Latin American Capital Markets

330 CLEMENTE DELVALLEFigure 10-4 I Turnover in Secondary Government BondMarkets, December 2000Source: World Bank survey.to build confidence in their debt strategy. Legally and constitutionally, in most cases,the government has an obligation to society to be transparent and disclose all necessaryinformation on important activities that the government carries out. Moreover,the business infrastructure built to support secondary markets of government securitiesis an essential component in facilitating the development of primary corporatebond markets. Without that infrastructure, the costs involved in supporting a corporatebond market structure would be higher than the profits. For example, in the intermediarymarket, illiquid corporate bond markets cannot be supported without anactive secondary government bond market because the profits from trading governmentbonds and the hedging tools that it provides compensate the costs and risks ofthe illiquid private sector bond market. Investors benefit from the corporate bondmarket because it leads to more diversified portfolios with a better risk-return relationshipdue to the higher yields of private sector bonds.Taxation PolicyTaxation policies have a major impact on securities and financial market development.As tax systems are more rigid than other systems, it is important for regulators to im-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub