Latin American Capital Markets

INSTITUTIONAL INVESTORS AND CAPITAL MARKET DEVELOPMENT 137the public and that companies disclose fair and accurate information to enable investorsto allocate capital efficiently. 10 Under the Securities Exchange Act, companiesare subject to quarterly and annual reporting obligations of their financial conditionafter they have issued securities and at any other time a material change occurs thatmay affect their securities while they are traded in the secondary markets.The SEC fosters investor confidence through enforcement of these laws. Enforcementis conducted through on-site compliance and inspection programs and byinvestigating and prosecuting incidences of fraud and other regulatory breaches.To performthese functions, the SECs resources include trained personnel and technology tomonitor the markets. The SEC is funded through the federal government budgetaryprocess, although it does collect fees on securities registrations, transactions, and filings.Increased Market Exposure and EducationInvestor demand for institutional products has also increased through market exposure.With the advent of private pension funds, a large segment of the population inthe United States became exposed to and familiar with the markets, thus creating an"investment culture" and increasing individuals' desire for further investment. An investmentculture was furthered in the 1970s with the advent of money market funds,which served as bank account substitutes when deposit account interest rates remainedartificially capped through government regulation.Largely through mutual fund and other industry trade associations, the institutionalsector in the United States has been instrumental in educating investors andthereby providing them with the tools to understand mutual fund prospectuses anto spot fraud when it occurs. Investor education, along with the pressures of competition,has encouraged the industry's general adherence to high operating standardsand allowed innovation through investment creativity and investor confidence. Investorconfidence is evidenced by the fact that, despite several brief disruptions in theU.S. equity markets since 1940, mutual funds investing in these markets have not experiencedmass redemptions, but rather a consistent growth in shareholder investment(Rea and Marcis 1996).Distribution and Technological DevelopmentsCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubTechnological advances in communications and information distribution have enabledinstitutional investors to operate at much lower cost. These developments are parlol5U.S.C.§77a(l994).