Latin American Capital Markets

320 CLEMENTE DELVALLEand each participant assumes the credit risk of the counterpart. In the early stages ofdevelopment, the collection of settlement orders can be implemented by unsophisticatedmethods, such as telephone or fax, but always ensuring validation, encryption,and authentication.The custody of government securities can be carried out through the centralbank; other options are private companies, partly private companies, and/or a separategovernment agency. In any case, due to the fact that depository activity is a centralizedbusiness, the authorities must ensure nonmonopoly practices, transparency,competition, and wide access to the custody agent. According to table 10-4, there isno clear trend in depository arrangements among the selected group of Latin Americancountries.The table also shows that those countries that have reached a certainlevel of development operate only with dematerialized securities. Argentina, Brazil,Chile, Colombia, and Mexico began the dematerialization of securities relatively early.Other countries, like Costa Rica, are currently in the process of introducing the electronicbook entry system.International investors prefer to deal with just one custody agent, which assuresbetter liquidity management practices. At a later stage, efforts must be orientedtoward linking domestic custody systems with cross-border depository houses, suchas Gearstream or EUROCLEAR, especially in those markets where foreign investorshave a large presence.The design of infrastructure plays a key role in developing secondary governmentsecurities markets.Therefore, it is important that policymakers view the design inTable 10-4 | Depository Services and DematerializedSecuritiesArgentinaBrazilChileColombiaCosta RicaEcuadorHondurasMexicoPanamaPeruUruguayDematerialized (percent)1001009910000901002810044DepositoryIndependent companyCentral bankIndependent companyCentral bankStock exchangeIndependent companyCentral bankIndependent companyStock exchangeStock exchangeCentral bankCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubSource: World Bank (2001).