Development of Capital Markets

Policy issues affecting development of capital markets
Managing risks and responding to crises in Capital Markets
Capital markets and housing finance
Role of Participants in Capital Markets
Regulators, financial institutions, accountants/auditors, government
Issuers of securities in capital markets
Investors in capital markets: individuals and institutional players
Professionals: brokers, dealers, underwriters
Financial intermediaries: commercial banks, merchant banks, mutual funds, hedge funds, insurance
companies, pension funds
Initial public offerings (IPOs)
Who are the participants in the capital market?
1. Stock exchanges
2. Brokers
3. Sub brokers
4. Custodians
5. Depositories, depository participants
6. Merchant bankers
7. Bankers to the issue
8. Underwriters
9. Registrars to the issue
10. Portfolio managers
11. Mutual funds
12. FIIs
13. Debentures trustees
14. Credit rating agencies
15. Collective investment schemes
16. Venture capital funds
Direct participant in the markets
The government is a significant direct participant in capital markets. It participates in the money
markets through the issuance of Reserve Bank and Treasury bills. The DMO issues domestic
and foreign currency bonds, including the occasional issue of inflation-indexed bonds, on behalf
of the core Crown.
These entities, along with the DMO and the Reserve Bank, engage in portfolio risk
transformation activities through the use of derivatives (primarily foreign exchange and interest
rate forwards/futures and swaps).
Government departments are also able to enter into agreements to hedge specific financial risks,
usually foreign exchange exposures related to the purchase of fixed assets. Increasingly,
departments and some Crown entities transact this business with the DMO, which then chooses
whether or not to offset these exposures in the market.

and countries can benefit from investments that will develop their industry and infrastructure. if too much capital is flowing into a country.1 12.9% 5 Foreign Investors 9. 3 Capital controls pital controls are measures imposed by a state's government aimed at managing capital account transactions . Some nations such as India have also used capital controls to ensure that their citizens' money is invested at home.3% 2 Fund Managers 16. However sometimes capital market transactions can have a net negative effect .4% .8 14. capital controls aim to ensure that the macroeconomic effects of the capital markets don't have a net negative impact on the nation in question. there can be a mass withdrawal of capital. Capital Market Player Category $ trillion % of total 1 Households 36.5 5.Student loans advances can be interpreted as a substitute for private provision of capital. and Intermediaries Holdings of financial assets by the seven major categories of players in Q4 2004 were as follows: Control of Financial Assets: U. Whereas domestic regulatory authorities try to ensure that capital market participants trade fairly with each other. rather than abroad. On the other hand.6% 4 Corporate Managers 13.7 36. capital market transactions where one of the counterparties[13] involved is in a foreign country.0% 3 Bankers and Brokers other words. in a financial crisis.S.1 16. Issuers.1% 6 Government Officials 5.2 9. Major Categories of Investors.for example. and sometimes to ensure institutions like banks don't take excessive risks. making its exports uncompetitive. as in theory allowing markets freedom is a win-win situation for all involved: investors are free to seek maximum returns. it can push up inflation and the value of the nation's currency. Most advanced nations like to use capital controls sparingly if at all. leaving a nation without sufficient foreign currency to pay for needed imports. although this is somewhat simplistic since the advances are mostly funded by Crown borrowing.

Investors . above.Improve the overall pricing of credit risk Supranational organizations as issuers . lead to a description of each player category. and off-site research resources.Diversify source of financing .Strengthens financial regulatory environment Capital Markets: Main Actors in the Market Developed financial markets like the USA have evolved a range of financial institutions.Develop local capital markets .Add additional depth and liquidity to market Government as issuers .1 100.3 5. flow of funds and level tables. while also introducing completely new institutions.0% The links. They keep changing and innovating.Contributes to sovereign ratings by international ratings agencies .Access to long-term financing .free issue Corporates as issuers .2% 101.Better regulatory environment reduces credit risk from poor disclosure .Set benchmark rates .Put local bond market in the spotlight .Introduce international practices . official Federal Reserve sector definitions.Ability to share and transfer risk in market .Better risk management .7 Insurance Executives Total Financial Assets of these Categories 5.Source of public funding . The BiH financial market is .Private Sector development .Diversified pool of investment opportunities .Further develop financial infrastructure .Provide market with a globally recognized risk.

A fund management company is a legal entity established as a limited-liability company or joint-stock company. The investment funds (IFs). The main participants in the BiH capital market are: The Securities Commission. participation is offered on the basis of shares or similar security with the aim of collecting deposits in cash and the express purpose of investing over 60% of these investments in a securities portfolio. they also include any legal entity. Closed investment funds have fixed capital deposited in the course of formation. e. The depository banks. i.g. This fixed capital does not change during the closed investment fund operations. the fund capital (assets) increases. Investment funds are financial institutions that issue securities to raise capital and invest in other companies. The key point about open-ended investment funds is that monies can be paid in or withdrawn at will. The brokerage houses.e. Brokers and investment advisors. investing funds for themselves and for the holders of share in open or closed investment funds. regardless of the legal form. . money deposits.relatively under-developed and includes only certain basic types of financial institution. The fund management companies (DUFs). when investors deposit monies. so that investors do not supervise decisions on investment on a day to day basis and the basic aim is to secure a return on investment for investors. The custodian banks. The Securities Register. these funds are organized as open-ended or closed investment funds. fund assets decrease.e. These tasks include selling and buying securities for oneself or a client for a fee. i. Depositary banks are institutions that perform the tasks of issuing securities and monetary transactions related to trading securities on the stock exchange or other regulated public market. when they withdraw their monies. Under the FBiH and RS Acts on Funds. and vice versa. whether in profit or other form of benefit. Brokering houses (brokerages) are legal entities licensed to perform brokerage tasks. whose activities include establishing and managing investment funds. In practice. as well as other tasks set out in the law. establishment. or several property where. This mechanism involves changeable capital. or other assets. company.

as both governments and companies can raise funds through the market on long and most prudent terms through the offer of shares (by companies) and bonds (by companies and governments). representing clients. They perform provide advisory services to clients related to securities trading. etc. Brokers are individuals who have passed the professional brokerage exam and have a license to perform brokering tasks.Custodian banks are institutions that provide the services of safekeeping securities.e. • It is a market that facilitates capital mobilization and allocation. Investment advisors are individuals who have passed the professional exam for investment advisors. of goods or securities). settling transactions. and major companies. . Custodial services are generally used by investment funds. removes the restriction that would have prevented individuals from investing their savings in securities. collecting revenues. A broker is an authorized intermediary in securities trading acting in his own name for a client (commission agent) or in the client's name (agent). and providing information on local capital markets. investment in securities. daily trading of securities on the stock exchange . Brokers charge a fee for their services. which is paid upon closing a transaction. brokerages. • The facility. banks.engenders capital formation and socio-economic development. which the stock exchange provides for trading in existing securities. and other securities-related transactions aimed at diversification and risk minimization or profit maximization. for which see above. They mediate between the investor (buyer of goods or securities) and holder-owner (i. who perform the tasks of buying and selling securities for themselves in order to benefit from the price differential. • The opportunity it offers for subsequent trading in existing securities has made it a decisive factor in the success or otherwise of many corporate issues - – The availability of a secondary market – that is. Other important actors on the capital markets include the Securities Commission and the Securities Register. reporting on transactions. Brokers are often confused with dealers. insurance companies. The Stock Exchange • The Stock Exchange is a place where debt and equity securities of varying types are traded transparently. buying and safekeeping foreign treasury or corporate bonds.

• Sets Rules and Regulations for Dealing Members • Licenses Dealing members • Listing Requirements for issuers of securities • Facilitates the secondary trading of securities • Mechanism for dispute resolution Stock exchange • A market in which securities are bought and sold. . Venture capital • Venture capital means funds made available for start-up firms and small business with exceptional growth potential. They have a big role to play especially. Underwriter • Underwriting is like insurance against the failure of an issue . he is paid commission • Underwriting is a device that ensures the success of new issues • The SEBI has made it mandatory for issuing companies to underwrite all issues . through the Initial Public Offers route. • Merchant banker play major role is in the space of mergers and acquisitions • They will especially play a huge role in the hostile takeovers. • Makes it easy for investors to buy and sell securities in secondary markets. • The SEBI issued guideline for the merchant bankers in April 1990. • For the risk that the underwriter takes. • Freeze active shares and debentures certificates in the safe custody. in placing equity in the primary market. • Computerise trading • Credit dividend payment directly to the account of the shareholders in the bank through electronic clearing mechanism. Merchant banker • Merchant Banks are a very important factor in the capital markets. • To act as a bank for shares .

• Venture capital is the financial support to young . fund management. leveraged foreign exchange trading. and providing credit rating services. these services or regulated activities include dealing in securities. trading in futures contracts. securities financing. providing custodial services for securities. . rapidly growing companies/individuals that have potential to develop into significant economic contributors by the business man group to create a product or service which has a unique idea • It helps to bridge the gap between capital and knowledge Capital market intermediary • Currently. advising on corporate finance. real estate investment trust management.