Promoting Regional Capital Market Integration Ruben Lee Oxford Finance Group

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

Promoting Regional Capital Market Integration 1) Introduction

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

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

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

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?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2) Benefits, Costs, and Barriers Currency Convertibility

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

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

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

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

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

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

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

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

Promoting Regional Capital Market Integration 3) Legal and Regulatory Responses

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

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

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

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

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

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

Promoting Regional Capital Market Integration 4) Market Infrastructure Cooperative Projects

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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?

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

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

Promoting Regional Capital Market Integration 6) Conclusions

Promoting Regional Capital Market Integration Conclusions Net Benefits of Regional Integration are Large rubenlee.ofg@btinternet.com

Promoting Regional Capital Market Integration Conclusions Net Benefits of Regional Integration are Large Competition is a Powerful Force to Achieve Them rubenlee.ofg@btinternet.com

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 rubenlee.ofg@btinternet.com

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 rubenlee.ofg@btinternet.com

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 rubenlee.ofg@btinternet.com

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 rubenlee.ofg@btinternet.com

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 rubenlee.ofg@btinternet.com