Venezuelan FX Brokers Eye Return as Jail Memories Fade

Venezuelan brokerages received permission today to participate in the country’s new currency market, four years after a government crackdown sent at least 11 traders to jail.

Twenty-four brokerages, including a Citigroup Inc. subsidiary, were authorized provisionally to participate in a secondary foreign exchange market opened last month, according to a resolution published in the Official Gazette today.

Former President Hugo Chavez called the traders a “nest of mafiosos” in 2010 when he closed the currency swap market and banned brokerages from trading foreign exchange amid accelerated inflation and weakening bolivar. The crackdown led to more than 50 brokerages going out of business, while four partners at Econoinvest Casa de Bolsa CA, the country’s largest trading house, spent two and a half years in jail.

“We feel protected by the new resolution and are ready to contribute to the development of this new market and bring investment into our country,” Ricardo Montilla, president of the national brokerage association ANOV, said by telephone from Caracas today. “We are ambitious in our plans to rebuild the financial markets.”

Since Chavez’s crackdown, brokerages had been confined to trading securities from the local stock exchange, whose membership has been reduced to seven regularly traded companies, according to brokerage Caracas Capital Markets.

Black Market

President Nicolas Maduro, Chavez’s hand-picked successor, on March 24 allowed companies and individuals to start legally trading dollars for the first time in four years in an attempt to reduce shortages of basic goods that have triggered nationwide protests. The new market, known as Sicad II, last sold a dollar for 49.04 bolivars, compared to the official exchange rate of 6.3 bolivars per dollar.

On the black market, one dollar sells for about 67 bolivars, according to, a website that tracks the rate on the Colombian border.

Venezuela’s benchmark 9.25 percent dollar bond due 2027 fell 0.27 cent on the dollar to 77.31 cents today in New York at 2:16 p.m. The yield rose five basis point, or 0.05 percentage point, to 12.83 percent.

“Four bankers from Econoinvest served two years and seven months in jail without ever being tried or convicted when the law was changed after they were arrested and applied to them retroactively,” Russ Dallen, the head trader at Caracas Capital Markets, said in an e-mailed note today. “In the sad comedy of errors that Venezuela’s economic management has become, the charges against the bankers were dropped when the law was changed again in January of this year.”

Before it's here, it's on the Bloomberg Terminal.