Development of Capital

market in Central
America- Venezuela,
Guyana, Colombia,
West Indies etc.

BY:
GARIMA SONI
 CENTRAL AMERICA AS A WHOLE
• Capital markets in several countries in the region
are under-developed in terms of size, liquidity, and
number of issues.

• Collectively capital markets play an extremely

limited role in financial intermediation, price
discovery, or risk diversification. While these
problems do not constrain financing of private sector
projects, they do limit the efficiency of such financing
in terms of risk-sharing and diversification.
• Under-developed capital markets create poor valuations
and discontinuous growth prospects for regional
businesses, and difficulties of exit for principal shareholders.

• The consequences may be worse for institutional and retail

investors, who may be unable to meaningfully diversify their
investment portfolios.

• The relatively small size of regional businesses, pervasive

family ownership, aversion of principal owners to minority
partners, and tax avoidance all limit security issuance.

(source: IMF working paper 2007: Equity and Private Debt Markets in Central America,
Panama, and the Dominican Republic).
COUNTIRES IN CENTRAL AMERICA

• Venezuela
• Guyana
• Columbia
• West Indies
 NEW ISSUES DURING 1980-95
• EQUITY:
• Venezuela : 7.8 $ billion
• Columbia : 2.1 $ billion
• Jamaica : 0.1 $ billion

• GOVT. DEBT:
• Venezuela : 100.2 $ billion
• Columbia : 1.8 $ billion
• Jamaica : 0.0 $ billion
(source: IFC paper - Primary Securities Markets: Cross Country Findings)
 VENEZUELA
• The Venezuelan economy is characterized by its strong correlation
with the performance of the oil industry.

• A new Securities Market Law (Ley de Mercado de Capitales) was

enacted in October 22, 1998. This law regulates the public offering
of equities and other medium and long-term securities, as well as
stock exchanges, securities market intermediaries and other related
entities.

• The National Securities Commission (Comisión Nacional de Valores,

CNV) in order to authorize a public offering, requires from the
entities whose securities will be object of such an offering, the
necessary information for the proper protection of the investors.
• The CNV must decide on the applications for the authorization
to make a public offering within the 30 days following the day
the application was presented.

• Once the public offering is authorized, the CNV registers the

securities in the National Securities Registry (Registro
Nacional de Valores, RNV). This record certifies that the
issue has complied with what established in the SML in this
regard.

• In recent years, the primary market has been dominated by

issuances of government securities.

• The BCV works as the placement agent of these issuances

through its Integrated Open Market System (SIMA). For this
purpose, the BCV carries out auctions or allots the securities
directly.
• On the other hand, the primary market for securities
issued by the private sector is much less active.

• At the beginning and in the middle of the decade of the

nineties, a series of major initial public offerings (IPOs) of
equity shares and other private longer-term debt
securities issuances took place.

(source: World Bank: Payments and securities

clearance and Settlement systems in Venezuela)
 CARACAS STOCK EXCHANGE
• 1805 - Two traders in the city of Santiago de Leon de
Caracas opened a "Casa de Bolsa and Recreation
Merchants and Farmers”.

• 1810 - The creation of the Public Almoneda Caracas was

proposed.

• 1840 - Start to run the "Bolsa de Portillo ", in which two

wheels were made daily with no predetermined rules.

• 1873 - The Commercial Code includes the first legal norms

of the Venezuelan stock market activity.
1890- Specimen stock-bond certificate
• 1917 - The National Congress approves the Exchange
Act .

• 1946 - The Caracas Chamber of Commerce agrees to

create a stock exchange and is the company behind
the new entity.

• 1947 - On January 21, Caracas Stock Exchange was

entered in the Register as a limited company. This
took effect on April 21, 1947 in a shop located in the
former headquarters of the Central Bank of Venezuela
where the first round of transactions allowed 22
runners, 18 share issues of government bonds.
• 1958 - Founding of the Stock Exchange of Miranda State. The
operations began on June 30 with the same titles that were
traded on the Caracas Stock Exchange.

• 1973 - It adopted the first Capital Market Law. Setting standards

for brokerage, as well as for security and surveillance
mechanisms for the issuer of shares or debentures, to the
broker and the investor.

• 1974 - Creation of the National Securities Commission and

issued the first licenses to act as Public Securities Broker.
Miranda Bag made his last round the first of October 1974 and
twelve riders of that entity became the members of the Caracas
stock exchange, rising from 31 to 43 the number of posts in the
institution, which began a new stage in the development of the
Venezuelan stock market .
• 1976 - The extraordinary shareholders' meeting on May 6
agreed to change the name of the institution by the “Bolsa de
Valores de Caracas C.A. “

• 1983 - Changed the exchange scheme. The official authorities

and the Caracas Stock Exchange agreed to create an
exchange network, setting an official reference price as a result
of the interaction of the forces of supply and demand in the
market.

• 1989 - Begin a process of economic opening and growth of

trading volumes. Twelve seats that were inactive in the Caracas
Stock Exchange were auctioned. These passed into the hands
of financial institutions. This year also dictates the regulations
for brokerage houses and begin to realize the market incentive
for companies to issue commercial paper.
• 1990 - Share prices and trading volumes reached negotiated
amounts never seen before. The increase of the index was
540 %, making this emerging market the fastest growing in
the world. It was necessary to modify business processes
and introduce new rules and procedures, setting the basis for
automation.

• 1994 - It began operations on Remote Switching System

( SISTECOR ) technology incorporating microwave and fibre
optics, allowing the runners make their transactions from
brokerage firms.

• 1995 - Since September, the market starts to recover after

three years of recession. For the first time the bonds of the
National Public Debt , commonly known as Brady Bonds
were traded on the Stock Exchange in June.
• 1998 - On October 22, 1998, a new Capital Market Law
granting operational autonomy to the National Securities
Commission, goes into effect.

• 2001 - The reduction of the period of settlement and

clearing of transactions in the stock market , stock 5
working days (T+5) to 3 stock working days (T+3),
thereby strengthening the operation and development of
the Fund Venezolana de Valores to adapt to an
international standard designed by the great majority of
international markets.

(source: http://www.bolsadecaracas.com as per data

retrieved on 11-09-2010)
• 2003 - Continued market growth in its fixed income and the
amounts negotiated in fixed income exceeds the variable
income. Signing an agreement with the Central Bank of
Venezuela for the creation of a secondary market for government
bonds in the Caracas Stock Exchange and the Central Bank of
Venezuela known as " market – Sicet Sibe."

• 2004 -Start the securities market of public sector debt. The

amounts negotiated in the equity markets and fixed income begin
to sway.

• 2006 - Start the Corporate Social Responsibility program. Starts

Training Program for Public Broker and Investment Advisor
specializing in charge of the Metropolitan University, the
Venezuelan Association of Stock Exchanges and the Caracas
Stock Exchange .
 PERFORMANCE
• BVC experienced a severe decline in traded volumes since the
mid-1990s as a result of a declining economy, the migration of
stocks to the U.S. markets in the form of ADRs, corporate
takeovers with a concomitant reduction in the number of
shares available for trade and an increasing country risk that
has frightened investors, particularly foreign investors.

• Daily trading volume decreased from the equivalent of $25 to

$30 million in 1997 to less than $1 million by 2000.

• The BVC survived during this period thanks to a growing

trade of government debt securities.
• Stock prices, measured by the Indice Bursátil Caracas, were
also depressed during the 1990s and have yet to recover to the
highest ever levels experienced in 1991.

• According to the International Finance Corporation, the market

value of the BVC was $7 billion in 2000, or just about 6 percent
of GDP.

• In 2005 total transactions on the BVC totalled USD$ 438 million.

• In April 2007, 60 companies were listed on the BVC, with less

than half being traded regularly.

(source:http://en.wikipedia.org/wiki/Caracas_Stock_Exchange as per data retrieved on 11-09-

2010).
 COLUMBIA
• Colombian capital markets are dominated by fixed income
securities, with equity instruments making up only a small fraction
of all trading activity.

• Total tradable debt outstanding in 2007 stood at US$ 545 billion,

of which just over 16 percent (US$ 88 billion) was corporate debt.

• This reflects YoY growth rates of -27.9 percent and 25.6 percent,
respectively.

• Total equity market cap was US$ 102 billion in 2007, an 81

percent year on year growth rate.
KEY PLAYERS:
• Apart from the Colombian government, the main issuers of debt are
financial institutions corporations and multilaterals such as the World
Bank and the International Financing Corporation, historically
concentrated among a few issuers that dominate the market.

• On the investment side, 30 percent of the total investment volume within

the Colombian fixed income market comes from both foreign and local
banks. Other major local investors are pension funds, generally that are
administrated by Asofondos (private pensions) and Instituto de Seguros
Sociales (public pensions).

• The main financial regulators in Colombia are the national government

and the CSF, the latter the authority responsible for exercising direct
surveillance over financial institutions as well as the equity and debt
markets.

(source: A Guide to Selected Emerging Markets for Microfinance Issuers

and International Investors: Colombia, July 2009)
 BOGOTA STOCK EXCHANGE
• The Bolsa de Valores de Colombia, also known as BVC, is the principal
stock exchange of Colombia.

• It was created on July 3, 2001 by the union of three extant stock exchanges in
Colombia: Bogota Stock Exchange (Bolsa de Bogota), Medellín Stock
Exchange (Bolsa de Medellin)and Cali's Western Stock Exchange (Bolsa de
Occidente).

• The idea of a stock exchange in Colombia occurred originally in Medellin at

the beginning of the 20th century with an initiative in 1901 and then in Bogota
in 1903 with an unsuccessful outcome.

(source: http://en.wikipedia.org/wiki/Bolsa_de_Valores_de_Colombia as per

data retrieved on 11-09-2010)
• It was in mid 1928 when a group of entrepreneurs and
government officials from Colombia and abroad
organized the promotion of the Bogota Stock Exchange
(Sp. Bolsa de Bogota) so they could establish the
judicial and operational framework of the newly created
organization.

• On November 23 of 1928 the public title 1702 was

signed and constituted the Bogota Stock Exchange as a
public limited company.

• Bogota Stock Exchange remained as Colombia's only

stock trading organization until the 50's when Medellin
created its own Stock Exchange.
• Cali created its stock exchange in the mid 70's.

• The main driving force of these stock exchanges was the

economic growth it meant to their participants. However,
the policy making of the original stock exchange was
archaic for today's standards.

• The evolution of the financial policies of the estate, the

fundamental macroeconomic principles, the
development of a financial system, the creation of
entrepreneurial groups and the evolution of illegal drug
trade and the violence it brought, were factors that
decimated the share trading market of Colombia during
the 70's.
• During 2001 it became necessary to merge the three
regional stock exchanges into what it is known today as
Bolsa de Valores of Colombia (Stock Exchange of
Colombia).
GUYANA STOCK EXCHANGE
• With a per capita gross domestic product of only $4,700
in 2006, Guyana is one of the poorest countries in the
Western Hemisphere.

• The Guyana Stock Exchange is the newest exchange

in the Caribbean Community (CARICOM) bloc of
countries.

• Trading began on June 30, 2003 and takes place weekly

via word of mouth on the trading floor supported by an
electronic limit order book.
• Guyana has been moving toward a more welcoming
environment for foreign investors, but major foreign
investments receive intense political scrutiny in an
economy still dominated by the state. The approval process
for investments can be burdensome and non-transparent.

• Guyana’s underdeveloped financial system remains

plagued by inefficiency and a poor institutional framework.
High credit costs and scarce access to financing remain
barriers to more dynamic entrepreneurial activity.

(source:
http://en.wikipedia.org/wiki/Guyana_Stock_Exchange as
per data retrieved on 09-09-2010)
 TRINIDAD & TOBAGO
STOCK EXCHANGE
• The Securities Market which informally existed in Trinidad &
Tobago for well over twenty years prior to the opening of the
Trinidad & Tobago Stock Exchange really achieved significance in
the early 1970's when Government decided to localise the foreign
owned commercial banking and manufacturing sectors of the
economy to get such companies to divest and sell a majority of
their shares to nationals.

• Two bodies chosen for this were the Capital Issues Committee, to
direct developments in the primary market and the Call Exchange
(an association of share dealers) to monitor activities in the
secondary market.
• In the early 1970's there was rapid establishment of
private institutions such as trust companies and
stock broking firms to satisfy the demands of
investors in both the primary and secondary
markets.

• The establishment of the Stock Exchange under the

provisions of the Securities Industry Act 1981 was a
natural extension of the policy to formalise the
securities market in Trinidad and Tobago.

• The Stock Exchange was formally

opened on the 26th October, 1981.
• In attempting to bring both Primary and Secondary
market activity under one umbrella, The Securities
Industry Act, 1981 created confusion, and for the
most part the provisions were unenforceable.

• The Securities Industry Act of 1995 vests with the

Commission, the authority to maintain surveillance
over the securities market and ensure orderly, fair
and equitable dealings in securities. The Exchange
on the other hand will regulate trading on the
secondary market.
• At the end of December 31st 2009, the TTSE’s
thirty eight listed companies had a market
capitalization of US$11.2 Billion.

• The TTSE was also the most active exchange in

terms of value at the end of 2009 with US$233
Million worth of shares trading.

(source:
http://www.stockex.co.tt/controller.php?action=co
ntent&id=11
as per data retrieved on 07-09-2010)