What are the functions of the securities market and what is its essence
Hello dear reader!
The functions of the securities market is the topic of our conversation today. The capitalization of the world securities market (SM) has approached 100 trillion dollars. For comparison, the GDP of the largest economy in the world, the United States (by nominal value), is $20 trillion. This is almost a quarter of the world's nominal GDP.
Graph of changes in the global securities market since 2004. Source: Bloomberg.
What is the securities market
RZB is a segment of world finance (issue of shares, bonds, their circulation, including derivatives on underlying assets). This is a set of relations between subjects of economic activity for the issuance and distribution of securities.
What functions does
The regulations relating to the placement of securities have been known since the appearance of the first stock exchange in Antwerp, when government bonds were placed for the first time in history. Investments are the most important component of the market.
- Receiving income on invested capital, formation of a fair asset price, obtaining high liquidity for securities market instruments.
- Pricing and bringing information to participants in the securities market about everything that happens in the financial sector.
- Self-regulation of economic entities and general regulation of the sector by state bodies.
- Dealing with market risks. Hedging and distribution of risks between different subjects of economic and state activity. The state, enterprises, citizens are parts of this economic mechanism. The government issued loan bonds and placed them on the international market and among its citizens, simultaneously solving, albeit partially, the risks of the inflationary component of free funds. Manufacturing attracted funds for development and created new jobs, and there was a decrease in the risk of unemployment in the region. These are examples.
- Free capital and redistribution. Money must work, otherwise it depreciates every day, taking into account inflation. These are the realities. Free monetary assets find niches for work and rotation, increase their value. Increase the capitalization of companies by participating in equity capital.
Trends and prospects
According to the American investment bank Goldman Sachs Group, the world economy is in the final phase of the bullish cycle that began in 2009 after another crisis. This also applies to the RZB as an integral part of this economy. In the opinion of Goldman Sachs, the situation is similar to the end of the 20s of the last century in the United States before the Great Depression.
Stock market participants
Stock market participants can be conditionally divided into professional participants — brokers, depositories, clearing companies — and ordinary investors.
Professional members must be licensed and regulated by regulators. Investors do not need a license, but they get access to exchange trading only through professional participants.
Brokers are professional participants in the stock market. They carry out orders of investors and earn on commission. The investor concludes an agreement with a broker and opens a brokerage or individual investment account - IIA.
Regulators protect investors and control professional participants in financial markets so that there are no violations. In Russia, stock exchanges are controlled by the Central Bank. It issues licenses to professional stock market participants.
Issuers put securities on the market. Issuers can be companies and authorities of individual cities, regions and states.
Investors buy securities. It is usually impossible to buy securities directly from issuers, you will have to use the services of intermediaries — brokers — and open a brokerage account.
Tasks and functions of the stock exchange
Stock exchanges organize trading and support fair pricing. Exchanges guarantee the execution of transactions, include and exclude securities in quotation lists. Information about all transactions on the exchange is public and available on the websites of the exchanges.
Trading on the stock exchange takes place at a certain time and according to the rules that the exchange establishes.
Price quotation is the determination of the value of securities in the process of exchange trading. In addition to securities on stock exchanges, you can trade exchange contracts.
Exchange contracts are derivative financial instruments with which you can insure assets against a sharp change in price. Exchange contracts are either futures or options.
A futures contract is an obligation to buy or sell a certain asset in the future at a price fixed in the contract. An option contract is not an obligation, but the right to buy or sell an asset at a fixed price. Anything can be an asset: commodities, interest rates, indices, and even the weather.
Exchange contracts are traded on the futures market, because they imply the delivery of the underlying asset in the future, that is, after a certain period of time.
The execution of transactions on the exchange is guaranteed by the central counterparty. For example, on the Moscow Exchange, the central counterparty is the National Clearing Centre. It is an intermediary between the buyer and the seller who checks that the buyer has enough money and the seller has securities. If at the end of the trading day a participant cannot fulfill its obligations under transactions, they will be fulfilled for him by the central counterparty.
By type of goods , exchanges are stock, commodity, currency and cryptocurrency. Securities are traded on stock exchanges. At foreign exchange, they sell and buy currency — almost the same as in exchange offices, but in much larger quantities. Commodity exchanges trade real commodities or futures and options contracts. Cryptocurrency exchanges trade cryptocurrencies; such exchanges have appeared quite recently.
According to the principle of organization , the exchanges used to be divided into public, private and mixed ones. But at present, most exchanges are joint-stock companies. If the shareholders are not only private companies, but also the state, then the exchanges are of a mixed type.
According to the form of participation, the exchanges are of open and closed type. Sellers, buyers and exchange members can trade on open exchanges. On exchanges of a closed type — only members of the exchange.
According to their role in international trade, exchanges are international and national. On small national stock exchanges, securities of small companies are traded that do not meet the requirements of international exchanges.
According to the type of exchange transactions , there are futures, options, real goods and mixed ones.
The process of redistribution of capital allows solving the issues of attracting free funds and financing both state budgets and commercial companies.
- The work of exchanges is regulated by law. At the same time, exchanges independently develop trading rules and manage trading.
- The execution of transactions is guaranteed by the central counterparty.
- An investor can trade on the stock exchange only through professional participants in the financial market.
- To invest, you do not need to have a lot of money and complex software.
- Investments on stock exchanges are not insured by the state.
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