Latin American Capital Markets

202 RUBEN LEEFor example, the adoption of the technology necessary to implement an exchangelinkage may be associated with a reform in an exchange's operating structureand typically with the elimination of floor trading. In such circumstances, conflict mayarise between traders based on the floor of the exchange, who are typically relativelysmall in capitalization, and the larger firms, which have offices in many locations andare members of many exchanges. Floor members may worry about the possibility ofbusiness either moving from the floor to the electronic system, on which they believethey will lose their privileges, on worse, migrating to the other exchanges participatingin the linkage. In contrast, the institutional members of the exchange may believethat significant benefits will accrue to them.Sometimes the resolution of such conflicts is in favor of those memberswhose welfare is most closely linked to the functioning of the exchange, namely thefloor traders, rather than the other groups whose interests are not so integrated withthose of the exchange.This often occurs when the governance structure of the relevantexchange grants each member only one vote and when the exchange has a relativelylarge number of floor members. In other circumstances, the larger; wealthiermembers triumph, normally because they are required to fund the necessary investmentsfor modernization of the exchange. Sometimes the wealthier members cansucceed in buying off the resistance of the smaller members by reimbursing them forthe future losses they believe they will incurjoint ventures may give rise to conflict both within a particular institution participatingin such a scheme and between the institutions supposedly working togetheron the project.The resolution of these conflicts may be dependent not only on thecontractual agreements signed between the relevant parties but also on their relativecommercial powerNotwithstanding the ever-present potential for conflict, there are severalways in which tension between cooperating capital market institutions may be reduced.The simplest occurs where the ownership configurations of the participatinginstitutions are exactly the same. In such circumstances, the success of the link is solelydependent on whether the combined trading volume of both of them increases as aresult of the link.The benefits of growth in trading volume that occurs at either institutionwill accrue to the same people, namely the shareholders of both institutions,and there are thus no concerns about the distribution of benefits obtained as a resultof the linkA similar instance may arise if their members dominate both the governancestructures of the linking organizations and if there is a large overlap in membershipbetween the participating organizations. For example, if the member firms of two po-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub