The next steps for Guatemala to have a more developed capital market, aligned with the world -stocking world standards, are the creation of a securities commission and an account annotation platform in which the titles are registered and liquidated electronically.
This is part of a bill that could be ruled in the coming weeks and that works from the country’s financial regulation institutions.
According to Valeria Prado, Vice Minister of Registry Affairs of the Ministry of Economy (Mineco), the legal and fiscal infrastructure has not been the ideal for the stock market to grow. For this reason, the creation of a bill that reforms current regulations on the Stock Exchange has been promoted.
“The regulation is quite restrictive and does not allow the investor and the investor to create different figures to enhance the benefits for both,” says Prado. He adds that the current law is obsolete and that its update is urgent.
According to Prado, the objective of this new bill is to reform current regulations to create an authority called the Securities Commission, an autonomous entity responsible for supervising the sector. In addition, new figures or investment vehicles that facilitate market development could be contemplated.
Wendy Mena, Investment Promotion Manager in Invest Guatemala, coincides with Prado that the country has failed to develop a stock market that works as an alternative mechanism for companies to seek financing.
In order for all participants in the financial system to be governed under the same conditions, it is essential to have a law, explains Roderico Anzueto, corporate treasury manager of the Industrial Bank.
What it means to investors
According to Anzueto, digitizing the stock market is what could help the country to be able to offer more people. Even Anzueto mentions that this would be one of the incentives for banks to seek their participation actively.
“The development of an account annotation system for public and private titles in Costa Rica has been a key factor in the modernization of the financial market. This system has allowed the efficient integration of the payment system with the custody system, facilitating safer and agile transactions, ”explains Ricardo Hernández, instructor of the update programs for stock market agents and market operators of derivatives of the National Stock Exchange, SA, of Costa Rica.
An account annotation system is a mechanism used in financial markets where public values, such as state bonds, and private actions or bonds – are registered electronically instead of being issued in physical format. For its part, a custody system is an infrastructure that manages and protects financial values, so that transactions of purchase and sale of titles are processed correctly. When linking it with the payment system, securities settlement is carried out automatically.
“What is needed is to boost the market and digitize it to facilitate its democratization throughout the country,” says Anzueto.
According to Hernández, thanks to the fact that they have a completely automated and electronic system, they have low costs, which in turn lowers the cost of investment. “Markets must be aimed at having low investment costs, to enable investors’ income,” reiterates Hernández
What would this law contain?
Prado expresses that, for this project, institutions such as the National Stock Exchange, the Bank of Guatemala, the Superintendence of Banks (SIB) and the Superintendence of Tax Administration (SAT) were joined.
“The idea is to agree on a document with which all parties feel comfortable, both the private sector and the public sector, and all the agents that, in one way or another, are involved in the market, so that it can eventually become an initiative of law,” argues Prado.
Rolando San Román, general director of the National Stock Exchange, points out that a regulatory framework would be a key element for the development of the sector and that, in addition, this must be worked from a regulatory entity specialized in the stock market, such as the one mentioned by Prado, with the aim of guaranteeing compliance with international standards.
On the other hand, Prado insists that one of the points to consider is the need to eliminate physical titles, facilitate electronic negotiation and dematerialize values through a system of annotations in account.
“I would expect to advance in this in a period not exceeding six months,” says Prado, who points out that they must agree on the final text among all participating entities.
Alternative access to capital
One of the biggest problems talking about investment, according to Ofelia Fernández, dean of the Faculty of Administration and Business of the University of the Valley of Guatemala, is the limitation of access to capital. Currently, you can get three ways: to have your own capital, access a bank debt or resort to risk capital, that is, people willing to invest in business projects with good ideas and high growth and profitability potential.
“The largest limitation for growth is access to capital,” insists the dean. For this reason, Fernández points out that a regulation is needed that facilitates this exchange, as the processes would make more agile.
“As long as we have better mechanisms, more options, more alternatives and a broader offer on how companies can access capital, the greater the impact on their growth will be.” According to Fernández, the beginning for this to happen is a comprehensive reform to the current regulation of the Stock Exchange.
“We believe that this will considerably benefit the economy because it generates new forms of non -traditional financing,” says Prado.
According to Hernández, due to the structure of the economy both Costa Rican and Guatemalan, small and medium enterprises (SMEs) can have a relevant participation in the business market. Therefore, it considers that the first growth niche of the stock markets are the largest companies in the country and, later, seek that SMEs approach the formal stock markets.
Transparency and trust, market keys
On the other hand, Hernández points out that, in order for a stock exchange to be effective, it must have a clear regulation around transparency. “Without a doubt, the raw material of decision making is information, and all investors, or potential investors must have access to it in the same conditions.” This means that all participants should have a symmetry in the information to make decisions.
In this regard, Prado points out that, with the appropriate legislation, the investment could reach Guatemala. In addition, the Vice Minister acknowledges that this could increase the interest of people in investing and promoting the creation of a regional market. This last point, according to Prado, would make the most competitive market.
For Hernández, one of the keys to success for an effective stock market is confidence in the system and the use of technological instruments that allow efficient negotiations.
A law expires?
The Guatemala Stock Exchange was inaugurated in 1987, says Fernández. However, at present, the value and the products that are traded are “quite limited”, according to the expert. For Anzueto, the Stock Exchange is not sufficiently developed. Its objective is to boost the stock market until it is accessible to the entire public.
For Fernández, the processes of choice of participants are some of the points that must be changed in the current law. In addition, he points out that it is necessary to analyze the people in charge of that selection, since they should have a technical profile and be disconnected from the political sphere.
“The law quite restricts the possibility of issuing and putting those emissions within reach, even for investment projects, to people who want to raise capital and grow their businesses,” says Fernández. To this, Anzueto adds that current regulations and lack of technology make the stock exchange “little dynamic.”
How to attract investors
The competition, at present, is global, says Prado, who says that the Guatemala Stock Exchange competes with other countries. “What we want is to attract the stock market to Guatemala to settle here and, therefore, positively impact the economy of the country,” emphasizes the vice minister.
According to Fernández, the Guatemalan economy, by nature, remains small, so one of the main strategies would be to look for alliances with other bags. This, Fernández explained, would allow investors to liquidate their products in other markets and access interconnectivity with these platforms.
Panama and El Salvador have interconnected bags, says Fernández, while Guatemala is left behind. Therefore, those who seek such interaction prefer to go to Panama, where the processes are simpler. “I think we must not only regularize and facilitate access to the stock market, but also expand its scale to be more attractive in terms of liquidity and profitability,” says the dean.
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