The Name’s Bond

The Dominican Republic’s stock exchange, known today as the Bolsa de Valores de la República Dominicana (BVRD)—the brainchild of businessmen in the late 1980s—was inaugurated by Presidential Decree No. 554-89 of February 20, 1989. It’s former moniker, Bolsa de Valores de Santo Domingo, became obsolete as trading spread beyond the capital city. The fundamental idea behind the BVRD was simple; to sow the seeds of a modern capital market in a nation where commercial enterprises are often family owned, in order to develop alternative instruments for capital generation and further investment in growth. Yet in truth the bourse today remains in its infancy, principally due to the absence of equity trading and many other related products. From October 10, 2003 to April 18, 2005 trading was suspended as the market underwent a restructuring process. Today, the BVRD trades from Monday to Friday, but briefly from 10.00 am to 12.00 pm. Its central depository is CEVALDOM, through which all transactions are processed, and since 2011 observable electronically. According to the bourse, approximately 75% of trades comprise cross transactions where buyer and seller are clients of the same brokerage company, of which there are 20 in operation.

IN NUMBERS

By 2011, the corporate bond market had risen to 1.3% of GDP from 0.1% in 2005. For 2013 primary market purchase volume was Ps6.01 billion ($139.25 million). Meanwhile, the secondary market’s respective purchase and sales volumes were at Ps$110.79 billion ($2.57 billion). Special Investment Certificates with a transaction volume of 67.5 billion accounted for 57.8% of total transactions for all instruments for 2013. These were followed by debt bond 131-11 at 14.9 billion, accounting for 12.7%.

The International Finance Corporation (IFC) is looking to stimulate a catalytic effect by supporting bond issuances in developing economies. In December of 2012 it issued of a Ps390 million ($9.03 million) local currency “Taino” Bond with a five-year tenor in the Dominican Republic due 2017. Generated proceeds were channeled to soft mortgages for low- and middle-income citizens, as well as the micro financing of SMEs, and rural enterprises.

Of course, the development of capital markets is a chicken-and-egg proposition. More investors would stimulate the need for greater transparency and a wider range of instruments, while government issuances tend toward effective regulation, and corporate issuers provide financing diversity and better risk management, and hence a more effective private sector. Yet, it will take a paradigm shift to persuade companies to opt for IPOs and the obligatory transparency that entails, despite the obvious benefits such moves have for the capital markets, and the broader economy.