Latin American Capital Markets

358 A. M. CORCORAN, R. B. HOBSON, G. J. KUSERK, K. K. WUERTZ, AND D. WEST• Prefer the operation and integrity of the system and permit the payment andcollection of profits and losses, notwithstanding the failure of a single participantby isolating the failure to the individual party and protecting the systemfor guaranteeing transactions as a whole• Make transparent to participants the applicable laws and rules under whichit operates. 29TransparencyTransparency, that is, price transparency and transparency of contracts and rules, inaddition to promoting legal certainty, is an independent requisite.Price TransparencyThe following may influence prices: 30• Market conditions• Who can participate in the market• The depth of the market• The taking of large interests by a market participant• Whether those interests are commercial or speculative• How and when price and volume information is disseminated.The more information that is available on the market and the price formationprocess, the more timely that information is, and the more reliable it is, the moreefficient and bona fide the prices formed in that market are likely to be. Although few29 As used here, "markets" refers both to an exchange and to other arrangements whereby buying and selling interestscan be brought together. Differential levels of transparency and regulation or oversight may apply to transactionsthat are undertaken bilaterally between professional counterparties, through alternative trading systems, or on organizedor regulated markets (Forum of European Securities Commissions 2000; CFTC 1999b). Among other things,a market participant needs to know the type of market venue (and level of oversight) in which its transaction willoccur Even in new electronic markets where participants may be referred to as subscribers or users, the terms ofthe contract traded, the trading algorithm, and the terms for settling transactions constitute the contract between thesubscriber and the market in ordinary circumstances and in the event of default In such markets, however, these termsmay be expressed solely as contractual terms rather than as rules.30 The influence on prices will depend on the market. Prices may be formed outside the market and be reported tothe market prices may be the product of a continuous or a noncontinuous auction; orders may be fully visible or fullyor partially hidden; participants may be identified or anonymous; participants may be limited to particular categoriesof experience, commercial interest, or credit; bids and offers and sales prices may or may not be available; volume anddaily turnover may or may not be available; and information on large holdings of open interest may or may not beavailable.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub