|Carlos Fradique Méndez|
Over the past decade, a number of stock exchanges around the world have merged or entered into strategic alliances to address the growing needs of the global investment community. Beginning in 2003, the northern European stock exchanges started merging into what is now known as the Nasdaq OMX.
In 2007, the NYSE Euronext was created out of a merger between the New York Stock Exchange and Euronext, which was composed of the stock exchanges of Amsterdam, Brussels, Paris and Lisbon.
Now it is Latin America's turn with the planned integration of the Chilean, Colombian and Peruvian stock exchanges to form the Mila (Mercado Integrado Latinoamericano).
Each of the aforementioned stock exchanges has been characterised by a focus on a particular industry: while the BVL (the Lima Stock Exchange) lists mainly issuers active in the mining industry, the issuers listed on the BVC (Colombian Stock Exchange) are mainly concentrated in the oil and banking industry and issuers on the BCS (Commerce Exchange of Santiago, Chile) are focused mainly on energy, retail and services.
Upon completion of this integration, the Mila will be one of the largest stock exchanges in Latin America, listing a number of issuers that will surpass Brazil and Mexico, countries that traditionally have been home to the largest stock exchanges in Latin America and the preferred destination for foreign investors.
At its core, the Mila aims (i) to increase the size of the equity market in the region by substantially increasing liquidity levels; (ii) to create economies of scale by implementing a unified transactional system; and (iii) to increase the number of market participants to allow greater portfolio diversification, increase transactions levels and achieve greater international recognition.
The integration to establish the Mila will be guided by the following principles: (i) the trading of shares would at all times be subject to the securities regulations applicable in the country where such shares are registered; (ii) accounts with depository agents would be handled under the rules of the country of origin; and (iii) information on the three markets would be made available through a single information system managed and supervised by the stock exchanges.
To accomplish the successful launch of the Mila, the Colombian, Peruvian and Chilean securities regulators have executed two memorandums of understanding that (i) establish mechanisms for purposes of information sharing among the regulators; (ii) allow the regulators to consult and collaborate with each other to ensure the widest possible mutual assistance; (iii) ensure compliance and enforcement of their respective jurisdictions' securities laws and regulations; and (iv) facilitate the exercise of the regulators' supervisory functions.
The integration is planned to occur in two distinct phases. The first phase, known as Intermediate Routing, was implemented in November of 2010 (Phase I), while the second phase which addresses direct access by brokers and standardisation of trading rules is expected to be implemented in 2011 (Phase II)._
As part of Phase I, Colombian, Peruvian and Chilean investors will be permitted to trade securities issued in one of the other countries by using one of its local brokers that has a correspondent agreement in place with a broker in the country where such securities are registered. Thus, investors would be able to purchase securities registered in any of the other countries through a local broker.
In essence, the local broker would transfer the investment order to its correspondent broker in the country where the securities are listed, and the latter would perform the operation as instructed.
During Phase II, the member countries will implement a sole trading system or platform on which the stock brokerage firms of all countries involved would be able to execute trades in respect of securities issued by issuers of any such member countries. This stage will require amendments of both the securities and foreign exchange regulations of Colombia, Peru and Chile.
In the case of Colombia, the Colombian government has issued Decree 2960 of 2010 to amend the regulations applicable to the Colombian central securities depositories to allow foreign investors in Colombian securities to exercise their rights in Colombia, and to undertake any required activity before foreign depository institutions for the adequate exercise of the rights of local investors abroad.
Furthermore, a second decree, Decree 4087 of 2010, was enacted to allow the listing of Colombian equity securities on foreign exchange trading systems in countries with which Colombia has signed integration agreements.
Although these two decrees have resulted in significant advances in the implementation of Phase II, there are still several issues subject to further study and regulatory initiatives under consideration.
Carlos Fradique-Méndez and Juan Pablo Moya Hoyos