Latin American Capital Markets

ENHANCING MARKET INFRASTRUCTURE IN EMERGING ECONOMIES 247and IT and consulting companies are developing alternatives to in-house securitiesprocessing. Fund managers, broker-dealers, custodian and subcustodian banks, investmentbanks, institutional investors, and others are questioning how deeply they wantto be involved in IT support functions.Global Developments to Upgrade Capital Market InfrastructureGlobally, financial sector infrastructure is experiencing a period of transition. Changesin the institutional and regulatory frameworks and stiff competition, nationally and internationally,are transforming financial sector infrastructure in most of the majoreconomies. For many years, until recently, the infrastructure was characterized by national regulation and mutual ownership of exchanges and various related functions byparticipants or a subset of participants.This model has supported a tremendous increasein capital market activity over the past 10-15 years.During this period, competition among exchanges was limited, as each focusedon its own business and listed securities. First, to the extent that there was integration,it was vertical, including functions relating to one market. Competition existedbetween exchanges in the United States and through American DepositoryReceipts, but in general there was a home market for securities listed on a particularexchange.This structure started to erode a few years ago, marked by the success ofEurex in winning business away from the London Stock Exchange. A second factorwas the formation of electronic communications networks, which challenged thedominant positions of established exchanges.Rapid changes in technology enabled a whole range of securities trading andprocessing functions to be delivered at relatively low prices.The combination of innovativetechnology and strong and large competitive financial institutions meant that noexchange was beyond threat, particularly if that exchange was not keeping up withthe new developments in technology. In this world of rapid change, the old corporateform of mutualization and cooperatives did not allow for rapid decisionmaking, preciselyat a time when it was urgently needed. The third characteristic of the transitionalperiod is the demutualization of exchanges to allow more rapid decisionmakingand strategic thinking.In payment systems, real-time gross settlement (RTGS) systems are increasinglybeing implemented as the core system in national markets, while new types ofhybrid payment systems are evolving. RTGS systems are becoming the large-valuepayment transfer system of choice for central banks, as such systems are being im-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub