# **VI.     Conclusion**

A simple legal and regulatory framework has many benefits that will help promote market development. Indeed, “stronger laws and regulatory institutions that protect investors (whether domestic or foreign) from colluding insiders are strongly correlated with deeper and more robust equity markets.”<sup>73</sup> A framework that emphasizes disclosure and enforcement, that facilitates listing for companies who are ready for a public commitment, that provides a legal mechanism for small companies to obtain financing outside the organized exchange, and that provides incentives for companies to develop good corporate governance practices including, most particularly, duties of care and loyalty to all shareholders, can begin to overcome the obstacles to development. This kind of simple regulatory framework, by facilitating entry and exit for companies and ensuring the protection of property rights for investors and issuers, is conducive to economic growth. Creating a positive business environment makes it more likely that all firms, both large and small, will be willing to participate in the market and therefore contribute to its overall growth.<sup>74</sup> There is much evidence to indicate that these kinds of micro-structural improvements can have a positive impact on market development. In addition to creating opportunities for domestic market development, the quality of “housekeeping” and efficiency of “plumbing” in an emerging market have a positive influence on decisions by foreign portfolio investors to invest in the market.<sup>75</sup> These kind of improvements also will further the potential for possible regionalization, which may be significant in many of the smaller markets.

Although the need to recognize the stage of a country’s capital market development and the legal system that applies in the jurisdiction means that there is not one model of reform and the way in which reforms are implemented will vary depending on what works, it is possible to identify the basic necessities that need to be tackled to facilitate further development of the market in every developing country, regardless of its individual circumstances. These basic necessities apply to and will support all forms of primary market finance.

# _1.  Create a supportive environment._

- Put fiscal practices on solid ground.  Unstable macroeconomic conditions make it hard to predict behavior.

- Ensure that there are basic protections of property rights, and that data registries exist.  These are the necessary foundations for disclosure and enforcement and to promote market confidence.

> 73 P. Henry and P. Lorentzen, 2003, p. 181

> 74 Demirguc-Kunt and Beck, February 2004. _See, also, “_ “Other things have to go with it [government to government assistance[, including  .  .  .  improving the climate for the private sector, and we don't just mean the climate for foreign direct investment, but even more importantly to improve the climate for the indigenous private sector, which has proven over and over again to be the engine for growth in successful developing economies.  Interview with Paul Wolfowitz before the G-8 Summit in Gleneagles, Scotland, July 2005.

> 75 Ladekarl and Zervos 2004

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