Latin American Capital Markets

160 RUBEN LEE• Intense competition between all types of capital market participants, includingexchanges, new trading mechanisms, investment banks, brokers, issuers,and investors• Increased demand for capital market instruments at the retail and institutionallevels and for equities and bonds• The growing importance of funded and private pension schemes as a resultof demographic trends in many of the developed markets• The move from national to sector allocation of investments, spurred inEurope by the introduction of the euro• Increased supply of capital by companies on a borderless basis, partly as aresult of large privatization schemes and partly by new entrepreneurialcompanies• The demutualization of exchanges into for-profit companies• Rapid technological advancement, including the Internet, e-business, wirelesstechnology, and new software for market participants• A desire to price explicitly the risks of trading and, if possible, to reduce them• Deregulation and liberalization in some of the world's capital markets.These trends are creating intense pressures on all markets, including emergingones, to lower cross-border transaction costs of all types, to allow market participantsto deliver services across borders, and to reduce all the many forms of risks inherentin the international trading process. Although it is possible to further all thesegoals at the domestic level, the potential gains of doing so at the regional level are significantlylarger Therefore, the advancement of regional capital market integration hasbecome widely perceived as critically important, and not just by market participants.Interest in promoting regional capital market integration has been taken up at thehighest political levels, most evidently by the economics and finance ministers in theEuropean Union.If the gains of capital market integration are larger at the regional level thanat the domestic level, would they not be correspondingly larger at the global level? Althoughthis chapter does not provide a broad answer to this question, two partial responsesmay be given. First, if global integration were better than regional integration,one way of reaching the global goal would be through a series of regional goals. Second, many of the activities that promote regional capital market integration are simplyinfeasible right now at the global level.The chapter presents some practical recommendations for enhancing regionalcapital market integration. It concentrates on the equity markets and not debt markets;Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub