Latin American Capital Markets

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Specializedfutures lawThere are no specializedlaws, but theMinistry of Finance,the Mexican CentralBank, and the NationalBanking and SecuritiesCommission haveissued specializedregulationsNo, but derivativestrading is permittedunder the securitieslawsNo, but derivativestrading is permittedunder the securitieslawsCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubYes354 A. M. CORCORAN, R B. HOBSON, G. J. KUSERK, K. K.WUERTZ, AND D. WESTTable II -3 | Derivatives Markets in Latin America, 2001 (continued)CountryAverage daily AnnualExchange volume volumeContracttypesMexico MexDer 2,452 contracts 619,352contractsFutures on 9 1 -day Cetes, U.S.dollar, equity index, 28-day interbankinterest rate, and individualequitiesPeru Lima Stock Exchange Not applicable Not applicable Equity, bonds, and short-terminstrumentsPeru Lima Commodity Not applicable Not applicable Agricultural, livestock, fishing, mining,Exchange and industrial commoditiesVenezuelaCamara deCompensacidn deOpciones y FuturesNot applicable Not applicable Equities, dollar and interest ratefuturesSource: CFTC(2001).
DESIGNING A DERIVATIVES COMPLEMENTTO CASH MARKETS 355instruments, futures markets benefit from an appropriate regulatory and legal infrastructureand from regulatory support. Moreover; in some circumstances, because themarkets involve pricing contracts among members who otherwise would be competitors,a government predicate is essential to avoid conflict with fair trading or antitrustlaws.IOSCO (1998, 2002b) points out that the basic objectives of securities regulation—customerprotection; fain efficient, and transparent markets; and reduction ofsystemic risk—apply equally to derivatives. Such objectives also generally are the objectivesof market participants, creating an identity of interests between regulatingauthorities and users of the markets.Typically, even the markets that are self-regulatedrealize that to prosper they must provide fundamental assurances that the rules ofthe game are fair and will be equitably applied and that obligations undertaken or fiduciaryresponsibilities assumed will be enforced. Where local law enforces exchangeand clearing rules, more specific law may not be necessary for a market to develop.However, if the desire is to attract the largest potential user base, international acceptanceof the market, or international credit enhancements, then the regulatoryframework becomes critical to pursuit of that strategy. In Brazil, for example, selfregulationwas deemed insufficient to address the manipulation of the futures marketby Naji Robert Nahas; similar reasons were cited for establishment of the U.K. FinancialServices Authority (FSA),that is, that self-regulation without regulatory backbonewas insufficient.An additional argument for appropriate infrastructure is that futures marketregulation begins by assuming that pricing in exchange derivatives markets has commercialuses and, therefore, is of relevance to the real economy. A principal purposeof the regulation of these markets is to protect price integrity and prevent cash marketdistortions. It is critical that derivatives markets are protected from manipulationof prices and market abuses. Such abuses prevent the appropriate functioning ofthe market and its risk management uses (hedging, facilitating financing, improving themanagement of production, and distribution). Such abuses also may compromise thecash market that developing market authorities are hoping to improve. If the derivativesprices are related to indigenous commodities or assets, the regulatory authoritycan be called on to provide confidence that the derivatives price achieved in the marketis not distorting cash prices.Reliable, continuous functioning is critical to such markets; it permits reliableshifting of risks rather than exacerbation of risk If the risk of transacting in the marketand shifting risk is greater than holding the risk, obviously the market will not beused. Derivatives markets only shift risk, that is, transfer it from one group to another.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub
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Copyright © by the Inter-American
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FOCUS ON CAPITALNew Approaches to D
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ContentsForewordAcknowledgmentsAbou
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ForewordDuring the past two decades
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xFOCUS ON CAPITALlyst with Freddie
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ABOUTTHE AUTHORS xiiiDerek West is
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xviFOCUS ON CAPITALLocal capital ma
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xviiiFOCUS ON CAPITALTable IFinanci
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xxFOCUS ON CAPITALto investors to p
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xxii FOCUS ON CAPITALAlthough deriv
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4 KENROY DOWERS, FELIPE GOMEZ-ACEBO
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10 KENROY DOWERS, FELIPE GOMEZ-ACEB
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DEVELOPING A STRATEGY FOR REFORMING
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PART IIFACTORS AFFECTINGTHE DEVELOP
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•CHAPTER 2Globalization,Technolog
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GLOBALIZATION.TECHNOLOGY AND REGULA
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GLOBALIZATION.TECHNOLOGX AND REGULA
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GLOBALIZATION.TECHNOLOGY; AND REGUL
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GLOBALIZATION.TECHNOLOGY; AND REGUL
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GLOBALIZATION.TECHNOLOGY, AND REGUL
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•CHAPTER 3Internet Technology and
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INTERNETTECHNOLOGY AND THE DEVELOPM
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INTERNET TECHNOLOGY AND THE DEVELOP
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INTERNET TECHNOLOGY AND THE DEVELOP
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INTERNETTECHNOLOGY ANDTHE DEVELOPME
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CHAPTER 4The Impact of the Macroeco
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THE IMPACT OF THE MACROECONOMIC ENV
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CHAPTER 5Institutional Investorsand
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INSTITUTIONAL INVESTORS AND CAPITAL
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United KingdomPercentInsurance comp
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PART IIIISSUES IN THE IMPLEMENTATIO
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CHAPTER 6Promoting Regional Capital
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PROMOTING REGIONAL CAPITAL MARKET I
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^CHAPTER 7Accounting andAuditing St
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ACCOUNTING AND AUDITING STANDARDS 2
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Puerto Rico Colegio de Contadores P
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Financial statement formats Specifi
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CHAPTER 8Enhancing Market Infrastru
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ENHANCING MARKET INFRASTRUCTURE IN
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•CHAPTER 9Demutualization of Exch
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DEMUTUALIZATION OF EXCHANGES 271int
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DEMUTUALIZATION OF EXCHANGES 273and
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DEMUTUALIZATION OF EXCHANGES 275as
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DEMUTUALIZATION OF EXCHANGES 277wou
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DEMUTUALIZATION OF EXCHANGES 279is
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DEMUTUALIZATION OF EXCHANGES 281tha
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DEMUTUALIZATION OF EXCHANGES 283sec
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DEMUTUALIZATION OF EXCHANGES 285the
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DEMUTUALIZATION OF EXCHANGES 287cro
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DEMUTUALIZATION OF EXCHANGES 289Ams
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DEMUTUALIZATION OF EXCHANGES 291to
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DEMUTUALIZATION OF EXCHANGES 293Kah
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CHAPTER 10Developing Bond Markets:A
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DEVELOPING BOND MARKETS: A COMPREHE
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ACCESS TO FINANCING FOR SMALL AND M
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•CHAPTER 13Developing Capital Mar
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DEVELOPING CAPITAL MARKETS—ETHICA
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DEVELOPING CAPITAL MARKETS-ETHICAL
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•CHAPTER 14Corporate Governancean
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CORPORATE GOVERNANCE AND CAPITAL MA
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The company's historyof equitable t
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CHAPTER 15Human Capacity Developmen
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HUMAN CAPACITY DEVELOPMENT 465For t
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HUMAN CAPACITY DEVELOPMENT 467• W
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HUMAN CAPACITY DEVELOPMENT 469spect
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HUMAN CAPACITY DEVELOPMENT 471Table
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HUMAN CAPACITY DEVELOPMENT 479struc
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HUMAN CAPACITY DEVELOPMENT 481rapid
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HUMAN CAPACITY DEVELOPMENT 483tate
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PART IVCONCLUSIONCopyright © by th
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CHAPTER 16Pragmatic Issues in Capit
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PRAGMATIC ISSUES IN CAPITAL MARKET
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IndexIn this index, page numbers in
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INDEX 519Bolsa de Valores de Rio de
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INDEX 521Clearing and Depository Co
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INDEX 523costs, financial services
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INDEX 525developing economies (cont
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INDEX 527European Central Securitie
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INDEX 529Global Equity Market (GEM)
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INDEX 531institutional investorsbon
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INDEX 533Jensen, Michael, 216job cr
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INDEX 535margin requirements, 322,
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INDEX 537outsourcing and infrastruc
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INDEX 539prudent investor rule, 141
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INDEX 541Securities and Exchange Co
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INDEX 543technology (continued)self
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Latin American Capital Markets

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