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Strength in Numbers

Panama and El Salvador recently signed an agreement to merge their stock exchanges, bringing the region one step closer to an inter-connected capital market system and setting the countries in line with broader economic and financial integration objectives. The signing of the agreement took place at the 42nd Annual Meeting of the Federation of Ibero-American Stock Exchanges Meeting (Reunión Anual de la Federación Iberoamericana de Bolsas de Valores, FIAB), held in Panama City in September 2015. The meeting brought together leaders from the region’s securities industry including investors, representatives of stock exchanges, custodians of values, and members of both the Inter-American Development Bank (IDB) and the Development Bank of Latin America (CAF) to discuss challenges and barriers to financial integration in the region. The agreement was signed at the meeting by representatives of the two exchanges, superintendencies of securities markets, and custodies of securities for both Panama and El Salvador.

The agreement allows financial intermediaries in Panama and El Salvador to have direct access to each other’s trading platforms, enabling them to trade securities on each other’s stock exchanges subject to minimal requirements. The agreement gives investors and issuers in both countries access to a broader market and promotes depth, dynamism, and liquidity in both exchanges. The integration implies an increase in capital flows that can be used for large infrastructure or social development projects, supporting wider economic growth objectives.

According to Olga Cantillo, Vice President and General Manager of the Panama Stock Exchange (BVP), “[The integration of Panama’s stock exchange with that of El Salvador] is beneficial and is something that has been in the making for many years. The fact that the Central Depositories of Panama and El Salvador have had a bilateral agreement for almost 12 years now made it easier.“ On the benefits of the agreement, Cantillo said, “This integration will facilitate trading without having to separately list securities with each country’s exchange and regulators. In a way, our integration has also attracted further potential issuers.“
The signing puts the two countries at the forefront of financial integration, something Central America has been pushing forward since the early 2000s. In 2002, Panama, El Salvador, and Costa Rica signed bilateral agreements, and the three countries signed a letter of intent in 2008 to advance the process of creating an Alliance of Central American Markets, dubbed ‘AMERCA’ (Alianza de Mercados Centroamericanos).
Looking to foster links with countries beyond the region, the Panama Stock Exchange signed an agreement in 2014 with Euroclear, the largest global custodian of shares, and Central Latinoamericana de Valores (Latin Clear) that allowed international investors in 46 countries around the world to purchase Panamanian government bonds and corporate securities, allowing local businesses to access a broader investor base and diversify their sources of financing.

Plans are in the pipeline to extend this agreement to other countries in the region, notably neighboring Costa Rica and the Dominican Republic. “Due to regulatory issues, Costa Rica has been unable to join at this moment, but we will continue to work with them to include them in the integration,“ explained Cantillo.

The new agreement strengthens Panama’s position as a key financial center for Latin America. It also further increases the attractiveness of Panama’s financial services industry as a place to invest, with the sector accounting for 15% of the $5.038 billion in FDI that the country received in 2015.

Similar agreements can be found amongst other countries in the region. The Latin American Integrated Market (MILA), launched in 2011, is an initiative to integrate the stock markets of the Pacific Alliance countries, notably Chile, Colombia, Peru, and Mexico, into one regional bourse. The addition of Mexico, the last member to join, in 2014 nearly doubled its size, bringing its combined market capitalization to almost $1 trillion. The MILA exchange is currently the largest exchange in Latin America by number of listed companies. Panama is not yet part of the Pacific Alliance, whose aim is to promote deeper integration of economies through the free movement of goods, services, capital, and labor, but it has expressed an interest in joining in the future and has already signed trade agreements with all four member nations.

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