LatinFinance - January/February 2016 - 25

"There has been political will on the part
of the two markets," says Roberto Erroa,
who is president of the Association of Stock
Brokerages in El Salvador and is coordinating the integration process for the Salvadoran exchange.
On September 22, representatives from
the Panama and El Salvador exchanges
agreed to allow new listings to be automatically registered in the other country,
so that securities can be traded on both
bolsas. "This is very advantageous. With
this, no additional paperwork is required,"
Javier Mayora, director general of the El
Salvador exchange, tells LatinFinance. The
exchanges agreed that they are "recognized
jurisdictions", with regulatory framework
providing protection and transparency for
orderly transactions.
Another bolsa from the region could join
Panama and El Salvador as early as next
year, says Erroa. "In three to five years, we
could be operating in five countries."
In the meantime, El Salvador and Panama are working closely to make the most of
their new ties. "The integration will benefit
the volume, it will benefit the liquidity, and
it will also benefit the ability of companies
to raise money in different countries in one
single market," De La Guardia says.
Next steps
When Central America's two largest exchanges launch integrated trading in June,

DULCIDIO DE LA GUARDIA, PANAMA

"THE BIG
CHALLENGE WE HAVE
TO INTEGRATE
CENTRAL AMERICAN
CAPITAL MARKETS IS
TO MAKE SURE THAT
THE REGULATORS IN
EACH COUNTRY
REALIZE THAT IT'S
BETTER TO HAVE ONE
BIG MARKET THAN
FIVE FRAGMENTED
SMALL MARKETS"
much of the implementation will rest on
each country's brokers, the markets' natural intermediaries.
Deals will be conducted through remote
operators, which are brokers in one country who will be trained to make trades on
the exchange of the other country. There
are 12 brokerages registered with the El
Salvador bolsa and 81, including bank subsidiaries and independent brokerages, with

Debt dominates
Transactions on the Panabolsa by asset class
70
60

% of total annual trading volume

50
40
30
20
10
0

2012

2013

2014

Public Debt

Corporate Debt

Repurchasing agreements

Source: Panabolsa
*Figures to November 30, 2015

2015*
Mutual Funds

the Panama bolsa.
"We see plenty of benefits," Mayora of
the El Salvador exchange, says. "A Panamanian or Salvadorian company will be able
to have more investors outside its home
country and an increase in the participation of brokerage houses can generate
more dynamism."
Regulators in Panama and El Salvador
are mapping a plan for training brokers
to become remote operators. In addition
to training, brokers in one country must
garner approval from the other country's
regulator to conduct transactions there.
Remote operators in each country will be
able to see real-time trades on the other
exchange's electronic trading system.
Instead of a unified trading system, each
country will provide brokers with a connection to the negotiating system used by
brokers in the other country. "What we
intend to do is maintain intact the operating systems of both countries," says Erroa.
Officials from the two bolsas will also
carry out an intensive campaign targeting
local issuers and international investors to
promote the integrated market as an attractive option for investing and financing, say
sources with the Salvadorian bolsa. A critical piece of a promotion strategy is already
in place: in November, El Salvador passed
legislation that reduces taxes on foreign
investments to 3% from 20%.
"I believe that interest will increase as we
initiate the informational campaign about
the functioning and procedures of the integrated market," says Olga Cantillo, executive vice-president and director general of
Panabolsa.
While trading between the two exchanges is set to start in June, market observers
say the volume will build gradually. "I do
not foresee trading volume becoming overwhelming since here shareholding is very
concentrated and volume is historically
low," says Jorge Vallarino, vice president of
treasury and institutional relations at MMG
Bank in Panama.
Weighing possibilities
The integrated exchange offers a number of
opportunities, according to bankers, including a larger platform for placing sovereign debt outside of the issuing country.
"There are opportunities in both countries to advise issuers and investors," says
Vallarino, adding that the integration
"should produce more volume on both
sides."
The two exchanges are complementary

January/February 2016 - L ATINFINA NCE.COM 25

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