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    Technological Disruption in the Capital Markets

    In the last decade, technology has revolutionized the capital markets, radically transforming the way transactions are conducted, risks are managed, and financial information is accessed. From the emergence of trading platforms and the use of artificial intelligence to the implementation of blockchain to ensure transparency and security of operations, these innovations have optimized efficiency, reduced costs, and democratized access to the market. This article, written by Alma V. Jiménez, Senior Associate at our partners in Peru, Damma Legal Advisors, explores how these technological advances are reshaping the global financial landscape, referencing Peruvian law but applicable and of interest in a broader context, offering new opportunities and challenges for investors, institutions, and regulators.

    Technological Disruption in the Capital Markets

    Alma V. Jiménez

    Since the pandemic, technology has been rapidly driving the digital transformation of the capital markets. This has impacted not only individuals interested in investing in these markets but also the companies that provide these services (financial entities and the securities market) as well as the supervisory bodies.

    Challenges for the Capital Markets:

    This sector faces the following challenges:

    -Cross-border limitations: Each country’s regulations pose obstacles to the globalization of markets or require complex compliance with different regulatory frameworks.

    -High operational costs: The costs associated with these services can be significant, so process automation through the use of artificial intelligence would be advantageous.

    -Need to strengthen the investor base: A limited number of investors and low investment capacity can undermine the liquidity and efficiency of these markets.

    -Transparency: The disclosure of information is essential to foster investor confidence. There is a need for appropriate instruments to meet the financing needs of issuers.

    Impact on the Capital Markets:

    Regarding electronic contracting, the possibility of replacing handwritten signatures with electronic signatures (a tool that verifies the author of a document and ensures that its content has not been modified) has enabled the decentralization of financial and securities market services. According to Peruvian regulations, a document that has been electronically signed has the same legal validity as a printed document with a handwritten signature, as full legal value has been granted to electronic signatures.

    This has been a practical advantage for providing financial services. While banks can offer their services through their branches throughout Peru, securities market companies, whose offices are mainly located in Lima, can enter into contracts outside their geographic area thanks to electronic signatures and the reduced fear of digitally signing contracts.

    Moreover, the electronic issuance of negotiable invoices represented by entries in Cavali ICLV has favored the growth of the factoring sector in Peru. This is further enhanced by Cavali’s recent implementation to issue electronic promissory notes.

    Secondly, a technology that has been making headlines due to its application in various sectors is blockchain. This distributed ledger technology functions as a digital and decentralized ledger capable of recording all transactions in encrypted blocks. This technology enables new transactions such as asset tokenization through the issuance of digital tokens representing rights over bonds, shares, or other instruments, favoring disintermediation; the innovation of financial products such as Smart Contracts, which are executed quickly whenever pre-established conditions are met; and stablecoins, which would facilitate cross-border transactions.

    Lastly, artificial intelligence is an area aimed at creating systems that simulate human intelligence. One of its applications is Robo Advisors or “automated managers,” which help advise and manage investors’ resources with the support of a specialized human advisory team.

    In conclusion, technology is impacting how the capital markets develop. It is essential to understand the advantages and disadvantages of these solutions and evaluate the opportunities for synergy when applying them. This includes the use of blockchain and stablecoins to conduct cross-border operations more efficiently and at lower costs, as well as custody services for digital tokens and faster cash-in and cash-out services.

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