UPDATE 1-Colombia's Interbolsa cedes local bond management
* Move provides market liquidity
* Interbolsa operations remain suspended
* President Santos says Colombia investment not affected
By Helen Murphy and Nelson Bocanegra
BOGOTA, Nov 6 (Reuters) - Troubled Colombian brokerage Interbolsa ceded control of its local bond portfolio to Bancolombia, the financial regulator said on Tuesday, in a bid to ease investor concern just days after taking administrative control of the financial entity.
Interbolsa handed management of 1.6 trillion pesos ($875 million) of local Treasury bonds, known as TES, to Bancolombia, the nation's biggest bank by assets, Gerardo Hernandez, head of the financial markets watchdog, told reporters.
The regulator intervened in Interbolsa on Friday after the brokerage failed to make a scheduled 20 billion peso payment to a local bank. It will decide in the coming weeks whether liquidation is in order for Interbolsa, which executes one-third of daily operations on the stock market and has about 50,000 clients.
"This will guarantee, to a good degree, liquidity in the system," Hernandez said in Bogota.
"In the financial market, TES provide the most liquidity to the system so our fundamental priority, as far as protecting the payments system, is to reach this kind of agreement."
Hernandez said the move allows Interbolsa to reduce its obligations "substantially" and helps provide room to develop alternatives. He would not comment on whether the portfolio handover means liquidation is on the cards.
BAD CASH FLOW
The regulator's intervention came as Colombia's capital markets rise and companies are increasingly going public to tap local resources for investment abroad.
Foreign direct investment this year is expected to reach a record $17 billion, mostly into the oil and mining sectors. Back in 2002, when many international investors rejected Colombia because of the violence caused by decades of war, the economy attracted just $2 billion.
President Juan Manuel Santos said Interbolsa's actions - which he blamed on poor decision-making and bad cash flow management - will not affect the safety of Colombian investments and other brokerages would not be affected.
Interbolsa's shares tumbled 30 percent on Thursday, when the brokerage said it had a "temporary liquidity constraint" but kept operating normally.
Interbolsa operations will remain suspended until at least Nov. 13, Hernandez said.
The market regulator last took control of an entity in 2011, when it liquidated the Proyectar Valores brokerage over poor resource management.
Interbolsa is part of Interbolsa SA Comisionista de Bolsa that includes insurance and investment arms and also operates in Brazil, Panama and the United States.