Pulling together

Author: | Published: 24 Apr 2015
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The Latin American Integrated Market (MILA) could be a huge opportunity for companies in the region, but it will rely on regulators’ determination to cooperate. The president of Colombia’s securities exchange discusses its progress

Over the last decade Colombia has seen an immense transformation. The country's economy has grown, investment in infrastructure and power have taken off and foreign investors are excited about the opportunities the jurisdiction offers. Regional integration has been a clear part of the success. Colombia is working closely with its neighbours to increase regional cross border deals.

The creation of the integrated stock exchange between Colombia, Chile, Mexico and Peru, MILA has pushed this collaboration further. As these programs grow, opportunities for investors and companies are expected to go further still. IFLR spoke with Juan Pablo Córdoba Garcés, the CEO of Bolsa de Valores de Colombia (BVC) about the progres made so far.

How do you see the relationship between BVC and the other MILA exchanges developing?

We share the same objective of making MILA the Pacific Alliance's financial integration platform. That is why we work together to eliminate the imaginary boundaries that still exist and to continue to take advantage of the similarities of our economies. We thus maintain a continuing conversation to identify the best way to promote the changes that we still need for the integration to have greater reach and to offer more opportunities for all market stakeholders.

MILA plans to add a debt and index offering in 2016. How do you expect this to impact cross-border trading? What will be the major challenges in synchronising these offerings?

The more products that investors have available through MILA, the greater the interest that we generate among them will be. We hope that once the fixed income becomes available, there will be higher participation from institutional investors, who are generally the market participants with greater appetite for this type of product.

As for the greatest challenge, we definitely need to harmonise the pending regulatory aspects so that countries consider investments in MILA to be local investments. This is not the case in prevailing conditions, which limits funds' ability to purchase securities registered in other integrated countries. We are working on this with the governments and we hope that there will soon be a change that makes this a reality.

Why do you think cross border volume has been slow to materialise with MILA? What more can you do?

The first thing is to clarify that MILA has already proven that it is possible to take the objective of integrating Latin American stock markets from dialogue to action. This was our initial goal, and we have achieved and exceeded it. Regarding the trading volume, I am sure that the wider range of products on offer, including exchange-traded funds (ETFs), derivatives and fixed income securities, in addition to stocks, will motivate investors to use the platform to buy and sell these assets. Additionally, we need brokers to perform more intense commercial work and investors to learn about these products so that they trade with them as they do with local securities.

What are the biggest regulatory hurdles Colombia's exchanges must face in the next five years?

Capital market development necessarily goes hand in hand with regulatory reforms. In Colombia, that cooperation between the government and the securities industry has flowed very well in the past decade.

Thanks to this cooperation, the market today has multiple products of wide international use, which did not previously exist in the country and which are now available to all industry participants.

The main challenge continues to be attracting new issuers to the market and improving product liquidity.

What are you doing to support small and mid-size firms in raising capital?

The BVC has a program called Colombia Capital, which helps businesses to learn about the market entry process, whether through debt issuance or through share placement.

"We need to harmonise the pending regulatory aspects so that countries consider investments in MILA to be local investments"

This initiative has various components, one of which is the preparation and publication of information documents regarding the securities market. Further, we have already published digital-format guides to which all companies can have access. These documents seek to generate greater interest regarding topics such as the composition of boards of directors and the management of corporate governance policies, aspects that are important in creating market confidence.

Colombia Capital also assists companies that decide to venture into the market for the first time on a personalised basis. Additionally, it carries out joint work with the chambers of commerce and with other stakeholders to develop better financial education and entrepreneurial training at a national level.

Furthermore, Colombia and its market have moved forward with the objective of supporting small- and medium-sized enterprises so that they can enter the market. Last year, for example, the government issued decree 1019 of May 28 2014, which seeks to encourage these types of companies' access to new financing sources and which is characterised by lowering the requirements for businesses to register in the National Securities and Issuers Registry (RNVE in its Spanish acronym) of the Financial Superintendence of Colombia, as well reducing the amount of paperwork and requirements for this process. Thanks to the new regulation, Banco Bancamía already made its first bond issuance, for more than $40 million.

How are Colombia's infrastructure goals impacting the development of its capital markets?

Colombia has designed an ambitious investment plan to modernise its infrastructure and make the country more competitive. According to the Colombian government, around $20 billion will be needed over the next five years to execute this plan. The entities carrying out the plan will have to seek out this funding through various mechanisms. We hope that the local securities market will be one of the channels through which these businesses access the capital they need, whether through debt issuance or the sale of stocks.

We believe that the market is ready, given that during the last five years resources worth more than $32 billion have been channelled towards businesses that have sought this money out. This demonstrates that there is sufficient space for these resources, or part of these resources, to come from the local capital market.

Do you expect to see the introduction of new structured products or the growth of existing ones anytime soon? Given the popularity of products like FIBRAS in Mexico, will Colombia need its own product to compete?

Our market has shown important evolution in the last 10 years and, as a consequence, new products have emerged. This is the case for standardised derivatives, which have now been in operation for six years, and for ETFs, which arrived in Colombia just a few years ago. These types of instruments have been welcomed by investors and local brokers but, as is normal, it has taken time for people to understand and to learn to use them.

Accordingly, the BVC is working on creating a fixed income ETF, a market that in Colombia represents close to 90% of the trades carried out on the stock exchange. Likewise, in 2015 we hope to introduce options to the derivatives market, which will complement the wide offering of futures that we have available in the country. On the other hand, the objective of MILA for this year is to include the fixed income and derivatives instruments in the product offering, as well as to create a framework for regional investment funds. This would place within the reach of investors products such as FIBRAS (infrastructure and real estate trusts), which already have wide recognition in their market of origin.

How are you balancing the need to incorporate new technologies with the desire to keep the market safe? Are high-frequency traders or cyber security a concern in Colombia? Should they be?

BVC is updating the technology necessary to modernise the access channels that make E-trading possible, and which in the near future will allow for the participation of foreigners to be expanded using direct market access (DMA) suppliers. The supplier of our main platform, NASDAQ OMX, has collaborated in this process, and our objective with this, of course, is to offer the best quality of services to our users, while maintaining the highest level of operational security.

About the author

Juan Pablo Córdoba Garcés
Bolsa de Valores de Colombia

Bogotá, Colombia
T: +57 1 3139800
E: presidencia@bvc.com.co
W: www.bvc.com.co

Juan Pablo Córdoba Garcés is the CEO of Bolsa de Valores de Colombia (BVC), the president of Federación Iberoamericana de Bolsas (FIAB) and chairman of the board of the World Federation of Exchanges (WFE).

He previously served as director of the Fondo de Garantías de Instituciones Financieras de Colombia (FOGAFIN). Between 1999 and 2002 Córdoba worked for the IMF as an economist in the western hemisphere department. He was general director of public credit and CONFIS adviser at the Ministry of Finance and Public Credit of Colombia from 1996 to 1999. Before that he worked as an economist in the tax division of the Inter-American Development Bank.

Córdoba holds a masters degree and PhD in economy from the University of Pennsylvania in the US, attained in 1991 and 1996, respectively. He studied economics at the Universidad de los Andes in Colombia.