Latin America: The development of capital markets through technological cooperation

Published by: The WFE Focus Team Apr 2018

Roberto Belchior, Managing Director, Latin America Market Development, B3 writes about the recent B3 and Bolsas y Mercados Argentinos (BYMA) technology agreement, and what it means for the future of Latin American capital markets.

Over the last few years, B3 has devoted effort and resources to position Latin America as a financial hub – that is, as an important liquidity centre capable of attracting and retaining investment from different parts of the world, while providing more investment opportunities for local players.

For this strategy to succeed, cooperation and coordinated work among the different exchanges within Latin America are very important as a way to foster the development of products and services of excellence.

Accordingly, the building of strategic alliances with relevant exchanges throughout Latin America has set the stage for B3 to share its systems and product development know-how with its peers. Greater integration of markets should result in the development of the exchanges involved and benefit the region’s capital markets.

Within this regional context, Argentina can play a very important role. The country is being driven by a shift in its economic model, with an increased focus on investment. In addition, its GDP is expected to grow 2.6% in 2018 and 3.2% in 2019. This, alongside the fact that market capitalisation currently accounts for only 16% of GDP (well below 50.5%, the average for the four largest economies in Latin America), provides solid evidence of its potential for growth.

Besides the economic aspects, important reforms are also under way, including a reformulation of tax and capital markets legislation that should encourage the inflow of capital to foster the growth of companies as a result of a more stable financial environment.

Short- and mid-term prospects for Argentinian capital markets look very promising and could establish the basis for sustainable growth in years to come. The international investment community is supportive of the reforms already implemented and should continue to seek opportunities in the country. Public and private sectors are aligned and committed to fostering an agenda of development, which should result in the continuation of capital inflows for investment through a variety of instruments.

B3’s initiative to expand its ties with other Latin American exchanges and BYMA’s intention to expand its product portfolio by developing its own derivatives market created the possibility of establishing this innovative partnership. B3 is committed to providing technological infrastructure services to BYMA, involving the hosting and processing of orders sent by participants in the Argentinian market for the trading of listed derivatives to be created on BYMA. This will be done through a platform of technological excellence, B3’s PUMA Trading System.

Although the start of operations is still pending regulatory approval in both countries, the agreement is a clear demonstration of the ability to deliver sophisticated solutions when innovation and cooperation are embraced as drivers of growth. It also demonstrates the excellence of the technology infrastructure B3 has built in the last few years. An agreement with this level of complexity shows the true potential of Latin America as a region, inaugurating a new era of prosperity and sustainable growth for Latin American financial market infrastructures (FMIs).

FMIs in Latin America will have to cooperate and share capabilities as a way to strive and thrive in an ever-changing and very competitive environment. The amount of investment required from an FMI in this space will only grow. Sharing achievements and opportunities will enable a healthy and competitive environment to exist.

Market players in the region should continue to pursue the true integration of Latin American financial markets relentlessly. After all, this is the only way to ensure these markets are going to be in a position to seize the opportunities that present to whoever is ready to compete at major league level.

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1. Focus Economics. April 2018
2. Bloomberg