A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt). Financial regulators, such as the Bangladesh Financial Services Authority or the Bangladesh Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties.
Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.
The Capital market, an important ingredient of the financial system, plays a significant role in the economy of the country.
The capital market is the market for securities, where companies and governments can raise long term funds. The capital market includes the stock market and the bond market. Capital markets promote and keep capitalism alive. The markets are a critical piece to may country’s economies and the bigger the markets the more potential for economic growth. It allows for consumers and businesses to have a share in the nation’s wealth. The availability of several ways to raise money needed is attractive because they can continue to strike into new sources of money over time. The goal of the markets is to increase investor confidence by more active participation. The markets require a free flow of information to run smoothly and efficiently and the internet can be used for up-to-the minute trade information.
The primary 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 an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets creates long term instruments through which corporate entities borrow from capital market.
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."
The financial assets sold can only be redeemed by the original holder.
Methods of issuing securities in the primary market are:
• Initial public offering;
• Rights issue (for existing companies);
• Preferential issue.
The secondary market
The secondary market,...