El Salvador Financial Sector Assessment Program Update : Capital Market Development
The capital markets in Salvador are small and relatively underdeveloped, and have played a very limited role in the economy. On average, institutional investors invest less than 10 percent of their total assets in capital market instruments. In 200...
| Main Authors: | , |
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| Language: | English en_US |
| Published: |
Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/617371468248386515/El-Salvador-Capital-market-development-technical-note http://hdl.handle.net/10986/27735 |
| Summary: | The capital markets in Salvador are
small and relatively underdeveloped, and have played a very
limited role in the economy. On average, institutional
investors invest less than 10 percent of their total assets
in capital market instruments. In 2009, there were only five
new issuances of corporate bonds and three in the case of
equity. Banks and pension funds are the main institutional
investors. The current market architecture and the natural
monopoly it grants to the exchange hamper market development
and prevent the modernization of the regulatory framework.
There is an urgent need to overhaul of the regulatory
framework to promote sound market development in the
short-to-medium term. The regulatory framework should
guarantee a level playing field between bonds and bank
deposits, which should be reflected in the investment
guidelines for institutional investors. The exchange should
reposition itself to become more competitive and strategic
at the local and regional level. The investment funds law
should be finally approved to broaden and diversify the
investor base. The importance of this reform is paramount as
the current reliance on just two main institutional
investors (banks and pension funds), with investment
limitations (35 percent each per issue), creates a major
limitation for new issuances. In the medium -to long- run,
it is recommended to explore gradually integrating the
individual markets at the regional level. This paper is
divided into following four parts: part one gives current
market situation; part two gives regulatory and supervisory
framework; part three gives recommendations; and part four
is reference section. |
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