Santiago Bourse Sees Derivatives as Answer to Slump in Trading

  • Options to lure foreigners to local market, chairman says
  • Chile's stock trading slump is biggest in the region

The Santiago exchange is planning to create stock options for the first time to attract foreign investors as trading volumes slump to a 10-year low, Chairman Juan Andres Camus said.

"Our goal is to boost liquidity, and foreign investors are the ones that can do that," Camus said in an interview in Santiago.

Chile is following in the footsteps of Latin American exchanges in Brazil, Mexico and Colombia in seeking to allow stock derivatives, and comes after trading volumes tumbled 58 percent in four years, more than any other market in the region. While Chile’s market cap of $196 billion is 41 percent of Brazil’s, it’s daily trading volume is a mere 4 percent.

Volumes have fallen across the region as a decade-long commodity boom comes to an end and economic growth stalls. Since 2011, average daily trading volume is down 44 percent in Brazil, 51 percent in Peru and 38 percent in Colombia, according to data compiled by Bloomberg.

The $153 billion pension funds that once dominated trading in Chile typically buy shares to hold, profiting from their long-term appreciation. The subsequent drop in trading has led to widening spread between bids (what an investor is willing to pay) and asks (what a seller is charging for his stock), Camus said.

The Santiago exchange will seek approval from the regulator as the new instruments would require legislative changes to allow local pension funds to participate in the market.

The average value of shares trading in Chile reached $90 million per day this year, the lowest since 2005, from a peak of $215 million in 2011.

The exchange also recently created a new commercial manager position to liaison with foreign investors and hired Lucy Pamboukdjian, formerly director of international business at Sao Paulo-based BM&FBovespa SA, for the position.

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