Colombia and World Bank sign agreement to support the development of an exchange-traded fund for sovereign debt

Colombia’s Ministry of Finance and Public Credit and the World Bank have signed a collaboration agreement, taking the first step towards launching the issuer-led exchange-traded fund (ID ETF) program.

The ID ETF program is a global initiative designed by the World Bank to support the development of domestic bond markets and increase financial stability in emerging market economies. The ID ETF also aims to democratize access to capital markets and increase the competitiveness of financial services.

An ETF is a security that tracks an index, commodity, or basket of assets, and trades like a stock on the stock exchange. As with any stock, ETF units are listed and traded throughout the day on a stock exchange and can be bought and sold without the active intervention of a fund manager.

This innovative ID ETF benefits from the direct participation of the issuer of the underlying security in the structure, allowing the government to design and align the tool with market development objectives. Local currency debt securities are particularly important for financing fiscal needs without currency mismatches and increasing long-term financial flows. The introduction of the ID ETF tends to increase the liquidity and transparency of the underlying securities at lower cost, improving price discovery and broadening the investor base.

Cesar Arias, Director of Public Credit and National Treasure stressed that “in the case of Colombia, the underlying asset of the sovereign ETF will be a basket of TES bonds in local currency, which represent the most security. liquid of the country, with a diverse base. national and foreign investors and a solid program of primary dealers. We are convinced that the launch of the sovereign ETF, with technical support from the World Bank, will be a key step in the development of capital markets in Colombia ”.

Anderson Caputo Silva, Head of Long-Term Finance Program at the World Bank, said, “We are proud to have reached this important phase of our collaboration with Colombia as part of our global issuer-focused ETF program. . The World Bank looks forward to working with Hacienda to launch the Issuer Focused ETF in the coming months – this will be an important addition to Hacienda’s ongoing debt management strategy and market development goals of local capital ”.

The ID ETF will be a new tool to boost the liquidity and transparency of the underlying assets, which can support the development of capital markets. In this sense, the partnership between the government and the World Bank to promote the ETF ID in Colombia aims to foster innovation, efficiency and diversification in the development of government and non-government bonds, thus helping to reduce costs. transaction and risks to issuers and the market. participants.

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