Latin American Capital Markets

246 ANDREW HOOKassociations, such as the International Federation of Stock Exchanges (FIBV) and theInternational Society of Securities Administrators (ISSA). 4The approach has generally emphasized principles and objectives governingcapital markets rather than dictating specific measures or means to achieve thesegoals. In a particular country, the private sector is asked to develop the means ofachieving the stated goals, and the authorities must agree that the means are appropriateand adequate. At the international level, for example, the CPSS of the BIS itaking a similar approach to reducing foreign exchange risk associated with independentsettlement of the two legs of a typical foreign exchange transaction. A group oprivate sector financial institutions has been developing a multicurrency settlementsystem (continuous linked settlement, CIS) to reduce these risks.Technology as a Key DriverSecurities market infrastructure is becoming even more dependent on informationtechnology (IT) and telecommunications, and the supporting systems are becomingmore complex. Competitive issues and the evolution of the regulatory framework areshaping the changes. In general, regulators have sought to remain neutral with regardto any specific technology, in part to avoid commercial bias. While this objective will remain crucial, the deepening interdependence of market infrastructure and technologywill underline the importance of a good understanding of existing and evolving technologiessupporting the markets.This interdependence is also driving regulatory concernsabout operational risk and the importance of adequate contingency planning.Key areas for technology in market infrastructure include STR standards formessages and information, delivery versus payment, real-time information, translation,and action capabilities and optimization for collateral management and similar systems.After a long period of relatively little change in traditional capital market infrastructure,competitive, technology, and regulatory forces are reshaping the infrastructure.The traditional structure was characterized by mutually owned service utilitiesthat tended toward vertical integration of trading, clearing, and settlement. Derivativesexchanges tended to be operated independently of equity exchanges.Technology wasimportant, but largely viewed as supportive and developed in-house.Competition, deregulation, and new capabilities provided by technology arecausing market participants and organizations to review the allocation of infrastructurefunctions and business activities from a strategic perspective.Third-party vendorsCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubSee FIBV (1999), tInternational Securities Services Association (2000), and Guadamillas and Keppler (2001).