nuam: How to prepare for LATAM’s great exchange integration

June 5, 2024

Key Takeaways

  • Colombia, Peru and Chile on course to create a single stock exchange
  • nuam will bring greater liquidity, scale and direct foreign investment
  • Market participants must prepare to pounce on the opportunities

Efforts to integrate the capital markets of Colombia, Peru and Chile continue as the nuam project appoints new technology partners to help deliver a single integrated stock exchange.

nuam, which is owned by a holding company with a market cap of CLP 347bn (USD 380m), combines La Bolsa de Santiago, Bolsa de Valores de Colombia, and Bolsa de Valores de Lima. The exchange is scheduled for launch next year and will offer a unified trading interface for the equities, derivatives, and fixed income markets.

The partnership is the latest step in a journey that has already delivered a strategic technology collaboration with Nasdaq that will underpin the integration, development, and expansion of the new marketplace in Latin America.

nuam’s goals are ambitious—to offer a truly integrated market across multiple asset classes and market infrastructures, broadening its range of products and services as it expands—but if successful, the new exchange will establish a unique, open, and transformative market that can strengthen the domestic economies while scaling to become a leading global exchange group.

Learning lessons

Working in nuam’s favor is a lesson learned from previous, unsuccessful attempts at regional market integration.

The Mercado Integrado Latinoamericano (MILA) exchange—which also included Mexico and was set up in 2011—failed to capture market participants’ interest largely due to a lack of harmonization in tax treatment and generally inconsistent regulation across the four countries.

This time around, nuam is clear that in the longer term there will be a single set of regulations that allow participants from the three countries to operate under identical conditions.

The exchange also recognizes the challenges of operating under three separate currencies. The new exchange circumvents these differences by “efficiently integrating the post-trade processes under international standards”, which means operating in local currency and US dollars.

The exchange also proposes greater convergence of tax rules across the three jurisdictions.

It has also made progress on establishing a single clearinghouse, announcing plans to integrate the three existing clearing systems.

Manifold opportunities

Opportunities abound for market participants from a successful nuam exchange.

First, integrated exchanges make it easier for firms in the region to attract a greater range of investors and receive more capital through mutual listings across all three countries.

Second, a single exchange offers simplified and cost-effective market access to achieve economies of scale and allows more opportunities for smaller and medium-sized companies to list.

Further, an integrated exchange not only attracts more global investors through a single access point to Latin America but also deepens intra-regional investment between the participating countries.

Alongside attracting more direct foreign investment, the nuam exchange has the potential to capture the huge pool of the retail investment market, which comprises over 50 million banked individuals across the three countries.

In turn, such integration will hopefully lead to more liquid and efficient markets, improved diversification and risk management, and, importantly for the three nations’ economic future, enhanced GDP growth.

Be prepared

Market participants need to fully prepare their operations to take advantage of the opportunities presented by the nuam exchange.

The first step is to consider existing technological systems and processes. This includes exploring whether risk management models and processes are suitable for the new integrated market. If not, what changes need to be made, and is there a budget to cover the necessary updates? They also need to ensure they enter partnerships with technology vendors who can provide solutions that offer scalability, flexibility and efficiency.

Second, communicating the new opportunities to customers is essential. Thought leadership and insights into the benefits of the integrated exchange will help firms translate the trading potential from listing on a cross-border exchange, reassuring existing investors and attracting new prospects.

Meanwhile, vendors should now ensure they can support market participants in their migration preparations to nuam. Their immediate focus should be on technical requirements for go-live, such as ensuring that their data models are optimized for the new market structure and connectivity solutions fully support the FIX specifications for the new exchange.

In the longer term, firms must invest time and resources in supporting market participants across the region to ensure they can take advantage of the benefits of a unified capital market. They must be ready to offer software solutions that provide rich functionality, broad market access, and interoperability. There is much to be excited about as nuam continues to make significant progress towards its 2025 complete integration deadline. The prospect of a single exchange that promises greater efficiencies, scale, and market liquidity looks like a win-win for everyone, but it is important that all stakeholders use this time wisely to ensure they reap the benefits.

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