1. Capital Market Development and “Nurturing” the IPO Market Future of Domestic Capital Markets Professor Reena Aggarwal The McDonough School of Business Georgetown University aggarwal@georgetown.edu The World Bank/IMF/Brookings Conference April, 2003

2. TWILIGHT OF THE LATIN BOURSE “The days of the independent national Latin American stock exchanges could be numbered …..Hampered by low liquidity and stagnant market capitalization growth, many bourses are in decline and facing tough competition from US exchanges.” Emerging Markets Investor LATIN AMERICA’S STOCKMARKETS – High and Dry Drying Up? The Economist REQUIEM – POR LAS BOLSAS DE AMERICA LATINA AmericaEconomia

3. THE CHANGING MARKETPLACE GLOBALIZATION TECHNOLOGY EXCHANGE GOVERNANCE

4. FUTURE OF “DOMESTIC” CAPITAL MARKETS TRADING IS GLOBAL IN NATURE INVESTING IS GLOBAL IN NATURE TECHNOLOGY FACILITATES GLOBALIZATION

5. FUTURE OF “DOMESTIC” CAPITAL MARKETS WHY DO WE NEED DOMESTIC MARKETS? LARGE BLUE CHIP FIRMS CAN RAISE CAPITAL IN GLOBAL MARKETS WHAT HAPPENS TO THE CAPITAL RAISING PROCESS OF SMALL/MEDIUM FIRMS?

6. LARGE FIRMS CAN RAISE CAPITAL GLOBALLY

7. DOMESTIC MARKETS LISTINGS IN LOCAL MARKETS TOTAL # OF LISTINGS IPOs LATIN AMERICA & ASIA

8. 19902000 MEXICO 390177 BUENOS AIRES 179125 SANTIAGO 216261 SAO PAULO 579467 JAKARTA 123286 KOREA 677702 KUALA LUMPUR 271790 PHILIPPINE 153230 TAIWAN 205531 THAILAND 159381 TOTAL # OF LISTINGS IN TROUBLE ……..

9. # OF IPOs IN TROUBLE …….. 19962000 MEXICO 142 BUENOS AIRES 710 SANTIAGO 145 SAO PAULO 2624 JAKARTA 1621 KOREA 515 KUALA LUMPUR 9238 PHILIPPINE 137 TAIWAN 3680 THAILAND 402

10. TRENDS LATIN AMERICA REDUCED IPO ACTIVITY MORE DELISTINGS THAN IPOs EVEN CROSS-LISTED STOCKS TRADING AWAY FROM DOMESTIC MARKETS

11. IMPACT OF DROP IN LISTINGS DIFFICULT FOR SMALL FIRMS TO RAISE CAPITAL LESS CHOICES FOR INVESTORS FINANCIAL TROUBLE FOR DOMESTIC EXCHANGES

12. “NURTURING” THE IPO MARKET REGULATORS REGISTRATION INFORMATION ROLE OF UNDERWRITERS, LAWYERS, CORPORATE OFFICERS – due diligence, liability DEVELOPMENT OF UNDERWRITERS COSTS OF GOING PUBLIC OVER-ALLOTMNT OPTION

13. “NURTURING” THE IPO MARKET REGULATORS DEVELOPMENT OF VENTURE CAPITAL ROLE OF BANKS PRICING & ALLOCATION MECHANISMS “EQUITY CULTURE” & EDUCATION

14. “NURTURING” THE IPO MARKET FIRMS “PREPARE” TO GO PUBLIC STRATEGIC PARTNERS SELECT UNDERWRITER CORPORATE GOVERNANCE LIQUIDITY - FLOAT

15. “NURTURING” THE IPO MARKET FIRMS DIFFERENT CLASSES OF STOCKS BE PREPARED TO “Leave money on the table” INSTITUTIONAL & RETAIL INVESTORS CONSIDER LOCK-UP CONSIDER OVER-ALLOTMENT

16. “NURTURING” THE IPO MARKET CAN BENEFIT ECONOMC DEVELOPMENT ISSUERS INVESTORS EXCHANGES