Key Activities of the WB/IFC Securities Markets Group Global Capital Markets Development Department
WB-IFC Securities Market Group (GCMSM) WBG Global Product Group for local securities market development Joint WB/IFC Group 30+ years of WB/IFC experience in securities markets, products, and institutions -- development and operations Specialists include former securities regulators, central bankers, exchange officials, investment bankers, debt managers from developed and emerging markets Team has extensive field-based experience in emerging market countries in every region around the world Asia, Africa, Middle East, Europe, Latin America Latin America & the Caribbean Ecuador El Salvador Brazil Chile Colombia Costa Rica Dominican Rep. Guatemala Honduras Jamaica Mexico Panama Uruguay Middle East & North Africa Bahrain Egypt Jordan Morocco Oman Qatar Saudi Arabia UAE Sub-Saharan Africa Kenya Mozambique Nigeria Rwanda Tanzania Uganda Zambia Europe & Central Asia Armenia Croatia Georgia Kazakhstan Lithuania Poland Romania Russia Serbia Ukraine South Asia Bangladesh India Nepal Pakistan Sri Lanka East Asia & Pacific China Indonesia Mongolia Philippines South Korea Thailand Vietnam Past and Current Projects 2
Developing Securities Markets Develop Domestic Securities Markets, Mainly Debt - Provide long term, local currency instruments - Diversify financial systems - Reduce financing and investment risks - Create new investment vehicles 2 Main Product Areas Government Bond Markets Reduce government financing risks Create market-based pricing and pricing benchmarks, market-oriented monetary policy GEMLOC Non-Government Bond Markets IFC Product: Development of non-governm Support financing for housing, infrastructure, and private sector investment Mobilize savings; provide investments for rapidly growing institutional investors (pensions, insurance) ESMID 3
Crisis Impact The global crisis has increased the demand for domestic securities markets: The outflow of foreign investors increased the need to rely on local investors and markets The banking sector downturn and bank reluctance to meet extensive financing requirements raised the need for financing alternatives Maturing outstanding bonds need to be replenished The need by companies to deleverage and obtain financing without periodic and maturity payments increased the demand for equity For our operations: Continue medium/long term development programs, with a shift in emphasis as required to address crisis-related needs (ie liquidity) Help understand the impact for instruments like securitization Expect going forward substantive changes as new regulatory frameworks emerge 4
GCMSM Program Design Programs draw on full range of WB/IFC tools: Global product expertise + in-country knowledge/presence Public and private engagements Enabling environment plus transaction support Enabling Environment Assistance to Regulators Strengthening the Marketplace Transaction Support Capacity Building 5
Unique Role of Transactions Component Facilitate Transactions Improve Enabling Environment Regulations, market infrastructure, market participants Technical Assistance Transactions Hands-on support to issuers/ intermediaries Knowledge of specific challenges on the ground Yardstick for program success 6
Gemloc Program World Bank Group initiative to develop mainly local government bond markets Combines comparative advantages of WBG and private sector 3 separate but synergistic pillars with 3 commercial partners: Investment management (PIMCO) Index/investability indicators (Markit + Crisil) Advisory services (World Bank) Creates market-based incentives for policy reforms Strengthen market operations Increase investability score/gemx weight Attract more foreign/domestic investment 7
GEMX Index: Investability Indicators Category Indicator Weight A. Access 35% Access to securities markets 13% Access to money markets 8% Access to derivative markets 4% Effective rate of taxation for fund 10% B. Liquidity 35% Turnover ratio 9% Bid-Ask Spread 11% Benchmark yield curve 2.5% Centralized bond pricing 2.5% Institutional investor base 10% C. Infrastructure 30% Regulatory quality 10% Creditor rights 5% Asset servicing 7.5% Clearing and settlement 5% Safekeeping safety/soundness 2.5% 8 Page 8
Gemloc Advisory Services: Program Scope Broad topics Macro and Micro interactions and trade-offs Primary Markets Money Markets Secondary and Derivatives Markets Participants and Investor Base Custody, Clearance, and Settlement Regulations for Debt Markets Specific agenda - Capital controls, international excess liquidity and convertibility - Financial markets taxation structure - Debt management strategy and issuance policy - Placement mechanisms and organization - Repo markets - Operational liquidity management - Exchange and OTC markets - Interactions between markets and development sequence - Valuation schemes - Foreign and local investor base - Strategies for diversification - Prudential regulations - Local and International Central Securities Depositories (CSD) - Risk management upgrades - Systemic risk and investor protection - Enforcement capabilities 9
Gemloc Advisory Services Leveraging country-led market development reforms through: Country-specific work, Cross-country (peer group) dialogue, and Applied research Country Work Country led Market Reforms Applied Research Cross-- country Dialogue 10
Gemloc: Selected Advisory Services Operations Country Specific Programs Egypt, Nigeria, Costa Rica ongoing Brazil, Morocco being assessed Additional TBD Peer Group Dialogue KM Products Pilot Peer Group: consists of 10 largest emerging bond markets; meets via teleconference. Meeting 1 (Mar 31 st ): crisis challenges Meeting 2 (Jul 20 th ): primary dealer practices Meeting 3 (Nov 18 th ): electronic trading platforms Second Peer Group: consists of Gemloc countries not included in the pilot peer group. Meeting 1 (Jan 25th): primary dealer practices and preconditions Gemloc survey on development obstacles (22 countries) Research papers, policy notes Forthcoming handbooks on primary dealers, liability management and repo markets 11
Gemloc Eligible Countries: Advisory Services 33 countries currently eligible Gemloc Phase 1 Gemloc Phase 2 Gemloc eligible Brazil Costa Rica Argentina Chile Kenya Croatia China Romania Kazakhstan Colombia Sri Lanka Lebanon Egypt Uruguay Pakistan Hungary Tunisia India Ukraine Indonesia Venezuela Malaysia Vietnam Mexico Morocco Nigeria Peru Phillipines Poland Russia South Africa Thailand Turkey 12
ESMID-Africa (Pilot) A comprehensive and integrated approach to developing local bond markets 3 year, $5.5 million comprehensive program funded by SIDA, with advisory-investment linkages Special focus on long-term funding for critical sectors, including housing and infrastructure Transaction support component acts as catalyst and validates success in enabling environment work Sub-regional program for East Africa (Kenya, Rwanda, Tanzania, Uganda), to foster a regional market that can be accessed by smaller IDA countries And a country program for Nigeria given its size and its developmental needs 13
ESMID-Africa (Pilot) A comprehensive and integrated approach to developing local bond markets Advice on Legal and Regulatory Framework Improve approval process Reduce costs Framework for new products Capacity Building Certification/Licensing Training Develop regional provider Strengthening Market Infrastructure Market Structure Clearing & Settlement Transparency & Information Dissemination Regionalization Broadening & deepening markets Minimum common standards Consolidated infrastructure Cross border issues Transactions Support Active support to issuers and intermediaries for replicable transactions Introduce new & innovative products 14
ESMID Africa: Pilot Program Key Achievements Produced recommendations for improving regulatory framework for bond issuance and trading Regulatory changes in drafting and/or approval stage Preliminary impact: Recent Tanzania bond issue approved in record time Developed roadmap for regional integration Roadmap in approval stage at East African Community Secretariat Process of integrating clearing and settlement infrastructure initiated Established regional training institute Developed and piloted regional training curriculum Trained 557 market participants and 67 local trainers Assisted regulators define regional licensing framework for market professionals Supporting potential bond transactions Supporting 6 transactions of potential issuers in key sectors infrastructure, housing, MSME Monitoring a transactions pipeline of USD 400 million Developed partnerships with other programs and close coordination with WB policy work PPIAF, FIRST, Making Finance Work for Africa WB programs: Kenya FLSTAP, FSAP; Nigeria FSS 2020 Strategy 15
ESMID C O U N T R Y CURRENT O P E R A T I O N S FUTURE East Africa Kenya Rwanda Tanzania Uganda Regional Approach Implementation Africa Potentially: Ghana, Zambia, West Africa Nigeria Country Approach Implementation Other Regions* Potentially: South Asia, MENA *Operations in LAC (Peru and Colombia) have just been launched K N O W L E D G E M A N A G E M E N T Indicators Database Training materials Publications Workshops and conferences 16
Country Specific Project Scope Country specific programs with project scope based on level of market development Market Development Project Scope More Developed Component Needs Targeted Entry Point Implementation Less Developed Broader-Based Diagnostics 17
Partnership Programs For Securities Markets Development Thank you very much! Tel: +1 202-473-0006 Email: SecuritiesMarketsGroup@worldbank.org 18