Latin American Capital Markets

CHAPTER 6Promoting Regional CapitalMarket IntegrationRuben LeeThe term integration in the context of the capital markets has been used to meandifferent things. It can refer to an environment where (I) identical securities aretraded at essentially the same price across the markets in a region after adjustmentfor foreign exchange rates (Wellons 1997); (2) investors can buy and sell securities inthe region's markets without restriction (Lemmen 1998); (3) all types of participantsin the capital markets can offer their services throughout the region without restriction;or (4) capital markets are not fragmented, a term that itself is full of ambiguity(Lee 1999).These four attributes of an environment are closely linked, but not identical.Thisreport focuses on the first and third.The first stresses that in an integratedmarket, the costs of trading should be the same throughout the region and implicitlyas low as possible.The third attribute emphasizes that there should be no restrictionstopping market participants from undertaking their business activities wherever theywish in a region.Although the phrase "regional capital market integration" implies the need forsome form of cooperation between market participants or jurisdictions, it does notrequire it. Indeed, as will be discussed, competition both between market participantsand between regulatory regimes can have an enormously positive effect on bringingabout such integration.The term region is used here loosely to refer to a set of nationsbound by trade or other links or to a single nation with a federal system that allowsits states, provinces, or other subnational jurisdictions to pursue different lawsand policies (Wellons 1997).There are several reasons why the capital markets are currently in a state ofrapid change, including the following:Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub• Consolidation and globalization among capital market participants, especiallyinvestment banks and issuers, but progressively investors and exchanges