Peru's Bolsa de Valores de Lima (BVL) has suspended its participation in Mercado Integrado LatinoAmericano (MILA), a link-up between BVL, the Bolsa de Valores de Colombia (BVC) and Chile's Bolsa de Comercio de Santiago (BCS), citing challenges arising from its domestic tax regime.
MILA was created to provide domestic brokers with access across the three participating equity markets through an automated model of intermediated order routers. Testing of the platform's technology began on 22 November. Once live, the platform will allow brokers in each country to send DMA orders via the infrastructure of local brokers in the other two countries, directly to the exchanges. Brokers receiving DMA orders are not able to interfere with them on their way to the market. Following the first stage, trading and post-trade are conducted according to the rules of the market that lists the traded instrument.
The second stage of the integration – slated for completion by the end of 2011 – will seek to address differences in tax and regulation by coordinating regulatory bodies' and exchanges' rules across Chile, Colombia and Peru. This will mean investors in each country will be able to buy stocks from the other two under the same rules that govern their home market. At the moment there are discrepancies, for example capital gains tax in Peru will apply to trades if harmonisation is not achieved, even though a similar levy does not apply in Colombia or Chile.
The MILA project executive committee, composed of BVC, BVL, BCS and their respective central securities depositories, DCV, Cavali and Deceval, reported that the BVL had requested suspension of its participation until it had resolved legal issues affecting its domestic capital gains tax legislation.
Rupert Stebbings, managing director of Chilean broker Celfin Capital's Colombian operations, says that the withdrawal is an attempt by the Peruvian exchange to pressure the country's congress into standardising the rate of capital gains tax, which varies between 5-30% depending upon the shares that are bought and whether the buyer is an individual or an institution. “When you put the three markets together, Peru's tax system is not fair. But that said the fee structure in Peru also really needs reforming,” he said. “The cost of trading is 24 basis points before you even consider commission, while in Chile its close to zero and in Colombia its around 4 bps. Peruvian pension funds often invest in American depository receipts instead because they are cheaper to trade.”
The Colombian and Chilean market infrastructure providers have said that say they will continue working on the integration project, and are evaluating the impact the news will have on the current work schedule and the timing of the implementation. Stebbings says that failure to reduce high Peruvian taxes and trading fees will make completion of MILA's second stage during 2011 unlikely. “This is the first bump in the road and look what happens,” he said.
The exchanges expressed their support for the decision by the Bolsa de Valores de Lima and have said that they hope that it will return to the project as soon as possible.
On 13 December BCS signed an agreement for order routing and market data connectivity, in addition to with Brazil's stock and derivative exchange, BM&F Bovespa, which has said it will seek similar links with Peru and Chile.