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2016 IOSCO Annual Conference

Changing times? How to face current and future challenges?A view from Peru and MILA

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Less than 7 years …

October 2009

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… our expectations were big and positive…

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Expectations / Prices

5% - 7%

12% anual

8% - 10%

2% / -5%

13% anual

USD 111USD 3.7

USD 1,675USD 30.3

MILA GDP Growth

Growth in Traded Volumes in Exchanges

Expected Market Returns

F/X Expected Revaluation / Devaluation

Growth of AUMs

WTICopper

GoldSilver

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But…the world changed

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… and reality was different…

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5% - 7%

12% anual

8% - 10%

2% / -5%

13% anual

USD 111USD 3.7

USD 1,675USD 30.3

2% - 3%

-14% anual

-31% (2015)

-8% / -30% YTD

2% anual

What happened?

USD 27 - 44USD 1.95 – 2.10

USD 1,050 – 1,260USD 13.7 – 17.1

MILA GDP Growth

Growth in Traded Volumes in Exchanges

Expected Market Returns

F/X Expected Revaluation / Devaluation

Growth of AUMs

WTICopper

GoldSilver

Expectations / Prices

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… positive momentum was lost…

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___Traded Volume (Volumes in USD, Jan-12 = 00)____ _______________Country Risk (EMBI*)___________

_MILA Equity Indices (3m moving average, Jan-10 = 100)_ Nominal Exchange Rate (Local Currncy per US$, Jan-10 = 100)

050

100150200250300350400

Apr-0

3

Apr-0

4

Apr-0

5

Apr-0

6

Apr-0

7

Apr-0

8

Apr-0

9

Apr-1

0

Apr-1

1

Apr-1

2

Apr-1

3

Apr-1

4

Apr-1

5

Perú Chile Colombia

0200400600800

1,0001,2001,400

Feb-

00Fe

b-01

Feb-

02Fe

b-03

Feb-

04Fe

b-05

Feb-

06Fe

b-07

Feb-

08Fe

b-09

Feb-

10Fe

b-11

Feb-

12Fe

b-13

Feb-

14Fe

b-15

Chile Colombia Perú Latam

020406080

100120140160180200

Jan-

…D

ec…

Nov

…O

ct-…

Sep…

Aug…

Jul-0

7Ju

l-08

Jun-

…M

ay…

Apr-…

Mar

…Fe

b…Ja

n-…

Jan-

…D

ec…

Perú Chile Colombia

020406080

100120140160180200

Jan-

…D

ec…

Nov

…O

ct-…

Sep…

Aug…

Jul-0

7Ju

l-08

Jun-

…M

ay…

Apr-…

Mar

…Fe

b…Ja

n-…

Jan-

…D

ec…

Perú Chile Colombia

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Is this the new reality?

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October 2013

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A reality where…

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• We have a complicated world:

New recession or slow growth?

What will happen to China? How can we know?

US Interest rate increases / Strengthening of the US Dollar.

Emerging Markets or Depressing Markets?

• …that presents great challenges, but also opportunities

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Peru’s case: Emerging Market or Frontier Market?

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Consultation process context

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MSCI Peru - number of constituents evolution

Source: MSCI

0

2

4

6

8

10

12

nov-10 may-11 nov-11 may-12 nov-12 may-13 nov-13 may-14 nov-14 may-15 nov-15

Investable securities Standard constituents IMI constituents

Investable securities for MSCI has decreased significantly in recent years.

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Consultation process contextLima Stock Exchange: Monthly equity traded volume - 3m moving average (US$ million)

Source: BVL

-

200

400

600

800

1,000

1,200

ene-06 ene-07 ene-08 ene-09 ene-10 ene-11 ene-12 ene-13 ene-14 ene-15 ene-16

Lima Stock Exchange: Monthly equity number of orders - 3m moving average

Source: BVL

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

ene-06 ene-07 ene-08 ene-09 ene-10 ene-11 ene-12 ene-13 ene-14 ene-15 ene-16

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MILA: Traded Volume

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Traded Volume / GDP - MILA (%)

Source: WFE, FMI and BCRP

3.1

17.0

10.8 10.8

2.0

15.8

6.8

14.1

1.9

12.1

6.7

11.2

1.0

8.9

5.4

11.0

1.4

8.0

5.0

10.2

Peru Chile Colombia Mexico

2012 2013 2014 2015 2016

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What does changing from Emerging Market to Frontier mean?

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Perú is currently 0.4% of the MSCI Emerging Markets Index and would become 12.0% of the MSCI Frontier Markets Index 30x

The Pool of Funds on MSCI EM compared to MSCI FM 130x

EM = 1.6T vs FM = 12BB

When we comply again, we come back to EM

It takes 7 -10 years to move back from FM to EM… if we do everything right.

We have done everything right as a country and investors want to see more of Perú, not less…

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August / September 2015 – Reaction to Consultation

2013 2014 April 2015 May 2015 August 2015

MSCI Inc. begins Peru consultation

Exchange fee’s reduction

Mexican Stock Exchangeentry to BVL

2/10 independent directors

Oliver Wyman research

New Market Maker model

Mexico is incorporated to MILA

Millennium platform is launched

New model for Stock lending

S&P/BVL indexes

Foreign securities Market

Integration with Cavali(CSD)

What had we been doing?

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Peru wishes to continue developing its capital markets and aspires to become a regional capital markets hub

Vision for market development

Local International

Basic

Soph

istic

ated

Footprint

Offe

ring

Peru 2025

Peru Today

Peru wants to become a regional capital markets hub and be the go-to market in the Andean region because of its superior infrastructure, investor-friendly regulation and tax environment.

Through the development of deep, liquid and open capital markets, Peru wishes to promote economic development and create greater social inclusion

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Successful capital markets share common characteristics that can provide key lessons for Peru’s development

Broad base of investors, issuers and intermediaries

Broad range of products and services State of the art market technology and

infrastructure Strategic anchor to clear competitive

advantage (e.g., trade, access to China)

Key characteristics of successful capital markets

Regulation

LegalizationTaxation

Infrastructure

Strong government support for Capital Markets

Light and simple (non bureaucratic) business regulation

Enforcement of laws and property rights Good corporate governance

Tax regime that incentivizes market participation

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We have designed a four step approach for Peru to work towards becoming a capital markets regional hub;

with main focus on the first step

Immediate focus

Local International

Basic

Soph

istic

ated

Footprint

Offe

ring

Build the basis for development of local

market

• Expand product offer• Increase local and foreign

investor participation• Professionalize

intermediaries

2014 – 2016

#1 PeruToday

Peru2025

Increase penetration and sophistication of local

market

• Develop sophisticated products & processes

• Improve incentive mechanisms for market participation

• Increase participants sophistication through education

2017 – 2019

#2Expand ties with other

markets

• Increase internationalization of Peruvian market with special focus on strategic partners (MILA and mining countries)

2020 – 2022

#3 Become a regional hub

• Build strategic differentiation in the region

• Increase connectivity with other foreign exchanges

2023 – 2025

#4

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What happened from August / September 2015?

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September2015

October 2015

November2015

December2015

January2016

February2016

March2016

April 2016

FIRBIS Law (REITS)

Law N° 30341 Capital gain tax

exemptionMarket Making

facilities

Market Regulator (SMV) approves Algorithmic Tradingwith DMA

MSCI: Peru remains as Emerging Market

Meeting with MSCI (NY)

Creation of Steering Committee with Government

PERUFID 2015 Seminar

100% fee waiver to broker dealers proprietary trading from the Exchange, CSD and Regulator

100% fee waiver for stock lending

Capital gain tax exemption: final rulings

Stock lending begins

Market Making:AlicorpPacasmayoGrañaVolcanFerreycorp

2nd RoadshowUSA

2nd Roadshow Europe

Communication plan

Capital gain tax exemption: initial rulings

3rd Road show USA

3/11 independent directors

MSCI: Consultation (cont)

Market Making:Engie

Stock lending: Pension Funds tests

Communication with global investors

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Market Performance

Lima Stock Exchange: Monthly Traded Volume - equity (US$ million)

Source: BVL

0

50

100

150

200

250

300

350

400

450

jan-15 mar-15 may-15 jul-15 sep-15 nov-15 jan-16 mar-16

3 - month ATVR gap (%)

1\ Cons iders a FIF of 0.55. BVL estimates based on MSCI methodology

* Stocks with Market Maker

0% 5% 10% 15% 20% 25% 30%

Unacem

Edelnor

Milpo

Pacasmayo*

Ferreycorp*

Inretail

Alicorp 1\*

Graña y Montero*

IFS

Volcan*

ATVR 3-month

apr-16 mar-16 feb-16 jan-16 dec-15 nov-15 oct-15

3 - month ATVR

BVL estimates based on MSCI methodology

2%

4%

6%

8%

10%

12%

14%

16%

nov-14 jan-15 mar-15 may-15 jul-15 sep-15 nov-15 jan-16 mar-16

With MMK Without MMK

Market Making begins Capital Gain Tax

Exemption kicks-in (Law N° 30341)

Increasing number of stocks with 15% 3-mo ATVR since early 2016

Change in trends Highest volume

since early 2015

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What comes next?

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Continue executing our plan… with some adjustments

Immediate focus

Local International

Basic

Soph

istic

ated

Footprint

Offe

ring

Build the basis for development of local

market

• Expand product offer• Increase local and foreign

investor participation• Professionalize

intermediaries

2014 – 2016

#1 PeruToday

Peru2025

Increase penetration and sophistication of local

market

• Develop sophisticated products & processes

• Improve incentive mechanisms for market participation

• Increase participants sophistication through education

2017 – 2019

#2Expand ties with other

markets

• Increase internationalization of Peruvian market with special focus on strategic partners (MILA and mining countries)

2020 – 2022

#3 Become a regional hub

• Build strategic differentiation in the region

• Increase connectivity with other foreign exchanges

2023 – 2025

#4

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Food for thought and for discussion

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Having well developed Capital Markets is key for supporting growth in any country. It should be a key priority of every government agenda

This Agenda should be shared by the public and the private sector. It’s key to have a positive agenda between regulators and regulated parties.

Regulation is good…

…until it becomes too restrictive or bureaucreatic… Where is the balance?

Development of Capital Markets is very different around the world and in regions.

Can we have regulation that fits all these cases?

Can regulation limit the development of less developed markets?

How do we have a regulation that incorporates more players to the game? What’s the benefit for a SME?

How do we protect and educate investors?

How to deal with multi national regulation? Should we develop supra national regulation?

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Thanks

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2016 IOSCO Annual Conference

Changing times? How to face current and future challenges?A view from Peru and MILA