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Development Benefits of Equity Markets

Development Benefits of Equity Markets. Countries with more liquid stock markets enjoy faster growth rates of real per capita GDP over subsequent decades Stimulate employment : 92% of a typical U.S. company’s employment growth comes post-IPO

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Development Benefits of Equity Markets

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  1. Development Benefits of Equity Markets • Countries with more liquid stock markets enjoy faster growth rates of real per capita GDP over subsequent decades • Stimulate employment: 92% of a typical U.S. company’s employment growth comes post-IPO • Critical to the development of venture equity financing • Innovations that lower equity trading costslower the cost of capital to listed companies • Dramatically increase the scope for foreign financing • Equity investments in developing countries have historically offered a more attractive risk-return profile than debt

  2. Global Trading is Fueling Domestic Exchanges Foreign investors are increasingly trading in local markets, reducing need for companies to list abroad • Europe

  3. European ADR vs. Domestic Volumes Nokia ADR volume as % of total underlying value traded 70% 60% 50% 40% 30% 20% 10% 0% Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Sep-01 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Sep-99 Sep-00 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Nov-99 Nov-00 Nov-01 Nov-02 Nov-06 May-99 May-00 May-01 May-02 May-03 May-04 May-05 May-06 May-07 Nov-03 Nov-04 Nov-05 Source: ERDesk, Efficient Frontiers, Bloomberg

  4. Global Trading is Fueling Domestic Exchanges Foreign investors are increasingly trading in local markets, reducing need for companies to list abroad • Europe • Latin America

  5. Funds Raised in Brazilian Equity Offerings 1995-1999 $3,200m $550m Brazil Brazilian ADRs Source: ERDesk, Efficient Frontiers, Comissão de Valores Mobiliários

  6. Brazilian ADR vs. Domestic Volumes Source: ERDesk, Efficient Frontiers, Bloomberg, BVMF3

  7. Latam ADR vs. Brazilian IPOs Bovespa IPOs Latam ADR IPOs Source: ERDesk, Efficient Frontiers, NYSE, Bovespa, WFE, BNY Mellon

  8. Brazilian Public Offerings Source: ERDesk, Efficient Frontiers, Bovespa

  9. Algorithmic Trading in Brazil Participation of algorithmic trading by exchange In terms of number of trades 60% 55% 55% 50% 40% 35% 35% 30% 18% BATS NASDAQ NYSE Arca DirectEdge Xetra LSE TMX Tokyo SE Bovespa Source: ERDesk, Efficient Frontiers, Finextra, Traders Magazine, FT, Reuters, BM&FBovespa

  10. High Frequency Trading in Brazil In terms of value traded Volumefrom Co-located 11.35% Other HFT 10.41% 10.29% 8.69% 8.57% 6.66% 7.59% 4.97% 4.73% 6.63% 5.89% 5.86% 5.66% 5.93% 6.89% 4.47% 5.50% 4.04% 5.18% 3.87% 4.26% 4.69% 5.56% 5.44% 4.16% 4.69% 3.47% 2.64% 2.10% 1.99% 1.79% 1.63% 1.45% 0.97% 0.57% 0.31% Nov - 10 Dec - 10 Jan - 11 Feb - 11 Mar - 11 Apr - 11 May - 11 Jun - 11 Jul - 11 Aug - 11 Sep - 11 Oct - 11 Source: ERDesk, Efficient Frontiers, BM&FBovespa

  11. Global Trading is Fueling Domestic Exchanges Foreign investors are increasingly trading in local markets, reducing need for companies to list abroad • Europe • Latin America • China

  12. Financial Statecraft • United States: • Financial sanctions • Exchange rate policies • Capital flow policies • Europe: • Tobin tax

  13. Tobin Tax Derivatives exchange fees Rate per million of value traded 200.00 17x 18x 11x 52x 21x 13x 417x 39x 18.26 15.63 11.97 11.70 9.63 5.16 3.86 0.48 CME Eurodollar CME T-Bonds NYMEX Core ICE UE Futures COMEX CME Eq std CME Eq mini ICE US Fin Proposed Tobin tax Source: ERDesk, Efficient Frontiers, CME

  14. Financial Statecraft • United States: • Financial sanctions • Exchange rate policies • Capital flow policies • Europe: • Tobin tax • India?

  15. Internationalization Strategies • Intra-SAARC potential limited • Key is U.S. & European flows

  16. U.S. Portfolio Holdings of Indian Securities Holdings in $ millions % of total U.S. foreign holdings Source: U.S. Department of the Treasury

  17. Internationalization Strategies • Intra-SAARC potential limited • Key is U.S. & European flows • India seen as a BRIC, not South Asian

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