Securities market infrastructure for small countries

The development of liquid, efficient securities markets has been a major goal for policy makers in the third world. Casual empiricism suggests that small countries are unlikely to obtain liquid securities markets. There are only 16 countries in the world where the annual turnover on the stock market exceeds 75% of the market capitalisation of the stock market. All but one of these countries has a GDP of above $20 billion. In this paper, we offer some conceptual insights into the problems of obtaining liquid securities markets in small countries. We use cross-country datasets and case studies to obtain some empirical insights into the questions. Finally, we offer some policy proposals for strategies that could be adopted in small countries. ∗IGIDR, Bombay. Email [email protected] and [email protected], and URLs and on the web. This paper was prepared as part of the World Bank’s project Policy for Small Financial Systems. We thank Shantanu Bharadwaj for able research assistance. We are grateful to Tadashi Endo, Mathew Rudolph, James Hanson and Giovanni Majnoni for comments and suggestions, to Tony Weeresinghe of Millennium Information Technologies and Satish Naralkar of NSE.IT for help in estimating the capital cost of securities infrastructure, and to Brett Tarleton of Elkins/McSherry, LLC, New York, who made their cross-country dataset about equity transactions costs available to us.