© 1996 International Monetary Fund
ISBN 9781557756091
ISSN 0258-7440
Reprinted December 1997
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Contents
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Preface
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List of Abbreviations
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I. Introduction and Summary
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II. Global Financial Markets: Moving Up the Learning Curve
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III. Survey of International Capital Markets
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Emerging Capital Markets
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Global Bond Markets
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Major Currency Markets
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Global Equity Markets
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Global Derivative Markets
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Developments in Selected Industrial Country Banking Systems
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IV. Surveillance over Global Financial Markets: Broadening Current Arrangements
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V. Controlling Settlement Risk in the Global Foreign Exchange Market
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Risks in the Global Foreign Exchange Market
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Official Initiatives
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Private Initiatives
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VI. Policy Implications and Conclusions
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Assessment of Recent Developments
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Broadening the Surveillance of International Financial Markets
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Risks in the Global Foreign Exchange Market
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Annexes
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1. Major Capital Markets: Trends and Recent Developments
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Foreign Exchange Markets
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Bond Markets
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Equity Markets
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Regulatory and Structural Developments in Securities Markets
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Derivatives Markets
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Banking Systems and Loan Markets
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II. Recent Developments in Developing Country Capital Markets
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Capital Flows in the Balance of International Payments
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Transactions in International Capital Markets
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Key Segments of the Investor Base: Japan and the United States
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Developments in Selected Emerging Market Banking Systems
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III. Foreign Exchange Markets: Structure and Systemic Risks
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Global Market Developments
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Management of Systemic Risk
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IV. International Coordination of Supervision and Regulation of Financial Institutions
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Bank Supervision
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Securities Firms
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Intersectoral Cooperation: Banks, Securities Firms, and Financial Conglomerates
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References
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Boxes Annex
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I. 1. Causes of Recent Swings in Bond Yields
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2. International Bond Issuance and the Swaps Market
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3. Moody’s Bank Financial Strength Ratings
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4. Consolidation in the Financial Services Industry
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II. 5. Mexican Brady Bond Exchange
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6. Impact of the Mexican Crisis on Chile’s Financial Markets
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7. Spillovers of the Mexican Crisis on Argentina’s Financial Markets
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8. Government Assistance to the Mexican Banking System
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III. 9. Microstructure of the Foreign Exchange Market
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10. Settlement Procedures
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11. Payments Gridlock
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12. Settlement Finality
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13. Bilateral and Multilateral Netting Systems
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IV. 14. The Basle Concordat System
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15. Building Blocks of the European Union’s Single Passport
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16. Memoranda of Understanding and Similar Agreements, 1982-94
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Tables Section
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II. 1. Capital Flows to Developing Countries and Countries in Transition
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III. 2. Major Industrial Countries: Changes in Ten-Year Government Bond Yields
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3. Major Industrial Countries: Bond and Equity Index Returns
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IV. 4. Net External Assets of BIS-Reporting Banks vis-à-vis Banks in Selected Countries and Regions
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5. Foreign Exchange Market Turnover
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Annex
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I. 6. Net Issues of International Debt Securities by Nationality
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7. Outstanding Amounts of International Debt Securities
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8. Outstanding Amounts and Net Issues of International Debt Securities by Currency of Issue
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9. Domestic Debt Securities by Type, Sector, and Country of Issuer
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10. International Equity Placements
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11. Major Industrial Countries: Domestic Equity Issues
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12. Markets for Selected Derivative Financial Instruments: Notional Principal Amounts Outstanding
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13. Annual Turnover in Derivative Financial Instruments Traded on Organized Exchanges Worldwide
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14. Notional Principal Value of Outstanding Interest Rate and Currency Swaps
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15. New Interest Rate and Currency Swaps
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16. Global Notional Amounts of Derivative Contracts Outstanding by Underlying Market Risk Factor, End-March 1995
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17. Currency Composition of Notional Principal Value of Outstanding Interest Rate and Currency Swaps
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18. Announced International Syndicated Credit Facilities by Nationality of Borrower
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19. Spreads on Eurocredits
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20. Profitability of Banks in Selected Industrial Countries
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21. Provisions of Banks in Selected Industrial Countries
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22. Major Industrial Countries: Bank Rating Changes, 1995-96
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II. 23. Private Capital Flows to Developing Countries and Countries in Transition
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24. International Bond Issues by Selected Countries and Regions
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25. International Bond Issues by Currency of Denomination
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26. Samurai Bonds Issuance, 1985-95
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27. Bond Rating Comparisons of Selected Japanese Yen Issues, 1994-95
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28. Average Credit Quality of Japanese Yen-Denominated Bonds
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29. Secondary Market Transactions in Debt Instruments of Developing Countries and Countries in Transition
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30. International Equity Issues by Selected Countries and Regions
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31. International Emerging Market Equity Funds
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32. Stock Market Turnover Ratio in Selected Countries and Regions
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33. Value of New Equity Issues in Selected Countries and Regions
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34. Net Flows of Portfolio Investment to Thailand
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35. New Medium- and Long-Term Commitments to Selected Countries and Regions
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36. Changes in Net Assets of BIS-Reporting Banks vis-à-vis Banks in Selected Countries and Regions
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37. Equity Flows to Latin America
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38. Equity Flows to Asian Developing Countries
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39. Moody’s Bank Financial Strength Ratings for Selected Countries and Regions, May 1996
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40. Cost of Mexican Bank Support Programs
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III. 41. Total Reported Foreign Exchange Market Turnover Adjusted for Local Double Counting by Country and Region
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42. Trading in Exotic Currencies, April 1995
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43. Methods of Doing Business: Share of Transactions Through Direct Dealing, Voice Brokers, and Electronic Brokers
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Box
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1. A. World Economic Outlook Consumer Price Index Inflation Forecasts
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B. Changes in 12-Month Spot and Forward U.S. Dollar Interest Rates, 1993-95
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3. Moody’s Bank Financial Strength Ratings for Selected Countries and Regions, May 1966
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Charts Section.
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III. 1. Private Market Financing for Developing Countries
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2. Share Price Indices for Selected Developing Countries
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3. Selected Major Industrial Countries: Yield Curves, December 31, 1994, June 30, 1995, December 31, 1995, and May 31, 1996
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4. Major Industrial Countries: Long-Term Interest Rates
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5. Selected European Long-Term Interest Rates Differentials with Germany
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6. Selected European Countries: Spot and Implied Forward Yield Curves, May 31, 1996, January 4, 1999, January 3, 2000, and January 2, 2001
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7. Japan and Germany: Exchange Rates
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8. RiskMetrics Daily Price Volatility for U.S. Dollar Spot Exchange Rates, January 19, 1995-May 31, 1996
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9. Major Industrial Countries: Equity Price Indices
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10. United States: Eaming-Price Ratio of Stocks and Yield on Long-Term Government Bonds
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11. United Stales: Net Income of Commercial Banks
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IV. 12. Growing Influence of the Emerging Markets, Australia, and New Zealand
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Annex
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I. 13. Major Industrial Countries: Exchange Rates
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14. Major European Countries: Local Currency vis-à-vis Deutsche Mark, January 3, 1994-May 31, 1996
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15. Major Industrial Countries: Official Interest Rate, January 3. 1994-May 31, 1996
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16. Spot and Forward Rates for Currencies of Major Industrial Countries Against the U.S. Dollar. May 31, 1996
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17. Major Industrial Countries: Short-Term Interest Rates
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18. Major Industrial Countries: Differentials Between Long and Short-Term Interest Rates
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19. RiskMetrics Daily Price Volatility for Ten-Year Government Bonds, January 19, 1995-May 31, 1996
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20. Major Industrial Countries: Spot and Implied Forward Yield Curves, May 31, 1996, January 2, 1997, and January 2, 1998
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21. RiskMetrics Daily Volatility for Stock Price Indices, January 19, 1995-May 31, 1996
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22. Implied Volatility: S&P 500, Nikkei 225, and DAX Indices
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23. Indices of Property-Related Stocks in Europe and North America
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24. Tokyo Commercial Real Estate Occupancy and Rental Rates
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25. Major Industrial Countries: Intermediation Spreads
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II. 26. Total Reserves Minus Gold of Selected Developing Countries and Countries in Transition
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27. Exchange Rates of Selected Developing Countries and Countries in Transition
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28. Secondary Market Yield Spreads on Selected Brady Bonds
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29. Net Sales of Global and International Mutual Funds and Change in IFC Emerging Market Investable Composite Index
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30. Foreign Investment and Returns on the Thai Stock Market
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31. Net Purchases of Foreign Stocks and Investment Trusts by Japanese Investors Through Securities Companies
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32. United States: Net Portfolio Flows to Defined Regions, 1994
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33. United States: Net Portfolio Flows to Defined Regions, 1995
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34. United States: Yield on 30-Year Treasury Bonds and Net Portfolio Outflows
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Box
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1. U.S. Long-Term Bond Yield Volatility
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2. A. Deutsche Mark Swap and German Government Bond Yield Curves, September 1, 1995
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B. Bond Issuance and Interest Rates
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Figures Annex
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III. 1. Intra-Day Tick Activity for U.S. Dollar/Deutsche Mark
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IV. 2. Overlapping Memberships: The Basle Committee. IOSCO Technical Committee, and European Union
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3. IOSCO Structure
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Box
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10. Current Settlement Process
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The following symbols have been used throughout this paper:
… to indicate that data are not available;
— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
‒ between years or months (for example, 1995-96 or January-June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years (for example, 1995/96) to indicate a fiscal or financial year.
“Billion” means a thousand million: “trillion” means a thousand billion.
“Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
Minor discrepancies between constituent figures and totals are due to rounding.
As used in this paper the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
Preface
The International Capital Markets report is an integral element of the IMF’s surveillance of developments in international financial markets. The IMF has published the International Capital Markets report annually since 1980. The report draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, stock and futures exchanges, regulatory and monetary authorities, and the staffs of the Bank for International Settlements, the Commission of the European Union, the International Swaps and Derivatives Association, the Japan Center for International Finance, and the Organization for Economic Cooperation and Development. The discussions leading up to the present report took place in Argentina, Belgium, Chile, the Czech Republic, France, Germany, Hong Kong, Hungary, India, Italy, Japan, Singapore, Switzerland, Thailand, the United Kingdom, and the United States, between January and March 1996. The report reflects information available up to the end of May 1996.
The International Capital Markets report is prepared in the Research Department under the general direction of Takatoshi Ito, Senior Advisor, and David Folkerts-Landau, Assistant Director. Coauthors of the report from the Capital Markets and Financial Studies Division of the Research Department are Garry Schinasi, Deputy Division Chief in Charge; Marcel Cassard, Laura Kodres, John Montgomery, and Todd Smith, all Economists; Beth Simmons, Resident Scholar; and Subramanian Sriram, Research Officer. Coauthors of the report from the Emerging Markets Studies Division of the Research Department are Michael Spencer, Economist, and Anne Jansen, Research Officer. Zhaohui Chen and Miguel Savastano from the Research Department and Gabrielle Lipworth from the Central Asia Department also coauthored the report. Mohsin Khan, Deputy Director of the Research Department, led the mission to Argentina and Chile. Melissa Little, Tammi Shear, and Adriana Vohden provided expert word processing assistance. Esha Ray of the External Affairs Department edited the manuscript and coordinated production of the publication.
This study has benefited from comments and suggestions from staff in other IMF departments, as well as from Executive Directors following their discussions of the International Capital Markets report on July 8, 1996. However, the analysis and policy considerations are those of the contributing staff and should not be attributed to Executive Directors, their national authorities, or the IMF.
List of Abbreviations
| ABS |
asset-backed securities |
| ACBS |
Arab Committee on Banking Supervision |
| ADE |
Programa de Apoyo Inmediato a Deudores de la Banca |
| ADR |
American Depository Receipt |
| AIM |
Alternative Investment Market |
| ASEAN |
Association of South-East Asian Nations |
| BAC |
Banking Advisory Committee |
| BCCI |
Bank of Credit and Commerce International |
| BFSR |
Bank Financial Strength Rating |
| BIBF |
Bangkok International Banking Facility |
| BIF |
Bank Insurance Fund |
| BIS |
Bank for International Settlements |
| CAD |
Capital Adequacy Directive |
| CBOE |
Chicago Board Options Exchange |
| CBOT |
Chicago Board of Trade |
| CFTC |
Commodity Futures Trading Commission |
| CGACB |
Council of Governors of Arab Central Banks and Monetary Agencies |
| CHAPS |
Clearing House Association Payments System |
| CHIPS |
Clearing House Interbank Payments System |
| CITIC |
China International Trust and Investment Corporation |
| CME |
Chicago Mercantile Exchange |
| CME-IMM |
Chicago Mercantile Exchange-International Money Market |
| CNBV |
Comisión Nacional Bancaria y de Valores |
| COB |
Commission des Opérations de Bourse |
| CORSA |
Council of Securities Regulators of the Americas |
| CPP |
Costo Porcentual Promedio |
| CPSS |
Committee on Payment and Settlement Systems |
| DIC |
Deposit Insurance Corporation |
| DTB |
Deutsche Terminbörse |
| EBS |
Electronic Broking System |
| ECHO |
Exchange Clearing House |
| ECU |
European currency unit |
| EMEAP |
Executive Meeting of East Asia and Pacific Central Banks |
| EMI |
European Monetary Institute |
| EMTA |
Emerging Markets Traders Association |
| EMTN |
European medium-term notes |
| EMS |
European Monetary System |
| EMU |
Economic and Monetary Union |
| ERM |
exchange rate mechanism |
| EU |
European Union |
| FDIC |
Federal Deposit Insurance Corporation |
| Fobaproa |
Fondo Bancario de Protección al Ahorro |
| FRN |
floating rate note |
| FRR |
Financial Regulation Report |
| FSSC |
Financial System Stabilization Committee |
| G-7 |
Group of Seven |
| G-10 |
Group of Ten |
| GAAP |
Generally Accepted Accounting Principles |
| GCC |
Gulf Cooperation Council |
| GDP |
gross domestic product |
| GDR |
Global Depository Receipt |
| GEMMS |
Gilt Edged Market Makers |
| IAS |
international accounting standards |
| IASC |
International Accounting Standards Committee |
| IFC |
International Finance Corporation |
| IMRO |
Investment Management Regulatory Organization |
| IOSCO |
International Organization of Securities Commissions |
| ISAs |
Information Sharing Agreements |
| USD |
Investment Services Directive |
| ISDA |
International Swaps and Derivatives Association |
| ISRR |
International Securities Regulation Report |
| JCR |
Japan Credit Rating Institute |
| JBRI |
Japan Bond Research Institute |
| JRC |
Jusen Resolution Corporation |
| LIBOR |
London interbank offered rate |
| LIFFE |
London International Financial Futures Exchange |
| LSE |
London Stock Exchange |
| MATIF |
Marché à Terme International de France |
| MIDAM |
Mid-America Commodity Exchange |
| MOUs |
Memoranda of Understanding |
| NASD |
National Association of Securities Dealers |
| NASDAQ |
National Association of Securities Dealers Automated Quotation |
| NIES |
newly industrialized economies |
| NIS |
Nippon Investor Services |
| NYFE |
New York Futures Exchange |
| NYSE |
New York Stock Exchange |
| OECD |
Organization for Economic Cooperation and Development |
| OTC |
over the counter |
| PVP |
payment versus payment |
| Procapte |
programa de capitalización temporal |
| RTC |
Resolution Trust Corporation |
| RTGS |
real time gross settlement |
| SAIF |
Savings Association Insurance Fund |
| SEACEN |
Southeast Asian Central Banks |
| SEC |
Securities and Exchange Commission |
| SET |
Stock Exchange of Thailand |
| SFE |
Sidney Futures Exchange |
| SIB |
Securities and Investments Board |
| SIMEX |
Singapore International Monetary Exchange |
| S&P |
Standard and Poor’s |
| SROs |
Self-Regulatory Organizations |
| SWIFT |
Society for Worldwide Interbank Telecommunication |
| TARGET |
Trans-European Automated Real-Time Gross Settlement Express Transfer System |
| TIBR |
Thompson’s International Banking Regulator |
| TIFFE |
Tokyo International Financial Futures Exchange |
| TIIE |
Tasa de Interés Interbancaria de Equilibrio |
| TIIP |
Tasa de Interés Interbancaria Promedia |
| TSE |
Tokyo Stock Exchange |
| UCABE |
Unidad Coordinadora para la Restsucturación del Adeudo Bancario Empresarial |
| UDI |
Unidades de Inversión |
| VAR |
value at risk |
| VRRs |
Value Recovery Rights |
| YPF |
Yacimientos Petrohíferos Fiscales |