The move is part of the exchange's efforts to become an alternative to the recently formed BM&F Bovespa and the Mexican Stock Exchange-Latin America's largest market centers-for international investors. "We are building momentum now," says Juan Pablo Cordoba, chief executive of BVC, which was created through a 2001 merger of the Bogota, Cali and Medellin exchanges. "We are developing our business to meet international standards and to be more competitive."

The Colombia exchange is "investing substantial amounts of money in consolidating our technology" across asset classes, explains Cordoba, adding that in 2005 it replaced its fixed-income trading platform with technology from Argentina's Mercado Abierto Electronico. Once Nasdaq OMX's X-stream system is in place for derivatives, BVC will extend the platform to equities by year-end.

In October, BVC tapped Palo Alto, Calif.-based Tibco Software to provide messaging, integration and service-oriented architecture technology, which "will help us quickly scale our trading operations in rapidly growing markets," said Jitendra Puri, VP of information technology at BVC, at the time. "Efficient integration between all of our distributed IT assets with local and international capital market participants is a key goal."

The exchange, which has 160 employees and is the world's fourth-largest fixed-income market, is Nasdaq's first technology customer in South America. "Colombia has made tremendous progress in the last few years," says Markus Gerdien, EVP of market technology at Nasdaq OMX, which "has resulted in heightened interest in the Colombian marketplace from international institutional investors."

The partnership was announced in September 2007, but the former OMX Group has been in contact with BVC for some time, seeking "to better understand their operation and further our knowledge of the Latin American region," according to Gerdien. "The introduction of derivatives is a major step in the development of their marketplace," he adds.

The Colombia exchange typically trades between $50 million and $60 million a day, according to Bulltick Capital Markets, a Miami-based investment bank that specializes in Latin America. Philippe Buhannic, CEO of TradingScreen, a New York-based execution management systems provider that has an office in Sao Paulo, notes that Colombia, along with the rest of the region, has grown significantly and is looking to catch up with more advanced global markets. The rules for local investment in foreign stocks and "the regulatory environment for foreign investments will play a big role in this development," says Buhannic.

Before joining BVC in March 2005, Cordoba was director of Fogafin, Colombia's deposit insurance fund. From 1999 to 2002, he was a Washington, D.C.-based senior economist for the International Monetary Fund. In a recent interview with Securities Industry News, Cordoba, who has a PhD in economics from the University of Pennsylvania, discussed the exchange's infrastructure initiatives and its plans to attract new investors, both locally and abroad.

How are you positioning the Colombian Stock Exchange to compete on an international stage? We have carefully checked what's going on with the exchanges around the world in terms of demutualization, IPOs and the turning of exchanges into for-profit companies. Also, we're aware of the competitive scenario and technological trends. BVC wants to be a relevant player in the region and has been investing in positioning itself to do so over the next few years. ... BVC was created in 2001 as a fully demutualized organization and as a for-profit company. We listed our shares in June 2007 with 100 stockholders-today, we have over 1,000 stockholders and have become a highly liquid company in the Colombian market.

Before 2001, we had three different exchanges with a relatively small market. It was an obvious step forward when the Colombian exchange was created. BVC [offers] equities, fixed income, FX trading and a small derivatives operation which we expect will grow with the introduction of the new platform. Colombia is not a vertically integrated market, however the exchange has interests in the other players in the infrastructure-for example, [central securities depository] Deceval, where BVC is the main shareholder without having a controlling interest, the FX Clearing House and the central counterparty clearinghouse for derivatives.

What are you doing to draw new investors? The Colombian Stock Exchange has always been very active in promoting changes to the regulatory framework in Colombia. In the last year, a lot of rules ... have been published, mainly for the benefit of the market, with the participation of BVC. One of them allows brokers to perform IPOs through book building, and recently the government published a regulatory framework for derivatives. We're also working with other agents and unions in order to remove the capital controls that have been on and off in Colombia over the past decade and have become an obstacle to attracting more foreign investors. We now also have a mandatory deposit of 50 percent on all portfolio investments for six months at the central bank and a minimum stay of two years for non-portfolio investments.

BVC also wants to offer new and improved products to clients, so we developed the derivatives market that will allow more efficient management of portfolios, new ways to leverage and more efficient resource allocation, which will result in higher volumes and new investors. Also, new indexes were launched in January 2007 that allow exchange-traded funds to be created. The terms for these funds have been published and we expect that new investors will come into the market because of the diversification and the ability to buy the entire index and not just a single stock. We're also waiting for regulatory and operational improvements to allow brokers to take short positions in the equity market, obviously supported by securities lending.

We are working with local universities and students on the development of investing habits, working with brokers to increase the number of branches they have and diversify their locations and working with institutional investors to identify their needs and preferences and communicate them to issuers and financial products designers. We're now also working on translating our Web site and developing systems to present our financial results online to our stakeholders.

Why did BVC decide to enter the derivatives marketplace? We hope the new derivatives market will bring more efficient management of portfolios, allowing better hedging of risk, transfer of specific risks and the possibility to replicate underlying assets on the Colombian market. Also, the new market will provide new ways to leverage, with higher volumes and lower costs and efficient resource allocation with better price formation for futures and the spot market. We also expect the derivatives market will bring new energy to the Colombian capital markets.

What prompted you to partner with Nasdaq? Nasdaq OMX is one of the leading exchanges around the world and it also has one of the most powerful technological platforms. [X-stream] is well known for its performance because it is designed to process a high volume of transactions, which provides high growth potential to the Colombia Stock Exchange. X-stream also provides BVC with more flexibility than other platforms and has better adaptability to market requirements.

How is the exchange seeking new liquidity? With our strategic vision, which is called Mega 2015, we've set a goal of 200 new equity issuers by 2015 and 15 percent of Colombian households investing on the exchange by that year. We have a commercial team with a clear strategy that is working with enterprises every day to show them the multiple advantages of becoming an issuer at BVC. We know it's not an easy job, but entrepreneurs are becoming more receptive because they need new financial sources in order to face the challenges of their own industries. We are also executing an Inter-American Development Bank program called Colombia Capital, which seeks to increase access to the capital market for Colombian enterprises. BVC is working with entrepreneurs, unions, chambers of commerce and other agencies in order to increase the number of issuers. We have a budget of $1.3 million for this project alone.

Please explain your plans for foreign exchange. Integrados SetFx is a subsidiary where the exchange has a controlling interest of 55 percent. It is the company that administers the trading platform for the FX market, where our partner is SIF Icap, which is a joint venture of the Mexican Stock Exchange and Icap, the global broker. The FX Clearing House is an independent company whose objective is to eliminate or reduce the clearing and settlement risk-operational and liquidity risk-for foreign currency transactions in order to increase the volumes of this market, mainly SetFX volumes. It was conceived as a BVC project that was planed and programd for over three years and went into production in November last year. BVC has an interest of 25 percent in the FX Clearing House; the rest of the shares are held by banks (51 percent) and brokers (24 percent). Operationally, it's providing multilateral netting for all market participants, controlling net positions, allowing market makers to operate in the market and administering guarantees in Colombian pesos and U.S. dollars.

What is the relationship between BVC and other Latin American exchanges? BVC has always been in contact with other regional stock exchanges in Latin America. We are a very active member of the Iberoamerican Federation of Exchanges (FIAB), where regional exchanges discuss and work on relevant issues for market development. For example, our new market model for equity trading is based on a recommendation of FIAB, which designed a model for regional exchanges taking into account the way stocks are traded around the world. This international-based model consists of two segments and two trading methodologies, auctions for illiquid stocks and automatic matching for liquid stocks. With the committees of FIAB, we're working on information standards for the markets and the technological developments needed to make information available for all actual and potential investors, such as listing requirements, institutional investor access and the stock exchanges' value chain.

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