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A quiet transformation of South American capital markets is taking place, as the forces of regional integration and enhancements to underlying technology combine to position the continent as a global leader in the next wave of industry innovation.
The evolution mirrors a more fundamental change across the continent, with the acceleration of fintech growth and digitization across all aspects of the economy, from innovative players like Mercado Libre, the online marketplace, to the development of open banking and finance leading to a wave of new tech companies leading the way in digitized banking, payments, and financial innovation. Much like South-East Asia, the digitization of finance has flourished in the relative absence of legacy financial infrastructure, spurred by enthusiastic consumer adoption of digital payments and mobile technology.
Significant efforts have been made over decades to increase liquidity through financial integration in South America. For example, establishing MILA in 2011 – the integration of Chile, Colombia, Mexico, and Peru exchanges – was driven by the potential of establishing a larger, single pool of assets, participants, investors, and brokers to increase their combined international competitiveness.
Consolidation amongst exchanges seeks to foster increasing international participation in South American markets, notably in 2017 with the creation of B3 by bringing together Cetip and BM&FBovespa – which is achieving growth in part through greater sophistication and diversification of products – and more recently via steps to bring together the Colombian, Chilean and Peruvian stock exchanges.
This ongoing process of consolidation will drive greater liquidity to the markets, and in doing so will support the development of an ever-larger ecosystem of capital market participants. A virtuous cycle of increasing numbers of issuers, institutional participation, domestic investment in pension funds and greater liquidity will generate tangible benefits to economies and communities across South America.
Alongside this change, the region’s infrastructures have embraced technology and innovation at a remarkable rate this year, ensuring their underlying infrastructure is not only ready for a sizeable increase in volumes but that they are well-positioned to capitalize on the many opportunities as international markets evolve:
Nasdaq has long held a post-trade technology partnership with Caja de Valores, Argentina’s central securities depository, allowing them to process larger volumes of transactions with significantly increased speed and agility.
- In January, Bolsa Electrónica de Chile (BEC) announced an agreement to upgrade their trading technology to Nasdaq’s SaaS-based Marketplace Services Platform, with the aim to move its operations to the cloud by the end of 2024. As an early adopter of a full cloud migration strategy in Latin America, BEC will be able to meet the evolving requirements of its growing business and client base.
- Last month, Depósito Central de Valores (DCV), Chile’s central securities depository, extended its technology partnership with Nasdaq to leverage digital asset capabilities to support the registration, transfer and settlement of digitized securities. Incorporating this service will help differentiate DCV as a global first mover in the tokenization of assets.
- And this week B3 agreed to a multi-year partnership with Nasdaq to build a next generation clearing platform. The partnership will deliver significant improvements in B3’s capacity, flexibility and functionality.
Together these partnerships demonstrate Nasdaq’s mission to modernize the global market infrastructure, which will bring lasting benefits to South American markets.
Greater standardization and application of best practice is strengthening foreign investment in the region. Still, sizeable challenges remain for the region’s capital infrastructures. The lack of regulatory harmonization and multiple currencies are significant barriers, alongside challenges related to a high concentration of company ownership and large industrial and financial conglomerates.
However, over the next decade, new markets and asset classes will emerge from voluntary carbon markets and digitized government bonds, to tokenized real estate assets, which will create substantial opportunities for infrastructures across the world. South American markets are successfully innovating and increasingly developing sophisticated approaches to market modernization.
Roland Chai is EVP and Head of Marketplace Technology at Nasdaq. This article was first published on LinkedIn.
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