What are Capital Markets?

A capital market is an organized market in which both individuals and

business entities buy and sell debt and equity securities. It is designed to
be an efficient way to enter into purchase and sale transactions. This
market is a key source of funds for an entity whose securities are
permitted by a regulatory authority to be traded, since it can readily sell
its debt obligations and equity to investors. Governments also use capital
markets to raise funds, typically through the issuance of long-term bonds.
Governments do not issue shares, and so cannot issue equity securities.

Capital markets are highly interconnected, so a disturbance in a capital

market on the other side of the globe will likely impact trading in markets
located in other countries.

Primary and Secondary Market Activity

A capital market is intended to be for the issuance and trading of long-

term securities. When a publicly held company sells its securities in the
capital markets, this is referred to as primary market activity. The
subsequent trading of company securities between investors is known as
secondary market activity. Short-term securities are traded elsewhere,
such as in the money market.
Examples of Capital Markets

Examples of highly organized capital markets are the New York Stock
Exchange, American Stock Exchange, London Stock Exchange, and
NASDAQ. Securities can also be traded "over the counter," rather than
on an organized exchange. These securities are usually issued by
entities whose business fundamentals (such as revenue, capitalization,
and profitability) do not meet the minimum standards of a formal
exchange, which forces investors to use other avenues to trade the
securities.

Regulation of Capital Markets

The Securities and Exchange Commission (SEC) is an example of a
federal-level agency that regulates the reporting of information by any
entity that wishes to issue securities in a capital market, or have its
securities traded in a capital market.

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