Latin American Capital Markets

DEVELOPING A STRATEGY FOR REFORMING CAPITAL MARKETS 19ernization. Some countries have already changed, and others are in the process ofchanging, the regulations. 8Implementation of principles and practices that promote transparency anddisclosure and allow comparability in relation to international best practices is directlyrelated to corporate governance and sets the foundation for regional integration andharmonization. 8 Public disclosure is the key to increasing transparency in the market.Disclosure should start when a firm issues securities to the public and should continuethereafter Listing, initial offering, and disclosure requirements should occur on a timelybasis. Listing requirements deal with the minimum disclosure requirements for a firmto list in the market, while initial offering requirements refer to the disclosure mandatedfor a firm to issue new securities.The initial offering disclosure should involve informationthat allows investors to evaluate the overall condition of the firm and morespecific information about the new issue, such as the amount of capital to be raised,its purpose, and how the offering price was determined. Disclosure requirementsshould also include periodic reporting on important corporate developments thatmay affect the company's business and stock price. Rating agencies and credit bureausalso have an important role in promoting a transparent information environment 10However disclosure will be effective only if the financial information is based onaccounting principles and practices well understood by investors. Harmonization ofaccounting standards will be especially helpful in attracting foreign investors.Reform could include utilization of the principles for securities regulation establishedby the International Organization of Securities Commissions (IOSCO).These principles, developed through global consensus, are essential to ensure that internationalstandards for market activity are maintained.The principles have specificapplications and guidelines for all market actors, from regulators and enforcementagencies to market participants. Regulatory reform should also seek to create an environmentthat encourages the participation of new potential issuers of securities.TheAssociation of the Securities and Exchange Commissions of the Americas (COSRA)encourages its members to adopt lOSCO's core principles for securities supervision,international accounting standards issued by the newly revamped International Ac-8 SeeOECD(l999).9 Policymakers are considering utilizing opacity as an advanced version of transparency. Opacity is defined as the lackof clear, accurate, formal, and easily discernible and widely accepted practices in the world's capital markets and nationaleconomies. Opacity poses an obstacle to economic progress as it results in lost opportunities for investmentand higher costs of capital.This concept is being advanced and promoted by PricewaterhouseCoopers and other policymakers.For more information, refer to www.opacityindex.com.10 For a regulatory model based on public disclosure and self-imposed market discipline, see Strahota (1996).Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub