Exchanges Thinking Regionally

Three Central American stock exchanges took a first step this week toward an alliance that would create the equivalent of a single, regional securities market.

Costa Rica’s National Stock Exchange hosted the Panama Stock Exchange and the El Salvadoran Stock Exchange in meetings that ended with the resolution to sign a letter of intent and form a corporation that will handle the technical and marketing aspects of the alliance.

The integration of the exchanges, which should be finished within two years, will include support from the Inter-American Development Bank (IDB), though it’s still not clear how much it will cost.

The goal, said exchange representatives, is to create the equivalent of a single market for the entire region that will increase liquidity and attract the attention of foreign investors, as well as make it easier for regional investors to buy and sell in each other’s markets.

“The fundamental objective is to be able to create a regional market with a more significant mass that attracts more players,” said Roberto Brenes, CEO of the Panama Stock Exchange.

The exchanges are looking to the Nordic Exchange (NOREX) alliance as a model.

Having started off as an alliance between securities exchanges in Copenhagen and Stockholm in the 1990s, it has grown to include eight local exchanges in northern Europe. Seven of those eight eventually merged into OMX Group.

“A lot of the lessons that we learned have been taken to heart by the exchanges here,” said Edgar Luczak, a senior vice president of OMX.

Currently, the three exchanges represent a combined $5 billion in market capitalization.

Daily bond volume runs about $45 million. José Rafael Brenes, CEO of Costa Rica’s National Stock Exchange, said those numbers could grow substantially with an alliance.

“Those are the base numbers upon which we can measure the fruits of this alliance,” he said, adding that within three years of its own formation, NOREX was growing annually by 30%.

The three exchanges will be submitting letters of intent on the alliance to their respective boards by May. Roberto Brenes said the three exchanges expect to have a corporation formed by November.

Other securities exchanges in the region, including Nicaragua’s, have been invited to join the alliance. The exchange representatives said they expect the alliance to be complete within two years.