Latin American Capital Markets

PRAGMATIC ISSUES IN CAPITAL MARKET DEVELOPMENT IN EMERGING ECONOMIES 505govern the trading, clearing, settlement, and custody of capital market trades. Withouta well-functioning infrastructure, capital markets cannot flourish.For issuers, the infrastructure provides the support for issuing equity, debt,and derivatives instruments. Functions covered include registry of ownership, custody,communication of information, and instructions concerning changes in the status ofsecurities. For investors, including banks, market makers, brokers, institutional investors,nonbank investors, and individuals, infrastructure supports their trading activityand provides custody and related information services. For brokers and securitiesdealers, infrastructure supports the clearing and settlement of their own and theircustomers' trades in equity, debt, and derivatives.The emphasis on market infrastructure is moving from first-generation issues,like appropriate legislation, appropriate institutions, a settlement period of T+3, anddelivery versus payment, to new challenges or second-generation issues. According toHook (chapter 8, this volume), these include achieving a T+1 settlement period,straight-through processing, linkages and/or mergers between clearing and settlementinstitutions, and closer linkages of securities and derivatives clearing and settlementswith payment systems.While working toward implementing these issues will bring about a more efficient,safe, and well-functioning market infrastructure, further enhancement can beattained by increasing attention to the technology aspects of the infrastructure andthe implementation of international standards and best practices in clearing and settlement.Policymakers should provide a vision for the configuration of institutions, regulations,competition, and technologies for the market infrastructure and exercisegood management to translate the vision into strategies and action.Integration of Capital MarketsMany emerging capital markets face a particularly difficult dilemma. On the one hand,their development appears to have stalled, as they are simply too small to be interestingto most international investors. On the other hand, the possibility of making themarkets more attractive and viable by participating in some form of regional capitalmarket integration strategy implies that national identity must be subsumed into abroader regional context. Furthermore, the likelihood of success of a regional capitalmarket development strategy, as discussed in Lee (chapter 6, this volume), is low.Regional capital market integration can take three primary forms. The firstform involves cooperative initiatives in the provision of market infrastructure. Such initiativesmay originate from the organizations that deliver the following market infra-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub