Venezuela Plans to Grant Brokerage Permits After Yearlong Market Shutdown

Venezuela’s securities regulator will grant new licenses for brokerages to operate in the government’s public securities exchange to companies that can prove they have sufficient capital and haven’t been involved in money laundering or other illegal activities, a government official said.

Authorities plan to complete by July an audit of brokerages that began last year when President Hugo Chavez closed an unregulated currency market, said the person, who asked not to be identified because he isn’t authorized to comment publicly on the matter.

Chavez shuttered more than 50 securities firms last year, accusing them of sparking inflation, fueling capital flight and laundering money. In the midst of the examination of the financial industry, Chavez transferred authorization for trading in dollar-denominated bonds to the central bank exclusively.

About 20 brokerages of the 100 firms that operated in 2009 will be granted licenses to operate in the market and will eventually be allowed to buy dollar-denominated securities issued by the government on behalf of clients, the person said.

“Trading of bonds to obtain foreign currency was the only business that really made brokerages money since the capital controls,” Asdrubal Oliveros, director of Caracas-based consulting and economic research firm Ecoanalitica, said in a phone interview. “This would be the only way for these firms to survive, albeit under much tighter regulation.”

Bond Auctions

The state-run public securities exchange, which was created in January, may eventually hold auctions to sell dollar- denominated bonds that value the bolivar at a weaker level than the central bank rate of 5.3 bolivars per dollar, the official said. Venezuelans buy dollar bonds from the government and state oil company Petroleos de Venezuela SA in bolivars and sell them abroad to international investors to obtain foreign currency.

Chavez, who installed capital controls in 2003, pegs the currency at 4.3 bolivars to the dollar. The dollar sells for about 8.5 bolivars in the black market.

Many Venezuelans save in dollars or invest in durable goods like cars or real estate to protect themselves from inflation. Consumer prices rose 22.9 percent in April from a year earlier, the most of 78 economies tracked by Bloomberg.

The public securities exchange has traded 27.5 million bolivars ($6.4 million) in corporate notes this year from a local Toyota Motor Corp. unit and packaging company Envases Venezolanos. Venezuela also has a private bourse, the Bolsa de Caracas.

Inspections

The securities regulator conducted more than 3,400 inspections of brokerages in 2010, according to the yearend report from the Finance Ministry. Seven brokerages asked the regulator to withdraw their operating licenses this year.

The regulator is preparing to set new capital requirements for brokerages, the government official said.

At least 10 brokerage directors, including four executives from what was the country’s largest firm, Econoinvest, are in prison and being charged with illegal currency trading and association with delinquency, according to the Attorney General’s office.

“It’s riskier to run a brokerage because of the new regulations that increase civil and penal responsibilities,” Oliveros said. “The reward might not be enough to compensate for the risk they’ll have to take on.”