Coming soon: stock trades in Baghdad

When Jay Hallen tried to step inside the building that once housed the Baghdad Stock Exchange, squatters greeted him - with a gun. Finding a new location quickly moved to the top of his agenda.

Mr. Hallen was hired by the Coalition Provisional Authority (CPA) to oversee the establishment of the new Iraq Stock Exchange, where trading is expected to start within a few weeks.

"When this opens, it will be a big sign that normalcy has returned to Iraqi life," Hallen says in a phone interview from Baghdad. "There's great excitement about an economy that's been suppressed and is ready to boom."

Stock exchanges play an important role in national economies: They provide companies with capital from domestic and foreign sources; they give opportunities to smaller investors who want the option of quickly converting stock into cash; and by showing which companies' or sectors' stock prices are rising relative to others, they signal where new money should be invested.

As nations have embraced capitalism in the past 15 years, stock exchanges have proliferated around the world. But they're no panacea. As Romanians and Mongolians and others are finding out, sometimes the hard way, what matters most is the infrastructure - the set of rules and enforcement mechanisms that governs the process. And getting that right can be tricky in places not in tune with free enterprise, experts say.

In Iraq, the big challenge is to replace a corrupt system with something far more open and democratic.

"We're trying to export what it is that's made the US so successful ... and a large part of [that] has been our ability to finance companies and get them to grow," says William Bautz, former chief technology officer at the New York Stock Exchange. "[Introducing] reforms is going to make it a stronger country.... In the long run, [that will] pay off for peace in the Middle East."

Mr. Bautz is an adviser to the newly named Iraq Stock Exchange through the Financial Services Volunteer Corps (FSVC), a nonprofit group in New York that assists developing economies. Last November, he took part in a planning conference in Amman, Jordan, where the volunteers helped Iraqi brokers and officials set up securities laws in line with international standards.

The exchange also got a new board of directors. "The former exchange was corrupt, and it was largely in place for Saddam and friends to buy their way into private enterprises," Hallen says. "If one of those people forced his way onto your board, you really had no choice but to concede."

Technology is another issue. Previously, each company kept its own records, so the exchange needs an electronic depository to track prices, trades, and shareholder identity numbers. Temporarily, the depository will be based in Egypt or Jordan, neighbors that have more sophisticated capital markets and are eager to help.

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