plumbing issues may be overcome through alternative solutions. These alternative solutions will, however, often add to the fixed costs involved in investing in a particular market. For example, foreign institutional investors use specialized subsidiaries set up in Mauritius to access the Indian securities markets, in order to avoid particular taxes. In other cases, asset managers have engaged in direct negotiations with authorities to use specialized country funds to access otherwise closed capital markets, and accepted restrictions on how and who to deal through in the local market to gain access and work around deficiencies in the local plumbing. Specifically, such country funds have been used to gain access to, for example, South Korea, India and South Africa. Consequently, getting the plumbing to work efficiently may be more important for smaller countries, as the benefits to scale may make investments there prohibitively expensive for some types of investors.

Many emerging markets have increasingly realized the importance of establishing a costefficient and robust securities settlement framework. It is telling that the “Permissible Equity Markets Investment Analysis and Recommendations” prepared by Wilshire Consulting for CalPERS in January 2003 singles out settlement proficiency as the area where the most significant improvements were made from the 2002 to the 2003 analysis. The emerging markets covered by the Wilshire analysis had all moved to electronic trade settlement and electronic depositories, with, mostly, three-day rolling settlement cycles. Interviews with the back office personnel of the investors indicated that securities settlement and registration of ownership are truly key elements of plumbing, which, if deficient, will leave local investments off the investability list.

Some of the softer aspects of the infrastructure, which are more commonly overlooked, may have similar consequences. Stamp duties and cost of ownership registration are two of those factors that may tip a market into an unattractive realm. Some investors in our sample estimated that stamp duties and registration costs amount to as much as 50% of their total transaction costs, e.g., in Russia. As these costs normally are variable, rather than making a country un-investable they typically will increase the minimum required pre-cost return and be fully factored into the demand schedule, thereby raising questions as to whether the net effect on government revenues is positive.

While the local regulatory structures also are of importance to the assessment of the quality of the housekeeping, they are also important from a plumbing point of view. Even if the main issues related to registration of ownership and execution of ownership rights have been dealt with in such a way as to put the country on the “may invest” list, if a country frequently changes the rules, or just as importantly changes their legal interpretation, direct and indirect transaction costs will increase, and may drive investments out of the country. Investors and providers of custodial services in our sample, especially pointed to problems related to ambiguous tax rules, erratic rule changes without adequate explanation and/or consultation as well as – from their point of view – excessive consequences of non-compliance (e.g., if settlement failure results in transaction suspension for a long time period, this may in itself keep investors from entering).

Other seemingly trivial practical issues can keep a country off the investable list. One of these factors is the usefulness of the English language in legal documents, either pertaining to the investment laws in general or merely the transaction contracts. Apparently for many years, all 22