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Secondary Strangled by Regulation

Sep 22, 2007

Colombia's institutional investors say their business is being killed by outdated regulation. Some hope forthcoming changes will break the local capital markets gridlock.

Colombia's capital markets may be flavor of the month for bankers, but local investors say outdated regulation does as much to inhibit growth – particularly in trading – as it does to feed it. The country's six pension funds – Colfondos, BBVA Horizonte, Porvenir, Protección, Santander and Skandia – manage $27 billion in contributions, close to 20% of the country's GDP in 2006. As such, they are the most relevant group of institutional investors, and bring the liquidity and demand domestic capital markets need to evolve.

But as in even the region's most developed domestic markets, like Mexico, among the most disheartening issues for Colombian investors is a lack of secondary liquidity. With portfolios largely composed of government bonds and other fixed income instruments, one would expect a deep and active flow. That might have been the case today were it not for a sudden reversal.

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