San Pico is a rapidly growing Latin American developing country. The country is blessed with miles of scenic beaches that have attracted tourists by the thousands in recent years to new resort hotels financed by joint ventures of San Pico businessmen and moneymen from the Middle East, Japan, and the United States. Additionally, San Pico has good natural harbors that are conducive for receiving imported merchandise from abroad and exporting merchandise produced in San Pico and other surrounding countries that lack access to the sea. Because of these advantages, many new businesses are being started in San Pico.

Presently, stock is traded in a cramped building in La Cobijio, the nation’s capital. Admittedly, the San Pico Stock Exchange system is rather archaic. Twice a day an official of the exchange will call out the name of each of the 43 companies whose stock trades on the exchange. Brokers wanting to buy or sell shares for their clients then attempt to make a trade with one another. This crowd trading system has worked well for over one hundred years, but the government desires to replace it with a new modern system that will allow greater and more frequent opportunities for trading in each company, and will allow for trading the shares of the many new start-up companies that are expected to trade in the secondary market. Additionally, the government administration is rapidly privatizing many state-owned businesses in an attempt to foster their efficiency, obtain foreign exchange from the sale, and convert the country to a more capitalist economy. The government believes that it could conduct this privatization faster and perhaps at more attractive prices if it had a modern stock exchange facility where the shares of the newly privatized companies will eventually trade.

You are an expert in the operation of secondary stock markets and have been retained as a consultant to the San Pico Stock Exchange to offer your expertise in modernizing the stock market.

Should they implement a modernized floor (outcry) and automated trading system such as the New York Stock Exchange? Provide an explanation as to how this would be feasible or not.

Would a system such as the NASDAQ be more beneficial considering the size of the country? Explain.

Explain the significant role played by the new exchange in facilitating capital market activity.

Explain why in its present state the exchange may or may not promote requisite liquidity and its significance.

Briefly discuss a regulatory framework needed to assure market integrity.

Discuss potential listing requirements.

How would the exchange serve as a barometer of economic activity?