind these new developments;the challenge is to bring it up to date.Derivatives and Sophisticated Financial EngineeringThe use of asset-backed instruments and advances in financial software to deal withoptions, futures, and all types of swaps have led to the development of complicatedfinancial deals that cater to different risk preferences.The large size of financial marketshas led to the creation of specialized exchanges, although their products can alsobe found in over-the-counter markets.The financial risk sometimes involved, as shownby the demise of long-term capital, has led to regulatory challenges. However, the capacityof regulators tends to lag behind the dynamic innovation in financial markets.The Tailored Approach to Stock Exchange ListingInitial public offerings, capital increases of existing companies, and mergers and acquisitionsconstitute the crucial factors that make a vibrant and growing capital market.Stock markets in emerging countries must be able to find innovative ways to attractnew companies and facilitate growth.To encourage initial public offerings, some newstock exchanges have substantially lessened listing requirements for particular businesssegments.The idea is to reduce transaction costs for high-growth firms lookingfor venture capital. Since 1997, about 500 firms have been listed in Frankfurt's NeuerCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub