Latin American Capital Markets

412 HANNESTAKACS AND KINGA KORCSMAROSnance do not have many real choices. Domestic markets generally offer the best environmentfor raising capital. The establishment of a pan-European supervisory andregulatory body for stock exchanges would be a first step toward their much-neededconsolidation, followed by the harmonized set of trading rules for all markets and afully integrated trading, clearing, and settlement system.The lessons drawn from the European experience and the conclusions of thechapter are relevant for emerging Latin American and Caribbean economies. Underdevelopedstock markets in many countries, specifically secondary markets for SMEs,often limit their ability to be a major source of SME financing. Regulatory requirementscan be somewhat complicated or sometimes inappropriate for small companies.Furthermore, they often result in costs that could be onerous for SMEs. In general,to enhance capital market financing of SMEs, some reform of the regulatoryrequirements pertinent to capital markets must be considered to make them morerelevant for SMEs.Lessons can also be drawn from the venture funds market Comparing theventure capital markets in Europe and the United States, it is evident that the fundraisingprocesses are quite different.The actual amount involved and the size of the fundsseem to be much higher in the United States. Europe raises annually about €20 billion,compared with $84 billion in the United States. It is also clear that U.S. investorshave a much greater opportunity to IPO their investment than do their Europeancounterparts or other investors in countries with less well-developed capital markets.This naturally has a strong effect on SME finance as a whole and encourages the recyclingof funds into new investments. This component, along with a simpler regulatoryframework facilitates and enhances the development and functioning of private equityand venture capital markets and thus SME access to capital. Many countries are currentlyreviewing the regulations that govern their private equity and venture capitalmarkets and are considering loosening their restrictions. A good starting point wouldbe for governments to seek an appropriate and healthy balance between the interestof investors and that of SMEs seeking finance.The chapter has indicated that there is evidence that SMEs face major barriersto finance in general and capital markets specifically. Clearly, the timing of stockmarket development for SMEs is the crucial issue for making the traditional stock exchangemore relevant for SMEs. In this respect, specific actions to help increase SMEaccess to financing should be tailored to SME needs and could include harmonizingmeasures to improve the structural, economic, but most importantly regulatory conditionsfor the participation of financial intermediaries, issuers, and private and institutionalinvestors.This would have at some stage the added positive outcome of mak-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub