Latin American Capital Markets

66 GEORG WITTICH, ETHIOPIS TAFARA, AND ROBERT J. PETERSONtial investors can be reduced significantly, affording smaller companies and entrepreneursgreater access to public capital markets. Likewise, the brokerage expensesretail investors are charged when purchasing and selling securities can be loweredthrough the use of automated Internet-based ordering systems.This potential may attracteven more individual investors to the market, who in the past may have beendissuaded by high brokerage fees.The Internet holds particular promise for developing markets, many of whichface some of the same hurdles faced by retail investors, small companies, and entrepreneurs.High transaction costs and a dearth of information can stall the developmentof a capital market. The Internet has the potential to reduce these transactioncosts, while providing investors with the information necessary to instill confidence intheir investments.Regulatory Policy and the InternetIt is indisputable that the Internet has flourished because of the ingenuity and drive ofthe private sector However, it is also apparent that without some type of governmentmediating role and law enforcement oversight a great part of the Internet's potentialfor capital markets may be wasted. In short, use of the Internet for securities activityrequires a certain degree of regulatory attention. Otherwise, retail investors mightavoid its use, thus defeating the potential benefits the Internet promises.Keeping a regulatory eye on the operation of online brokerage systems willincrease the likelihood that the systems operate properly and that the privacy ofthose using the systems is maintained. Similarly, securities activity via the Internet willhave limited appeal unless regulators insist that electronic disclosure by issuers betamper-proof, timely, and accurate. Uncertain laws and regulations regarding Internettransactions—for example, contract rights, liability, and intellectual property rights—also might deter investors, issuers, and brokers alike from realizing the potential benefitsof the InternetThere are more insidious dangers to securities activity via the Internet thatderive from the nature of the medium.The Internet enables almost anyone, anywhereto send and receive information quickly and cheaply. However, if a sufficient amountof false or misleading information is posted via the Internet, investors will begin todoubt all such information, whether provided by fraudsters or honest issuers. Similarly,if the information available through the Internet is not timely and complete, investorsCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub