Key Activities of the WB/IFC Securities Markets

Group

Global Capital Markets Development Department

WB-IFC Securities Market Group (GCMSM)

• 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 CaribbeanEcuadorEl SalvadorBrazilChileColombiaCosta RicaDominican Rep.GuatemalaHondurasJamaicaMexicoPanamaUruguay

East Asia & PacificChinaIndonesiaMongoliaPhilippinesSouth KoreaThailandVietnam

Europe & Central AsiaArmeniaCroatiaGeorgiaKazakhstanLithuaniaPolandRomaniaRussiaSerbiaUkraine

Sub-Saharan AfricaKenyaMozambiqueNigeriaRwandaTanzaniaUgandaZambia

South AsiaBangladeshIndiaNepalPakistanSri Lanka

Middle East & North AfricaBahrainEgyptJordanMoroccoOmanQatarSaudi ArabiaUAE

Past and Current Projects

WBG Global Product Group for local securities market development

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Develop Domestic Securities Markets, Mainly Debt

- Provide long term, local currency instruments

- Diversify financial systems- Reduce financing and investment risks - Create new investment vehicles

Developing Securities 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)

Non-Government Bond Markets

Government Bond Markets

2 Main Product Areas

ESMID GEMLOC

• Reduce government financing risks

• Create market-based pricing and pricing benchmarks, market-oriented monetary policy

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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

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GCMSM Program Design

Assistance to Regulators

Strengthening the

MarketplaceCapacity Building

Transaction Support

Enabling Environment

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

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Unique Role of Transactions Component

Facilitate Transactions

Hands-on support to issuers/ intermediaries

Knowledge of specific challenges on the ground

Yardstick for program success

Improve Enabling Environment

Regulations, market infrastructure, market participants

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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

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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%

GEMX Index: Investability Indicators

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Broad topics Specific agendaMacro and Micro interactions and trade-offs

- Capital controls, international excess liquidity and convertibility

- Financial markets taxation structure

Primary Markets - Debt management strategy and issuance policy

- Placement mechanisms and organization

Money Markets - Repo markets- Operational liquidity management

Secondary and Derivatives Markets

- Exchange and OTC markets- Interactions between markets and

development sequence - Valuation schemes

Participants and Investor Base

- Foreign and local investor base- Strategies for diversification- Prudential regulations

Custody, Clearance, and Settlement

- Local and International Central Securities Depositories (CSD)

- Risk management upgrades

Regulations for Debt Markets

- Systemic risk and investor protection - Enforcement capabilities

Gemloc Advisory Services: Program Scope

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Leveraging country-led market development reforms through: Country-specific work, Cross-country (peer group) dialogue, and Applied research

Gemloc Advisory Services

Gemloc: Selected Advisory Services Operations

Country Specific Programs

Peer Group Dialogue

KM Products

• Egypt, Nigeria, Costa Rica – ongoing

• Brazil, Morocco – being assessed

• Additional TBD

• Pilot Peer Group: consists of 10 largest emerging bond markets; meets via teleconference.– Meeting 1 (Mar 31st): crisis

challenges– Meeting 2 (Jul 20th): primary

dealer practices– Meeting 3 (Nov 18th): 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

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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

33 countries currently eligible

Gemloc Eligible Countries: Advisory Services

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ESMID-Africa (Pilot)

• 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

A comprehensive and integrated approach to developing local bond markets

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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 DisseminationRegionalization

• 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

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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

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ESMID C O U N T R Y O P E R A T I

O N S

East AfricaKenyaRwandaTanzaniaUganda

Nigeria

Regional ApproachImplementation

Country ApproachImplementation

CURRENT FUTURE

Africa

Other Regions*

Potentially: Ghana, Zambia, West Africa

Potentially: South Asia, MENA

• Indicators• Database• Training

materials

• Publications• Workshops and

conferences

K N O W L E D G E M A N A G E M E N T

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*Operations in LAC (Peru and Colombia) to be launched shortly

Country specific programs with project scope based on level of market development

Market Development

Less Developed

More Developed

Component Needs

Broader-Based

Targeted

Country Specific Project Scope

Entry Point

Diagnostics

Implementation

Project Scope

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Partnership Programs For Securities Markets

Development

Thank you very much!

Tel: +1 202-473-0006Email: SecuritiesMarketsGroup@worldbank.org

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