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Colombia: New market-makers facility

Carlos Fradique-MendezMaría Andrea Estrada Rugeles
On March 6 2014, the Colombian Stock Exchange became the fourth stock market in Latin America to adopt a market makers programme (the programme). The programme permits the structuring and implementation of a stockbroker's commitment to buy or sell equity shares, in order to increase liquidity of those shares.

BlackRock, general partner of the exchange-traded fund (ETF) iCOLCAP in Colombia, instructed Cititrust (who acts as the ETF's administrator) to enter into an agreement with BTG Pactual Colombia (the market maker), for purposes of providing market-making services to promote the liquidity of the ETF shares. The market maker is required to execute daily transactions on its own behalf, with its own funds and on a permanent basis, entering buy and sell bids over the ETF shares. The agreement was recently approved by the Colombian Stock Exchange, becoming the first market maker in Colombia over equity securities.

Market makers are key intermediaries, bringing greater liquidity and price stability to sophisticated markets; in addition, they promote lower transaction costs, reduce volatility and improve the daily trading volume of the traded securities. Since 2010, with the aim of reaching international standards, the Colombian government enacted the regulation applicable to market makers (Decree 2279 of 2010 and Decree 2555 of 2010). However it was only in 2013 that the Colombian superintendence of finance enacted the relevant specific regulation (External Resolution 025 of 2013), and in 2014, it was implemented by the Colombian Stock Exchange.

The programme represents significant progress in terms of market sophistication and is a great attempt to increase market depth. It is also an example of the efforts made by the Colombian authorities to achieve not only international standards at a regulatory level, but also liquidity in the securities market, promoting a proper price formation and increasing the overall market efficiency.

Carlos Fradigue-Méndez and María Andrea Estrada Rugeles

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