The Colombia Stock Exchange
(BVC), the country's sole marketplace for equities and
fixed income, in September will ramp up its derivatives
offerings with a new trading platform from Nasdaq OMX
Group.
The move is part of the exchange's efforts to become
an alternative to the recently formed BM&F Bovespa
and the Mexican Stock Exchange-Latin America's largest
market centers-for international investors. "We
are building momentum now," says Juan Pablo Cordoba,
chief executive of BVC, which was created through a
2001 merger of the Bogota, Cali and Medellin exchanges.
"We are developing our business to meet international
standards and to be more competitive."
The Colombia exchange is "investing substantial
amounts of money in consolidating our technology"
across asset classes, explains Cordoba, adding that
in 2005 it replaced its fixed-income trading platform
with technology from Argentina's Mercado Abierto Electronico.
Once Nasdaq OMX's X-stream system is in place for derivatives,
BVC will extend the platform to equities by year-end.
In October, BVC tapped Palo Alto, Calif.-based Tibco
Software to provide messaging, integration and service-oriented
architecture technology, which "will help us quickly
scale our trading operations in rapidly growing markets,"
said Jitendra Puri, VP of information technology at
BVC, at the time. "Efficient integration between
all of our distributed IT assets with local and international
capital market participants is a key goal."
The exchange, which has 160 employees and is the world's
fourth-largest fixed-income market, is Nasdaq's first
technology customer in South America. "Colombia
has made tremendous progress in the last few years,"
says Markus Gerdien, EVP of market technology at Nasdaq
OMX, which "has resulted in heightened interest
in the Colombian marketplace from international institutional
investors."
The partnership was announced in September 2007, but
the former OMX Group has been in contact with BVC for
some time, seeking "to better understand their
operation and further our knowledge of the Latin American
region," according to Gerdien. "The introduction
of derivatives is a major step in the development of
their marketplace," he adds.
The Colombia exchange typically trades between $50
million and $60 million a day, according to Bulltick
Capital Markets, a Miami-based investment bank that
specializes in Latin America. Philippe Buhannic, CEO
of TradingScreen, a New York-based execution management
systems provider that has an office in Sao Paulo, notes
that Colombia, along with the rest of the region, has
grown significantly and is looking to catch up with
more advanced global markets. The rules for local investment
in foreign stocks and "the regulatory environment
for foreign investments will play a big role in this
development," says Buhannic.
Before joining BVC in March 2005, Cordoba was director
of Fogafin, Colombia's deposit insurance fund. From
1999 to 2002, he was a Washington, D.C.-based senior
economist for the International Monetary Fund. In a
recent interview with Securities Industry News, Cordoba,
who has a PhD in economics from the University of Pennsylvania,
discussed the exchange's infrastructure initiatives
and its plans to attract new investors, both locally
and abroad.
How are you positioning the Colombian
Stock Exchange to compete on an international stage?
We have carefully checked what's going on with the exchanges
around the world in terms of demutualization, IPOs and
the turning of exchanges into for-profit companies.
Also, we're aware of the competitive scenario and technological
trends. BVC wants to be a relevant player in the region
and has been investing in positioning itself to do so
over the next few years. ... BVC was created in 2001
as a fully demutualized organization and as a for-profit
company. We listed our shares in June 2007 with 100
stockholders-today, we have over 1,000 stockholders
and have become a highly liquid company in the Colombian
market.
Before 2001, we had three different exchanges with
a relatively small market. It was an obvious step forward
when the Colombian exchange was created. BVC [offers]
equities, fixed income, FX trading and a small derivatives
operation which we expect will grow with the introduction
of the new platform. Colombia is not a vertically integrated
market, however the exchange has interests in the other
players in the infrastructure-for example, [central
securities depository] Deceval, where BVC is the main
shareholder without having a controlling interest, the
FX Clearing House and the central counterparty clearinghouse
for derivatives.
What are you doing to draw new investors?
The Colombian Stock Exchange has always been very active
in promoting changes to the regulatory framework in
Colombia. In the last year, a lot of rules ... have
been published, mainly for the benefit of the market,
with the participation of BVC. One of them allows brokers
to perform IPOs through book building, and recently
the government published a regulatory framework for
derivatives. We're also working with other agents and
unions in order to remove the capital controls that
have been on and off in Colombia over the past decade
and have become an obstacle to attracting more foreign
investors. We now also have a mandatory deposit of 50
percent on all portfolio investments for six months
at the central bank and a minimum stay of two years
for non-portfolio investments.
BVC also wants to offer new and improved products
to clients, so we developed the derivatives market that
will allow more efficient management of portfolios,
new ways to leverage and more efficient resource allocation,
which will result in higher volumes and new investors.
Also, new indexes were launched in January 2007 that
allow exchange-traded funds to be created. The terms
for these funds have been published and we expect that
new investors will come into the market because of the
diversification and the ability to buy the entire index
and not just a single stock. We're also waiting for
regulatory and operational improvements to allow brokers
to take short positions in the equity market, obviously
supported by securities lending.
We are working with local universities and students
on the development of investing habits, working with
brokers to increase the number of branches they have
and diversify their locations and working with institutional
investors to identify their needs and preferences and
communicate them to issuers and financial products designers.
We're now also working on translating our Web site and
developing systems to present our financial results
online to our stakeholders.
Why did BVC decide to enter the
derivatives marketplace? We hope the new derivatives
market will bring more efficient management of portfolios,
allowing better hedging of risk, transfer of specific
risks and the possibility to replicate underlying assets
on the Colombian market. Also, the new market will provide
new ways to leverage, with higher volumes and lower
costs and efficient resource allocation with better
price formation for futures and the spot market. We
also expect the derivatives market will bring new energy
to the Colombian capital markets.
What prompted you to partner with
Nasdaq? Nasdaq OMX is one of the leading exchanges
around the world and it also has one of the most powerful
technological platforms. [X-stream] is well known for
its performance because it is designed to process a
high volume of transactions, which provides high growth
potential to the Colombia Stock Exchange. X-stream also
provides BVC with more flexibility than other platforms
and has better adaptability to market requirements.
How is the exchange seeking new
liquidity? With our strategic vision, which is
called Mega 2015, we've set a goal of 200 new equity
issuers by 2015 and 15 percent of Colombian households
investing on the exchange by that year. We have a commercial
team with a clear strategy that is working with enterprises
every day to show them the multiple advantages of becoming
an issuer at BVC. We know it's not an easy job, but
entrepreneurs are becoming more receptive because they
need new financial sources in order to face the challenges
of their own industries. We are also executing an Inter-American
Development Bank program called Colombia Capital, which
seeks to increase access to the capital market for Colombian
enterprises. BVC is working with entrepreneurs, unions,
chambers of commerce and other agencies in order to
increase the number of issuers. We have a budget of
$1.3 million for this project alone.
Please explain your plans for foreign
exchange. Integrados SetFx is a subsidiary where
the exchange has a controlling interest of 55 percent.
It is the company that administers the trading platform
for the FX market, where our partner is SIF Icap, which
is a joint venture of the Mexican Stock Exchange and
Icap, the global broker. The FX Clearing House is an
independent company whose objective is to eliminate
or reduce the clearing and settlement risk-operational
and liquidity risk-for foreign currency transactions
in order to increase the volumes of this market, mainly
SetFX volumes. It was conceived as a BVC project that
was planed and programmed for over three years and went
into production in November last year. BVC has an interest
of 25 percent in the FX Clearing House; the rest of
the shares are held by banks (51 percent) and brokers
(24 percent). Operationally, it's providing multilateral
netting for all market participants, controlling net
positions, allowing market makers to operate in the
market and administering guarantees in Colombian pesos
and U.S. dollars.
What is the relationship between
BVC and other Latin American exchanges? BVC has
always been in contact with other regional stock exchanges
in Latin America. We are a very active member of the
Iberoamerican Federation of Exchanges (FIAB), where
regional exchanges discuss and work on relevant issues
for market development. For example, our new market
model for equity trading is based on a recommendation
of FIAB, which designed a model for regional exchanges
taking into account the way stocks are traded around
the world. This international-based model consists of
two segments and two trading methodologies, auctions
for illiquid stocks and automatic matching for liquid
stocks. With the committees of FIAB, we're working on
information standards for the markets and the technological
developments needed to make information available for
all actual and potential investors, such as listing
requirements, institutional investor access and the
stock exchanges' value chain.
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