Latin American Capital Markets

166 RUBEN LEEBarriersA wide array of barriers may hinder regional capital market integration. Such barriersinclude the following:• Currency convertibility• Domestic or regional monopolistic or oligopolistic practices• Multiple regulators• Legislative and regulatory impediments• High transaction costs• Taxation• Accounting differences• Lack of information• History and culture.Law and RegulationCompared with local legislators and regulators, can regional legislative and regulatoryinitiatives better promote regional capital market integration?The reason for phrasingthe question in this manner is to highlight the fact that, contrary to common belief,many regional initiatives have significant costs associated with them, as well as potentialbenefits. In order to assess the merits of a proposed regional initiative, it is vital toassess both its anticipated costs as well as its proposed benefits.At the broadest level, regional legislative and regulatory initiatives normallyseek to enhance the delivery of the three key objectives of regulation, as identified bythe International Organization of Securities Commissions (IOSCO), namely protectinginvestors; ensuring that markets are fair; efficient, and transparent; and reducingsystemic risk (IOSCO 1998). Delivery of these objectives may be improved in threeimportant ways.The first is by lowering the direct costs of operating multiple regulatorsthat market participants bear The second is by reducing the indirect costs thatmultiple regulators impose on market participants by dint of the fact that they haveto comply with many different regulatory regimes. The third is by enhancing competitionat a regional level between the various types of participants in the capital markets,most importantly by reducing barriers to such competition.This section discusses the costs and benefits of four types of legislative andregulatory initiatives aimed at promoting regional capital market integration: sharinginformation between the regulators of different jurisdictions in a region; harmonizingCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub