Latin American Capital Markets

20 KENROY DOWERS, FELIPE GOMEZ-ACEBO, AND PIETRO MASCIcounting Standards Board (IASB), and the corporate governance principles of theOrganisation for Economic Co-operation and Development (OECD 1999). However;each country or region should adapt the principles to suit its own markets.The onesize-fits-allapproach to regulation would be inappropriate.A key problem many domestic capital markets face is the need to increasemarket liquidity. In this regard, regulations that focus on improving liquidity should bedesigned to do the following: increase the efficiency of securities trading; improve therole of organized markets and the concentration of operations in those markets; developinternal markets in relation to external ones and allow remote members freeentry to markets; establish a strong market maker; and institute a comprehensive marketperspective that includes the submarkets that currently exist in each country. Itis also crucial to eliminate dispersed regulations (established with other goals) thatcould hamper market competitiveness. With respect to the activity of the regulatorimproving market competitiveness depends on the quality of regulation and, above all,on enforcement capacity. International institutional investors consider enforcementone of the main elements when deciding where to invest.There is encouraging evidence that countries in Latin America are moving towardregulatory regimes that meet the standards of foreign investors. Brazil is at theforefront in defining and implementing a strategy for local capital market developmentand is acting on several fronts.The Commissao de Valores Mobiliarios (CVM, Securitiesand Exchange Commission of Brazil) has instituted developments to make it difficult forcontrolling shareholders to coerce minority shareholders into selling their stakes in publictender offers. By increasing the minimum level of approval for such decisions (from50 to 67 percent), CVM is signaling that Brazil intends to protect the rights of shareholdersand evolve into a modern financial center The government is taking action toshape the local government bond market, increase its liquidity, and lengthen the tenorof corporate issuers.The accounting profession is also taking decisive steps toward introducingaccounting and auditing standards that are aligned with international bestpractices. Brazil is also working on the other end of capital market development: the accessof small and medium-size companies.The Sao Paulo Stock Exchange (Bovespa) halaunched the Novo Mercado, a trading environment that is intended to attract companiesthat have the highest standards and are hungry for capital (for example, technologycompanies like Microsiga Software constitute one of the Novo Mercado targets). 1 '1 ' The increased volume of trade activity in the stock exchanges of Brazil and Mexico in the year 2000 seems to suggestthat reform efforts pay off.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub