Colombian exchange upgrades trading, clearing and settlement systems

Colombian exchange upgrades trading, clearing and settlement systems

The Bogota-based Colombian Securities Exchange, Bolsa de Valores de Colombia (bvc), has been investing heavily in technology to promote market development and support the adoption of digital tools for investment.

“We are upgrading all of our core trading systems, as well as the clearing and settlement system, to be able to expand our product offering, to enhance liquidity, and to facilitate automatic and high frequency trading,” explains Juan Pablo Córdoba, president at bvc. “We are upgrading our technology to align with the needs of our clients, the intermediaries in the marketplace, and also to enable digital banking throughout the value chain.”

The exchange is also adapting its processes to bring it into sync with international markets. In September 2019, bvc will begin clearing equities through its central counterparty (CCP) and will also transition to a T+2 settlement cycle. “This is a very positive step forward for the Colombian marketplace – enhanced security, adopting international standards, and new standards for the clearing cycle – all of this will help to enhance liquidity in the marketplace,” says Córdoba.

Developing Colombia’s capital markets

One of the key challenges facing the bvc and the country’s capital markets is encouraging smaller companies to list. Córdoba notes that while there is continued appetite among institutional investors, Colombia’s capital markets typically tend to be the reserve of much larger corporations.

Both the government and the exchange have been taking steps to address this challenge. “The government has been very proactive in reducing the costs of listing, simplifying the procedure, and automating prospectuses, which all facilitates the process of coming to market,” says Córdoba. “We are also working directly with investment banks, brokers, and companies to provide more information, explain that coming to market is not as difficult as corporations may think, and raise awareness of the benefits.”

In October 2018, the government launched the Capital Markets Mission. This initiative brings together market experts to analyse barriers to market growth and offer recommendations as to how these hurdles can be overcome. At the Mission’s launch, Luis Alberto Rodríguez Ospino, deputy minister of finance and public credit, stated: “There has been a consensus for quite some time that the capital market in Colombia is not as deep as it should be for the size of our economy. <…> There are still challenges to accelerate the depth, liquidity and efficiency of the market, which is why the national government is committed to generating an environment conducive to its development.”

Córdoba says: “The government is very keen to help develop the capital markets in Colombia, and this panel of experts will consider how we can take the markets to the next level. We are expecting their diagnostic by the middle of this year and proposals around August. So, in the second half of the year there will be a very rich debate about the type of policies that need to be implemented in order to enhance the markets.”

Colombia: Economy and politics

2018 was a presidential election year in Colombia, bringing with it the usual political uncertainty that accompanies election cycles. This came to a head in August 2018 when newly-elected Iván Duque, considered to be pro-business and market-friendly, took office.

In December 2018, the Colombian Congress passed tax reform legislation that will see the corporate income tax rate reduced from 33% in 2018 to 32% for 2020, to 31% for 2021, and to 30% for 2022 and onwards.

“This is creating a very positive mood in terms of economic activity and investment, and that is of course reflected in the markets which started off on a positive trend this year,” says Córdoba.

The Organization for Economic Cooperation and Development (OECD) anticipates real GDP growth of 3.4% in 2019 and 3.6% in 2020. This compares to growth of 2.7% last year.

According to the OECD’s Economic Outlook for May 2019, growth is expected to remain strong on the back of higher domestic demand. The report states: “Investment will be a key driver of growth, aided by a lower tax burden and infrastructure projects. Low and stable inflation and improving financing conditions will support consumption. Upside risks include higher oil prices, which could boost investment further. The tourism sector holds potential for upside surprises, thanks to the end of the armed conflict. Downside risks include regional instability, particularly in Venezuela, additional delays in infrastructure projects, and a spill over of financial volatility in emerging-market economies.”

This article features in the Americas Securities Finance Guide 2019. Read the full guide here.

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