beyondbrics

Colombia’s tourism office recently ran an advertising campaign with the slogan: “The only risk is wanting to stay”. The idea was to convince people that images of a country beset by violence were outdated.

Now the country’s stock market is trying to attract foreign traders – arguing that Colombian equities have proved relatively safe, and promising to upgrade the exchange’s technology.

“We are of the belief that foreign investors come into Colombia because they know the risks. If you look at what’s happened here in recent years we’ve had less volatility than other markets during the recent [financial] crisis,” says Juan Pablo Cordoba, chief executive of the Bolsa de Valores de Colombia (BVC).

Even if foreign investors agree with this assessment, their access to trading in Colombia depends on improved technology. Like other emerging exchanges, the BVC is in a fiercely competitive battle for globally-mobile liquidity coming from centres like London, New York and Chicago.

At the same time, high-frequency traders – who use algorithms to trade quickly – are knocking on the doors of emerging market exchanges, eager for new arbitrage opportunities. An exchange such as Colombia’s can’t simply rely on domestic market participants as it has in the past.

The BVC is currently switching the four markets it runs over to a trading system it bought in 2007 from Nasdaq OMX. It is also working with local regulators to allowing direct market access (DMA) in Colombia: if implemented, this would allow foreign brokers to trade on the exchange, by piggy-backing on a local broker’s membership of the BVC.

DMA is common in developed markets, but regulators are worried about a potential weak link. Under DMA, local brokers are charged with monitoring the risks to which their client brokers are exposed, and stopping an exchange being brought down if things go wrong. And you can’t always be sure that a local broker is up to the task.

Cordoba says a few local Colombian brokers are already sufficiently competent, and others “will be up to speed in six months”. Just as well, if Colombia wants foreign traders to stay (even) longer than foreign tourists.

Related reading:
Colombia and Chile play it cool on bonanza spending, beyondbrics
Turkish derivatives receive double boost, beyondbrics