COLOMBIA: BVC and Colombian Government to Review Proposals to Revive the Private Debt Market

Monday September 7 2015

The Colombian Securities Exchange (BVC) introduced a series of proposals to begin working with the market and the government to make operations, standards and regulatory adjustments to energize, strengthen and diversify the private and public debt market, which aspires to reach levels of development similar to Mexico and Brazil.

The plan was developed as a result of the Exchange’s analysis of suggestions received from the integrated market for improvements to be made on the supply, demand and stock brokerage structure.

To introduce a formal proposal, the Exchange formed a team, the Private Debt Committee, represented by the finance industry, the Ministry of Finance Regulatory Committee and the AMV.

To expand the market dynamics, which is central to business project funding and the portfolio of investors, the main suggestions from the BVC’s study propose to:

• Revise the policies of having only one discount rate for all of the private debt securities in the liquidity risk calculation. However, the study proposes to differentiate based on bond issue term, size and liquidity; the recurrence of the issuer in the primary market; and the bond credit rating. This would promote stock brokerage activity and liquidity.
• Permit private debt funding backed by guarantees in the authorized clearing and settlement systems to not be included in the stock brokerage firms’ leveraging limits. This would permit the third parties to trade on the market without the broker equity restriction, instead utilizing guarantees backed by the third parties.
• Revise the fee schedule and incorporate monetary rewards for efficiently generating and managing additional returns, like covering the investment process costs such as analysis, execution and tracking.
• Generate reference indexes for the private debt market. The general indexes and the breakdown by sectors, maturity ranges or ratings would give an independent reference to evaluate the work of portfolio managers.
• Review costs in the value chain for issuing new securities, including registering and maintaining them with the controller.
• Generate market, liquidity and plurality of demand conditions, that enable issuers with ratings below AA to have real and efficient access to the capital market funds.

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