Latin American Capital Markets

•CHAPTER 3Internet Technology and theDevelopment of Securities MarketsGeorgWittichEthiopis TafaraRobert J. PetersonInformation is the lifeblood of modern capital markets. When information flows freely,investors invest their money more readily, established companies find the capital theyneed to expand, and entrepreneurs attract the cash needed to turn their ideas intoreality. However, when the flow of information is constricted—or where the veracityof the available information is called into question—the flow of capital generally driesup. Investors refuse to make an investment where they do not understand the risks.In turn, larger companies find capital costly, given that the more sophisticated investorswilling to take a chance purchasing these companies' securities demand a greater returnon their investment to compensate for the opacity of information concerningrisk Meanwhile, smaller companies, with their untried ideas and unproven products,find it almost impossible to raise funds through capital markets.The Internet is revolutionizing the securities industry because, at its heart, theInternet is about the flow of information. The Internet allows virtually anyone, anywhereto send and receive large volumes of information almost instantaneously andat little cost. As such, the Internet has the potential to significantly "level the playingfield" among many traditional market participants.In theory, the Internet can enable retail investors to receive the same levelof detailed and timely information that in the past was available only to institutionalinvestors and professional securities analysts. Institutional investors and professionalanalysts have access to even more sources of information about the companies andindustries they cover At the same time, the Internet offers dramatically lower transactioncosts associated with accessing and investing in modern capital markets. Thehigh costs traditionally associated with distributing prospectus information to poten-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub