Latin American Capital Markets

ENHANCING MARKET INFRASTRUCTURE IN EMERGING ECONOMIES 263measures to economize on liquidity, while still controlling risk Key elements of thisnew phase are:• T+1 settlement period, or even T+0• Straight-through processing• Linkages and/or mergers between clearing and settlement institutions• Closer linkages of securities and derivatives clearing and settlement with paymentsystems.Under these circumstances, policymakers need to closely monitor the elements mentionedabove, as well as the ongoing implementation of international standards andbest practice in clearing and settlement. Faced with strong international competitionfor attracting resources, policymakers need to identify and promote the general interestof their own market and infrastructure and to counter narrow interest grouppositions that can undermine the viability of the overall marketIn addition, policymakers will need to devote more attention to the technologyaspects of infrastructure, as these will determine in large part the success of aparticular market in achieving aT+1 settlement with limited risk It will be importantto keep options open for modifications and changes in technology and its applicationand to avoid locking into solutions that can quickly become obsolete. Monitoring developmentsin technology as markets move toT+1 or even T+0 will be an importantpart of policymakers' decisionmaking process.To be successful in developing capital market infrastructure, policymakers neeto provide a vision, exercise good management, and obtain funding. In the past, marketinfrastructure was seen as an afterthought, something left to a few specialists, but it isnow recognized that successful modernization requires attention and decisions fromtop managers. Investments at the market and institution level can be very costly, asshown by the estimated cost of shifting to T+1 in the United States, which is $8 billionto $9 billion. For individual institutions, capital investments are significant, and oncethe new systems are in place, further rapid changes tend to be prohibitively expensive.Senior management needs to make sure that regulatory requirements are met and thenew infrastructure is strategically well placed for linkages, mergers, or acquisitions.VisionVision is a necessary requisite to take into account the configuration of institutions,regulations, competition, and technologies in selecting the best set of alternatives forCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub