SECURITIES MARKET
What is securities market??
Securities market where securities can be bought and sold between subjects of the economy, on the basis of demand and supply.
Securities markets encompasses equity markets, bond markets and derivatives markets where prices can be determined and participants both professional and non professionals can meet.
Securities markets can be split into two levels. Primary markets, where new securities are issued and secondary markets where existing securities can be bought and sold.
Secondary markets can further be split into organized exchanges, such stock exchanges and over-the-counter where individual parties come together and buy or sell securities directly.
Professional participants of a securities market are brokerages, broker-dealers, market makers, investment managers etc.
A securities market is used in an economy to attract new capital, transfer real assets in financial assets, determine price which will balance demand and supply and provide a means to invest money both short and long term.
Levels of securities market
The primary market is that part of the capital markets that deals with the issue of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue.
This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is a public offering. Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.
Features of primary markets are:
• This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).
• In a primary issue, the securities are issued by the company directly to investors.
• The company receives the money and issues new security certificates to the investors.
• Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
• The primary market performs the crucial function of facilitating capital formation in the economy.
• The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."
Levels of securities market
The primary market is that part of the capital markets that deals with the issue of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue.
This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is a public offering. Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.
Features of primary markets are:
• This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).
• In a primary issue, the securities are issued by the company directly to investors.
• The company receives the money and issues new security certificates to the investors.
• Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
• The primary market performs the crucial function of facilitating capital formation in the economy.
• The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."
Secondary market
The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold.
With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market.
Main financial instruments
Promissory note
A promissory note is a contract where one party (the maker or issuer) makes an unconditional promise in writing to pay a sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms.
Bond
Bond - an issued security establishing its holder's right to receive from the issuer of the bond, within the time period specified the amount on bond issued and interest on amount.
Stocks (shares)
Common shares
Common shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management.
Preferred stock
Preferred stock represents some degree of ownership in a company but usually doesn't come with the same voting rights. With preferred shares investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation preferred shareholders are paid off before the common shareholder (but still after debt holders).
