Primary Securities Markets in Emerging Nations: A Case Study of Peru

Abstract

Primary capital markets involve the exchange of cash for claims against the issuers, either in the form of equity or debt, or some other derivative instrument. These markets are of great importance to both investors and issuers, especially in emerging markets where capital is scarce relative to investment needs. Yet, because of the lack of data on primary markets previous research has largely focused on secondary markets where pre-existing securities trade. This paper extends our knowledge of primary markets in two ways. First, we use new data on primary market activity for both developed and emerging markets to provide a "macro" overview of the role played by these markets. Second, we provide an in-depth, "micro" examination of the institutional factors affecting emerging primary markets in Peru. The combined micro- and macro-views yield new perspectives on primary markets. In particular, these markets are complex and involve many market-specific aspects that are not readily apparent. These include, among others, the legal and regulatory framework, the nature of the institutional investor community, the tax regime, and the competitiveness of the investment-banking network. Recognition of these factors is critical to understanding the functioning of these markets and the role they perform in capital formation. The analysis suggests several important policy implications.

JEL Classification: G20, G15, G23