Latin American Capital Markets

GLOBALIZATION.TECHNOLOGX AND REGULATION IN CAPITAL MARKETS 41In the United States, NASDAQ is in the process of demutualizing and the New YorkStock Exchange (NYSE) is considering it, while the U.S. Securities and Exchange Commission(SEC) is reassessing the role of self-regulatory organizations (SROs).There isconsiderable consolidation taking place in the financial services industry, blurring thedistinction between banking, insurance, and the securities industry. This requires enhancedcooperation between regulators, even within the same industry.The conceptof domestic markets will not be significant when the industry becomes truly global innature. Issuers will raise capital wherever it is cheapest, and investors will invest theirmoney wherever it is most profitable and transaction costs are low. Globalization isat the root of some of the change, but technology is at the heart of many of thechanges and is clearly the major force in today's marketplace.These developments areposing interesting challenges for regulators. Howeven there is no one-size-fits-all approachto regulation that will work for all jurisdictions.GlobalizationGlobalization is changing the nature of capital raising and securities trading. It is creatingopportunities but also posing challenges.There is no question that emerging marketsare becoming integrated into the global financial system; the questions arewhether those markets are ready and how they will be affected. Physical trading floorsare being replaced by electronic trading systems, and the Internet is playing a crucialrole in the globalization of markets. Internet use is expected to grow by 60 percentin one year on English-language sites and by 100 percent on non-English sites (Zarb2000). Information is available quickly and cheaply, foreign markets are one mouse clickaway, and individual investors have as much access to the market as institutional investors.Issuers look beyond national boundaries to raise capital wherever it is cheapest.Investors also want to invest globally in order to earn higher returns and diversifytheir portfolios. The rapid pace of global mergers in the financial services industrymakes the importance of global competition clear among financial intermediaries.Figure 2-1 shows that U.S. equity markets accounted for 78 percent of worldcapitalization in 1970; however, by 2000, their market share had dropped to 46 percent(World Bank 2002).The share lost by the United States was due to the rise oftrading in emerging markets. During this period, several new stock exchanges opened,particularly in the transition economies, and the stock markets of Latin America andAsia expanded and opened up.The globalization of markets is also evident from thegrowth of depository programs that have been increasing in terms of both numberCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub