1. Promoting Regional Capital Market Integration
Ruben Lee
Oxford Finance Group

2. Promoting Regional Capital Market Integration
Overview
1) Introduction
2) Benefits, Costs, and Barriers
3) Legal and Regulatory Responses
4) Market Infrastructure Cooperative Projects
5) Practical Strategy for Latin America and the Caribbean
6) Conclusions

3. Promoting Regional Capital Market Integration
1) Introduction

4. 1) Introduction Regional Integration - Definitions
Identical Securities Traded at Same Price Across Markets
Focus on Costs

5. 1) Introduction Regional Integration - Definitions
Identical Securities Traded at Same Price Across Markets
Focus on Costs
Participants do Business Across Markets without Restriction
Focus on Freedom

6. 1) Introduction Regional Integration - Definitions
Identical Securities Traded at Same Price Across Markets
Focus on Costs
Participants do Business Across Markets without Restriction
Focus on Freedom
Integration NOT = Cooperation

7. 1) Introduction Regional Integration - Definitions
Identical Securities Traded at Same Price Across Markets
Focus on Costs
Participants do Business Across Markets without Restriction
Focus on Freedom
Integration NOT = Cooperation
What is the Appropriate Region?

8. Promoting Regional Capital Market Integration
2) Benefits, Costs, and Barriers

9. 2) Benefits, Costs, and Barriers
Lower Prices for Financial Services

10. 2) Benefits, Costs, and Barriers
Lower Prices for Financial Services
More Efficient, Liquid and Broader Securities Markets

11. 2) Benefits, Costs, and Barriers
Lower Prices for Financial Services
More Efficient, Liquid and Broader Securities Markets
Innovative Financial Products and Services

12. 2) Benefits, Costs, and Barriers
Lower Prices for Financial Services
More Efficient, Liquid and Broader Securities Markets
Innovative Financial Products and Services
Industrial Transformation of Markets

13. 2) Benefits, Costs, and Barriers
Lower Prices for Financial Services
More Efficient, Liquid and Broader Securities Markets
Innovative Financial Products and Services
Industrial Transformation of Markets
Cheaper Corporate Financing

14. 2) Benefits, Costs, and Barriers
Lower Prices for Financial Services
More Efficient, Liquid and Broader Securities Markets
Innovative Financial Products and Services
Industrial Transformation of Markets
Cheaper Corporate Financing
More Efficient Allocation of Capital

15. 2) Benefits, Costs, and Barriers
Lower Prices for Financial Services
More Efficient, Liquid and Broader Securities Markets
Innovative Financial Products and Services
Industrial Transformation of Markets
Cheaper Corporate Financing
More Efficient Allocation of Capital
Higher Returns

16. 2) Benefits, Costs, and Barriers
Lower Prices for Financial Services
More Efficient, Liquid and Broader Securities Markets
Innovative Financial Products and Services
Industrial Transformation of Markets
Cheaper Corporate Financing
More Efficient Allocation of Capital
Higher Returns
Enhanced Risk-Return Frontiers

17. 2) Benefits, Costs, and Barriers
Lower Prices for Financial Services
More Efficient, Liquid and Broader Securities Markets
Innovative Financial Products and Services
Industrial Transformation of Markets
Cheaper Corporate Financing
More Efficient Allocation of Capital
Higher Returns
Enhanced Risk-Return Frontiers
Improved Macroeconomic Performance

18. 2) Benefits, Costs, and Barriers
Previously Protected Industries will Lose Out

19. 2) Benefits, Costs, and Barriers
Previously Protected Industries will Lose Out
Some Individual Companies will Lose Out

20. 2) Benefits, Costs, and Barriers
Previously Protected Industries will Lose Out
Some Individual Companies will Lose Out
Transition Costs

21. 2) Benefits, Costs, and Barriers
Previously Protected Industries will Lose Out
Some Individual Companies will Lose Out
Transition Costs
Regulatory Costs - Direct and Indirect

22. 2) Benefits, Costs, and Barriers
Previously Protected Industries will Lose Out
Some Individual Companies will Lose Out
Transition Costs
Regulatory Costs - Direct and Indirect
Protectionism

23. 2) Benefits, Costs, and Barriers
Currency Convertibility

24. 2) Benefits, Costs, and Barriers
Currency Convertibility
Domestic/Regional Monopolistic Practices

25. 2) Benefits, Costs, and Barriers
Currency Convertibility
Domestic/Regional Monopolistic Practices
Multiple Regulators

26. 2) Benefits, Costs, and Barriers
Currency Convertibility
Domestic/Regional Monopolistic Practices
Multiple Regulators
Legislative and Regulatory Impediments

27. 2) Benefits, Costs, and Barriers
Currency Convertibility
Domestic/Regional Monopolistic Practices
Multiple Regulators
Legislative and Regulatory Impediments
Transaction Costs

28. 2) Benefits, Costs, and Barriers
Currency Convertibility
Domestic/Regional Monopolistic Practices
Multiple Regulators
Legislative and Regulatory Impediments
Transaction Costs
Taxation

29. 2) Benefits, Costs, and Barriers
Currency Convertibility
Domestic/Regional Monopolistic Practices
Multiple Regulators
Legislative and Regulatory Impediments
Transaction Costs
Taxation
Accounting

30. 2) Benefits, Costs, and Barriers
Currency Convertibility
Domestic/Regional Monopolistic Practices
Multiple Regulators
Legislative and Regulatory Impediments
Transaction Costs
Taxation
Accounting
A Lack of Information

31. 2) Benefits, Costs, and Barriers
Currency Convertibility
Domestic/Regional Monopolistic Practices
Multiple Regulators
Legislative and Regulatory Impediments
Transaction Costs
Taxation
Accounting
A Lack of Information
History and Culture

32. Promoting Regional Capital Market Integration
3) Legal and Regulatory Responses

33. 3) Legal and Regulatory Responses
Four Strategies
Information Sharing
Harmonisation
Mutual Reliance
Mutual Recognition and Home Country Control

34. 3) Legal and Regulatory Responses
Harmonisation - Benefits
Reduce Duplication of Regulatory Effort
Ensure Minimum Regulatory Standards
Simplify Market Participant Compliance

35. 3) Legal and Regulatory Responses
Harmonisation - Costs
Difficult and Slow to Achieve Consensus
Compliance with Multiple Regulatory Regimes Still Required
Reduces Competition between Rules
Protectionism

36. 3) Legal and Regulatory Responses
The Epidemic of Protectionism - The EU Example
Vested Interests Capture the Legislative Process
Anti-Competitive Laws are Passed
Even if Good Laws are Passed, they are not Implemented
Even if Implemented, they are not Enforced

37. 3) Legal and Regulatory Responses
Mutual Recognition and Home Country Control - Benefits
Eliminates Need for Multiple Regulatory Compliance
Competition between Rules
Competition between Market Participants
Simplify Market Participant Compliance Obligations

38. 3) Legal and Regulatory Responses
Mutual Recognition and Home Country Control - Costs
Extremely Difficult to Give Up Sovereignty
Competition will Lead to Some Losers
Potential “Race to the Bottom” - But has NOT Occurred

39. Promoting Regional Capital Market Integration
4) Market Infrastructure Cooperative Projects

40. 4) Market Infrastructure Cooperative Projects
Elements of Infrastructure
Listing
Information Dissemination
Order Routing
Trading
Central Counter-Party Clearing
Settlement
Marketing

41. 4) Market Infrastructure Cooperative Projects
Typical Perceived Benefits
Economies of Scale and Scope

42. 4) Market Infrastructure Cooperative Projects
Typical Perceived Benefits
Economies of Scale and Scope
Network Externalities

43. 4) Market Infrastructure Cooperative Projects
Typical Perceived Benefits
Economies of Scale and Scope
Network Externalities
Lower Costs for Market Participants

44. 4) Market Infrastructure Cooperative Projects
Typical Perceived Benefits
Economies of Scale and Scope
Network Externalities
Lower Costs for Market Participants
Simplified and Cheaper Rules

45. 4) Market Infrastructure Cooperative Projects
Typical Perceived Benefits
Economies of Scale and Scope
Network Externalities
Lower Costs for Market Participants
Simplified and Cheaper Rules
Best Practices can be Adopted

46. 4) Market Infrastructure Cooperative Projects
Typical Perceived Benefits
Economies of Scale and Scope
Network Externalities
Lower Costs for Market Participants
Simplified and Cheaper Rules
Best Practices can be Adopted
Better Risk Management

47. 4) Market Infrastructure Cooperative Projects
Problems with Cooperative Ventures
Reduces Competition

48. 4) Market Infrastructure Cooperative Projects
Problems with Cooperative Ventures
Reduces Competition
Transition Costs

49. 4) Market Infrastructure Cooperative Projects
Problems with Cooperative Ventures
Reduces Competition
Transition Costs
Mergers Difficult to Implement Successfully

50. 4) Market Infrastructure Cooperative Projects
Problems with Cooperative Ventures
Reduces Competition
Transition Costs
Mergers Difficult to Implement Successfully
Declining IT Costs mean Less Need for Cooperation

51. 4) Market Infrastructure Cooperative Projects
Problems with Cooperative Ventures
Reduces Competition
Transition Costs
Mergers Difficult to Implement Successfully
Declining IT Costs mean Less Need for Cooperation
Technology Difficulties

52. 4) Market Infrastructure Cooperative Projects
Problems with Cooperative Ventures
Reduces Competition
Transition Costs
Mergers Difficult to Implement Successfully
Declining IT Costs mean Less Need for Cooperation
Technology Difficulties
Governance Issues

53. 4) Market Infrastructure Cooperative Projects
Problems with Cooperative Ventures
Reduces Competition
Transition Costs
Mergers Difficult to Implement Successfully
Declining IT Costs mean Less Need for Cooperation
Technology Difficulties
Governance Issues
Difficulty of Credible Contractual Commitments

54. Promoting Regional Capital Market Integration
5) Practical Strategy for Latin America and the Caribbean

55. 5) Practical Strategy for Latin America and the Caribbean
Questions that Need to be Addressed
What are Benefits of Regional Capital Market Integration?
Which Region?
Where are Barriers to Integration?
Where are Costs Highest for Regional Trading?
How can Barriers be Removed?
How can Costs be Lowered?
What are most Important Priorities?

56. 5) Practical Strategy for Latin America and the Caribbean
Attributes of Institutional Framework
Highest Level Political Support
Ambitious but Realistic Targets
Legitimacy
Initial and Continuing Momentum
Adequate Financing
Flexibility

57. 5) Practical Strategy for Latin America and the Caribbean
“Committee of Wise Men”
Formal Process of Publication, Consultation and Justification
Permanent Staff
Publicly Stated Short Timescale
Expertise
Independence
Marketing

58. Promoting Regional Capital Market Integration
6) Conclusions

59. Promoting Regional Capital Market Integration
Conclusions
Net Benefits of Regional Integration are Large

60. Promoting Regional Capital Market Integration
Conclusions
Net Benefits of Regional Integration are Large
Competition is a Powerful Force to Achieve Them

61. Promoting Regional Capital Market Integration
Conclusions
Net Benefits of Regional Integration are Large
Competition is a Powerful Force to Achieve Them
Legislative and Regulatory Initiatives Can Help

62. Promoting Regional Capital Market Integration
Conclusions
Net Benefits of Regional Integration are Large
Competition is a Powerful Force to Achieve Them
Legislative and Regulatory Initiatives Can Help
But Protectionism is Likely and Extremely Costly

63. Promoting Regional Capital Market Integration
Conclusions
Net Benefits of Regional Integration are Large
Competition is a Powerful Force to Achieve Them
Legislative and Regulatory Initiatives Can Help
But Protectionism is Likely and Extremely Costly
Cooperative Infrastructure Projects Can Work

64. Promoting Regional Capital Market Integration
Conclusions
Net Benefits of Regional Integration are Large
Competition is a Powerful Force to Achieve Them
Legislative and Regulatory Initiatives Can Help
But Protectionism is Likely and Extremely Costly
Cooperative Infrastructure Projects Can Work
But Most Don’t

65. Promoting Regional Capital Market Integration
Conclusions
Net Benefits of Regional Integration are Large
Competition is a Powerful Force to Achieve Them
Legislative and Regulatory Initiatives Can Help
But Protectionism is Likely and Extremely Costly
Cooperative Infrastructure Projects Can Work
But Most Don’t
Regional Integration needs Strong Political Support