Capital Market Reform Chile

In the year 2005:
The domestic capital market in Chile comprised approximately USD$90 billion as assets.
The social security system, which was privatized was the largest investor and had USD$75 billion as assets.
Assets worth USD$14 billion were possessed by the mutual fund sector and had registered a growth of 15 percent annually.

The Chilean market at a glance:
The first phase of capital market reform in Chile took place between 1974-1975.

Chile liberalized credit controls as well as interest rates. Towards the beginning of 1980, second phase of capital market reform Chile was introduced. The second capital market reform Chile rendered more power to the SBIF or Superintendence Of Banks And Financial Institutions.
This reform also improved regulations pertaining to the same. Capital market reform Chile has enabled the country to grow in terms of liquidity, size as well as depth.

Capital market reform Chile-2001:
In the year 2001, the government in Chile, launched capital market reforms, which was referred to as the “three pillars”. The capital market reform Chile was launched with a view to bring about deregulation of capital markets in the country to foster growth in the economy.

“Three pillars” consisted of :
Pension system
Institutions
Tax
Pension system:
With the introduction of capital market reform Chile, the administrators of pension fund were offered five investment options instead of the pre existing two options.

Institutions:
Under institutional reforms, deregulation of industries pertaining to insurance, mutual fund were undertaken. With regard to asset management, the establishment of “general fund administrator” was effected. The role of the administrator was to look after different types of funds.

Tax reform:
Capital market reform of Chile comprised removal of 15 percent capital gains tax on securities as well as traded stocks of high volume; selling company stocks after the introduction of the IPO or initial public offer for a period of three years; when bonds as well as stocks(short selling) occur on stock market.

Capital market reform Chile- 2003:
The capital market reform Chile introduced in the year 2003 aims at making the capital markets in the country competitive. This would be done by the simplification as well as modernization of the various operations pertaining to the financial system. Capital market reform Chile 2003, covers six broad areas.

Venture capital:
This reform aims at exempting from capital gains tax temporarily. It also aims at increasing the number of entrepreneurs who have the capacity to work out projects. The profits earned from the income, which is not subject to taxes are also tax exempted.

Improving standards of corporate governance:
This reform aims at bringing the legislation pertaining to corporate governance at par with the OECD or Organization For Economic Cooperation And Development standards.

Reducing costs of transaction:
The system of collateral was introduced under this reform. Assets are required to be used as collateral.

Up gradation of legal texts:
The legal texts in accordance with the prevailing trends in the capital market would be upgraded.

Improvement in mechanism for voluntary savings:
Under this system, both the employees as well as the employers are required to make a contribution in the savings fund. Contribution of the employers are subjected to deduction of taxes.

Bringing about enhancement of enforcement well as supervision: This reform takes into account the enforcement as well as supervision of pension funds, licenses for banking operations, companies dealing with life insurance. It would take into account issues pertaining to securities of high value.

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Last Updated on : 26th June 2013

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