Strategies and benefits of developing a market for government securities

Abstract

Purpose

The purpose of this essay is to formulate practical steps in establishing a market for government securities. When such a market does not exist two issues are of critical importance: establish the credibility of the issuer, and create the trading avenues.

Design/methodology/approach

On the issue of creating the trading avenues, there is a discussion about market design and its parameters. The essay addresses issues like access to trading platforms, depositories and settlement standards as great determinants of market design.

Findings

The case of Colombia demonstrates that a market for government securities can be created out of sound decisions that stimulate participation by various financial institutions. The study also discusses the real benefits of having developed such a market, in terms of the cost/risk and the institutional building components. However, despite the progress, the Colombian case also shows that issuer credibility and design are not enough in the long term. Maturing markets require also coherence of many other different components. To achieve this, the paper proposes that the overall level of training of market participants is a decisive element for markets to face ever growing challenges of competition from other markets and investor demands.

Originality/value

This essay is especially intended for public officials in emerging economies who are developing local markets for government securities, since it is full of practical recommendations to implement at specific events in primary and secondary markets.

Citation

Fernando Lucio, J. (2006), "Strategies and benefits of developing a market for government securities", Journal of Financial Regulation and Compliance, Vol. 14 No. 1, pp. 47-56. https://doi.org/10.1108/13581980610644752