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SIBOS ISSUES - Latin lessons from MILA September 2011

As foreign inflows exceed expectations, initiatives are a foot to bring out the region’s

latent potential.

Latin America received global inflows in 2010 exceeding those of China, india and Russia put together. At uS$254 billion, the figure was an improvement of 60% on the previous year, according to global management consulting firm McKinsey.

The figures hint at the region’s potential beyond  brazil, which has garnered the lion’s share of international investment and media attention in recent years. However there are signs that other countries in the region have plans of their own that rival the ambitions of their bigger neighbour.

The Mercada  integrado Latino Americano (MiLA) initiative between the Chilean, Colombian and Peruvian stock exchanges allows brokers to route orders to all three bourses, via a single local access point. “integration between the three exchanges holds great potential for the future,” said Gonzalo Diethelm chief technology officer at the Chilean central securities depository (DCV).

"Cross-border alliances reduce the cost and risk of cross-border trade.  it takes a lot of time and effort, but cross-border integration is here to stay, so we’d better embrace it." Gonzalo Diethelm CTO, Deposito Central de Valores, Chile

Integrating three different national financial systems can require regulatory and political change, as well as accommodation for different currencies, languages and time zones. Yet Jorge Jaramillo, Ceo at the Colombian central securities depository (Deceval) has high hopes for MiLA. "Colombia has effectively grown its market from a population of 40 million to 80 million through participating in MiLA," he said. "We have access to 600 issuers via MiLA. We can direct orders freely across the three countries and grow the whole market, by joining together."

There is already evidence that the initiative is starting to succeed in its goal of attracting foreign investors to the region. index provider S&P recently launched the MiLA 40, which is designed to provide exposure to the largest and most liquid stocks trading on the platform. Moreover Gerardo Gamboa, Ceo at Mexican central securities depository  indeval, stated that his country has expressed interest in joining MiLA.

With 130 listed companies, a market capitalisation of uS$457 billion and some uS$803 million traded daily, Mexico could be a powerful addition to the project. Moreover it would also bring some valuable international alliances to bear, not least of which is Mexican derivatives exchange MexDer’s south to north routing agreement with  uS derivatives giant the CMe Group.

Latin America still has a lot of work to do if it is to reach its potential, but with its securities markets attracting strong foreign inflows and its exchanges forging powerful links to the outside world, a promising future is well within the region’s grasp.