Capital Markets And Key Participants 46y36
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Introduction
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FUNCTION OF FINANCIAL MARKETS
Source: Pren,ce Hall A FINANCIAL TIMES COMPANY
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FUNCTION OF FINANCIAL INTERMEDIARIES Financial Intermediaries: • Engage in process of indirect finance • More important source of finance than securities markets • Needed because of ability to reduce transactions costs and asymmetric information
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FINANCIAL INTERMEDIARIES
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Module 1 The Major Capital Markets
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WHY CAPITAL MARKETS? • Because issuers have needs. • Because investors seek opportunities. • Because an issuer’s need IS an investor’s opportunity. • Because these needs and opportunities change constantly. • Because issuer and investor must come together to facilitate economic growth and prosperity.
A FINANCIAL TIMES COMPANY
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FOUR MAJOR CAPITAL MARKETS 1. Equity (Stock) Market – traditional products 2. Debt (Bond) Market – traditional products 3. Money Market 4. Foreign Exchange Market
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GLOBAL EQUITY MARKET CAPITALIZATION
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GLOBAL EQUITY MARKET CAPITALIZATION
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GLOBAL EQUITY MARKET CAPITALIZATION
A FINANCIAL TIMES COMPANY
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DEVELOPED MARKETS
A FINANCIAL TIMES COMPANY
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EMERGING MARKETS DEBT
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STRUCTURE OF THE CAPITAL MARKETS
Capital Markets
Money Markets (< 12 Months)
Fixed Income
A FINANCIAL TIMES COMPANY
Capital Markets (> 12 Months)
Equity
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PRIMARY VS. SECONDARY MARKETS
Primary Markets • Issuers raise capital • Where life begins for stocks and bonds • The Initial Public Offering (IPO) • Underwriting syndicates • Investment bankers
A FINANCIAL TIMES COMPANY
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PRIMARY VS. SECONDARY MARKETS
Secondary Markets • Investors buy and sell • Billions of shares traded daily • World of exchanges and crossing networks • Provides liquidity
A FINANCIAL TIMES COMPANY
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WHO ISSUES SECURITIES AND WHY Corporations • Raise equity capital in order to expand or to offer new products
Governments • Fund specific projects (such as infrastructure)
A FINANCIAL TIMES COMPANY
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WHO INVESTS IN SECURITIES AND WHY? Individuals • Ensure a steady income • Invest to • Create funds for the future • Create capital for a specific purpose
• Use securities as a money-management tool
Institutions • Invest pension funds • Sovereign wealth assets • Execute stated investment strategies • Temporarily invest a short-term cash surplus
A FINANCIAL TIMES COMPANY
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BUY SIDE VERSUS SELL SIDE Buy Side
Sell Side
• Institutions
• Investment Banks
• Professional Money Managers
• Traders and analysts
• Fee-based compensation
• Transaction-driven compensation
• Assets Under Management
A FINANCIAL TIMES COMPANY
• Commissions
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OTHER INVESTMENT BANKING BUSINESSES Leveraged Finance
Private Equity
Mergers & Acquisi,ons
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EQUITY UNDERWRITING The process of "going public" involves many steps: • Choosing the investment banker • Registration statement - full disclosure • The cooling-off period • Distributing the security
A FINANCIAL TIMES COMPANY
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HOW ARE EQUITIES BROUGHT TO MARKET? Corporate securities are brought to market & sold to investors through underwriting process, in which an investment bank (or banks) finances & arranges for distribution of issuance. NOTE: A Later Section Will Further Discuss The Underwriting Process
A FINANCIAL TIMES COMPANY
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HOW ARE BONDS BROUGHT TO MARKET? No bond can be issued without these key players – most the same as for an equity issue: • Issuer • Investor • Underwriter • Investment banks • Bond Underwriter • Underwriter’s Counsel • Borrower’s Counsel • Bond Counsel
• Trustee (not required for equities) Note: A Later Section Will Further Discuss The Underwriting Process A FINANCIAL TIMES COMPANY
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A FINANCIAL TIMES COMPANY
4
4
FUNCTION OF FINANCIAL MARKETS
Source: Pren,ce Hall A FINANCIAL TIMES COMPANY
5
5
FUNCTION OF FINANCIAL INTERMEDIARIES Financial Intermediaries: • Engage in process of indirect finance • More important source of finance than securities markets • Needed because of ability to reduce transactions costs and asymmetric information
A FINANCIAL TIMES COMPANY
6
FINANCIAL INTERMEDIARIES
A FINANCIAL TIMES COMPANY
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7
Module 1 The Major Capital Markets
A FINANCIAL TIMES COMPANY
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WHY CAPITAL MARKETS? • Because issuers have needs. • Because investors seek opportunities. • Because an issuer’s need IS an investor’s opportunity. • Because these needs and opportunities change constantly. • Because issuer and investor must come together to facilitate economic growth and prosperity.
A FINANCIAL TIMES COMPANY
9
9
FOUR MAJOR CAPITAL MARKETS 1. Equity (Stock) Market – traditional products 2. Debt (Bond) Market – traditional products 3. Money Market 4. Foreign Exchange Market
A FINANCIAL TIMES COMPANY
10
10
GLOBAL EQUITY MARKET CAPITALIZATION
A FINANCIAL TIMES COMPANY
11
GLOBAL EQUITY MARKET CAPITALIZATION
A FINANCIAL TIMES COMPANY
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GLOBAL EQUITY MARKET CAPITALIZATION
A FINANCIAL TIMES COMPANY
13
DEVELOPED MARKETS
A FINANCIAL TIMES COMPANY
14
EMERGING MARKETS DEBT
A FINANCIAL TIMES COMPANY
15
STRUCTURE OF THE CAPITAL MARKETS
Capital Markets
Money Markets (< 12 Months)
Fixed Income
A FINANCIAL TIMES COMPANY
Capital Markets (> 12 Months)
Equity
16
16
PRIMARY VS. SECONDARY MARKETS
Primary Markets • Issuers raise capital • Where life begins for stocks and bonds • The Initial Public Offering (IPO) • Underwriting syndicates • Investment bankers
A FINANCIAL TIMES COMPANY
17
17
PRIMARY VS. SECONDARY MARKETS
Secondary Markets • Investors buy and sell • Billions of shares traded daily • World of exchanges and crossing networks • Provides liquidity
A FINANCIAL TIMES COMPANY
18
18
WHO ISSUES SECURITIES AND WHY Corporations • Raise equity capital in order to expand or to offer new products
Governments • Fund specific projects (such as infrastructure)
A FINANCIAL TIMES COMPANY
19
WHO INVESTS IN SECURITIES AND WHY? Individuals • Ensure a steady income • Invest to • Create funds for the future • Create capital for a specific purpose
• Use securities as a money-management tool
Institutions • Invest pension funds • Sovereign wealth assets • Execute stated investment strategies • Temporarily invest a short-term cash surplus
A FINANCIAL TIMES COMPANY
20
20
BUY SIDE VERSUS SELL SIDE Buy Side
Sell Side
• Institutions
• Investment Banks
• Professional Money Managers
• Traders and analysts
• Fee-based compensation
• Transaction-driven compensation
• Assets Under Management
A FINANCIAL TIMES COMPANY
• Commissions
21
21
OTHER INVESTMENT BANKING BUSINESSES Leveraged Finance
Private Equity
Mergers & Acquisi,ons
A FINANCIAL TIMES COMPANY
22
22
EQUITY UNDERWRITING The process of "going public" involves many steps: • Choosing the investment banker • Registration statement - full disclosure • The cooling-off period • Distributing the security
A FINANCIAL TIMES COMPANY
23
23
HOW ARE EQUITIES BROUGHT TO MARKET? Corporate securities are brought to market & sold to investors through underwriting process, in which an investment bank (or banks) finances & arranges for distribution of issuance. NOTE: A Later Section Will Further Discuss The Underwriting Process
A FINANCIAL TIMES COMPANY
24
24
HOW ARE BONDS BROUGHT TO MARKET? No bond can be issued without these key players – most the same as for an equity issue: • Issuer • Investor • Underwriter • Investment banks • Bond Underwriter • Underwriter’s Counsel • Borrower’s Counsel • Bond Counsel
• Trustee (not required for equities) Note: A Later Section Will Further Discuss The Underwriting Process A FINANCIAL TIMES COMPANY
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25
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