Latin American Capital Markets

194 RUBEN LEEchange, the first exchange agreed to pay a prespecified fee per contract to the otherexchange.The main tactical benefit of establishing the link for Singapore was to build afinancial center to rival Hong Kong.The link gave SIMEX access to a contract for whichthere was already a pool of liquidity in the United States with a reputable exchangeand for which demand had already been identified. It thus gave the new exchange agood chance at being successful.Two key lessons may be taken from this form of cooperation between theCME and SIMEX. First, private incentives may be sufficient to promote a link betweenCCPs that enhances regional capital market integration. Second, mutually beneficialcooperation is possible between CCPs in countries with strong notions of sovereigntyand different regulatory structures.Sett/ementA custodial agent called a depository normally undertakes the settlement of matchedsecurities transactions via a book-entry system. Until recently, there has normally beena single depository in each jurisdiction, called a central securities depository (CSD).CSDs may provide a range of services in addition to pure settlement services, includingconfirmation and the handling of the money side of settlement procedures.CSDs can also provide facilities for borrowing and lending securities in order to ensurethat, if market participants do not have either the securities or the money necessaryto settle the transactions on which they have agreed, they can borrow eitherthe securities or the money against appropriate collateral. As with CCPs, there is noconsensus on how best to achieve regional capital integration for settlement institutions,and it has again been in Europe that the most intense discussion about this issuehas recently been conducted, given the commonly accepted belief that there are toomany CSDs in Europe. This section describes six different cooperative models forhow the industry might be configured to enhance regional market integration. 45RegionClearThe simplest conceptual solution would be to create a single regional settlement facilitythat would replace all CSDs and international CSDs in a region and allow tradersand investors to settle trades in all markets, securities, and currencies in the same wayCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub45 A key source for the descriptions in this section is various issues of Global Custodian.