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What is the Chilean capital market?

People often think of a market as a physical place where certain goods are offered and sold. However, the economic definition of a market is more inclusive: it is a system that allows the buyers and sellers of a good or service to come together to buy and sell. Capital markets are where the supply and demand of financial capital in different forms (money, securities - including stocks and bonds, or financial assets) are coordinated, regulated and brokered.

The market is made up of a set of rules, institutions, practices and individuals where the suppliers of resources sell them to buyers (those who demand the resources). There are different ways of carrying out the purchase and sale of these resources (money, stocks, bonds, etc.), each of which confers different rights and obligations to the sellers and buyers, and varies in price depending on the characteristics of the resource.

For instance, if a company needs money to invest in a project it seeks someone who is interested in providing the money to them at a certain price. This money may be raised through the sale of stock, in which case, the buyer (or supplier of the money) becomes an owner or shareholder in the company, or by borrowing money, in which case the supplier becomes a lender or creditor to the borrowing company.

The Stock market is a place where all kinds of negotiable securities (stocks, bonds, commercial paper, etc.) are traded.

The Chilean capital market is structured into three major sectors. Each is regulated by a different oversight agency:

  1. Pension fund management companies receive the money of workers (affiliates), and offer these resources in the market, mainly through the purchase of bonds, or of other debt instruments. Pension fund companies are regulated by the Superintendency of Pension Fund Managing Companies (SAFP). 
  2. Banks receive money from depositors and provide the market with money mainly through credit (loans). Banks are regulated by the Superintendency of Banks and Financial Institutions (SBIF). 
  3. The securities and insurance market includes all of the institutions that trade public securities (documents representing some monetary obligation that are traded in regulated markets) and is regulated by the Superintendency of Securities and Insurance.

In addition to regulated markets, the capital market also includes private transactions that do not take place in organized markets, but are based on agreements between two parties. However, most large capital transactions in Chile take place in organized markets, which is why their regulation is crucial in guarantying competitively priced access to capital.

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