Gain a Deeper Understanding of How Capital Markets Work

The Primer Series from SIFMA Insights breaks down important technical and regulatory nuances. By fostering an understanding of the marketplace, we set the scene to address complex issues arising in today’s markets.

Overview

Broadly speaking, capital is cash that is being put to work for operational or investment purposes, represented in the form of debt or equity securities. Capital is critical to corporations for running day-to-day business operations or financing future growth. Individuals or companies need capital to turn ideas into usable innovations and often new, sustainable enterprises. Governments need capital to operate their country, state, or city, as well as invest in infrastructure projects such as bridges, roadways, and schools. Therefore, capital is an integral component supporting job creation and economic development.

Capital markets include any marketplace where participants can buy and sell financial assets, such as stocks, bonds, or other securities. Capital markets facilitate the transfer of capital from those who seek a return on their assets to those who need capital to grow their enterprises. Capital markets, put simply, are the way we connect providers of capital – investors – with users of capital – issuers (companies or governments). These relationships are facilitated by financial institution intermediaries, which play a critical role in making capital markets work.

Both users and providers of capital benefit from robust and efficient capital markets. Efficient capital markets allow capital users to receive lower cost funding over time while allowing investors to identify appropriate opportunities to deploy their capital. Therefore, capital markets play a crucial role in a country’s economy.

This series of primers explains the inner workings of capital markets.

Explore the Primer Series

Capital Markets Primer

A Deeper Look at Markets and the Role of Financial Institutions

We analyze the many different moving pieces of capital markets. Primary markets – where securities are created. Secondary markets – where securities are traded. Post-trade infrastructure and operations – where securities are cleared and settled. This report also explains the importance of market structure and the critical role financial institutions play in making markets work.

Listen to How Markets Work: A Deep Dive on the Capital Markets Primer

Global Equity Markets Comparison Primer

Comparing Market Volumes, Capitalization, Formation, Performance, & Costs

U.S. equity markets are the largest in the world – leading in volumes and market capitalization – and continue to be among the deepest, most liquid, and most efficient – U.S. total trade costs -12.2% to total global costs. This primer compares market metrics and issuance statistics across the globe.

Capital Formation & Listings Exchanges Primer

Analyzing the IPO Process and the Exchange Landscape

This report explains the IPO process – where investment banks connect issuers with investors to sell their initial set of public shares – including mapping a sample deal timeline. This report also analyzes reasons IPOs have declined since the 1996 peak, regulations, and the market structure for listings exchanges.

Equities Primer

Analyzing Market Metrics and Fundamentals of Markets

This report looks at drivers of volumes – including volatility, interest rates, retail trading, and passive investing – and the evolution of the market landscape, previously dominated by a few but now multiple trading venues. The report also diagrams order routing and recaps regulations and historical market events.

Options Primer

Analyzing Market Metrics and Fundamentals of Markets

This report explains the fundamentals of options – terminology, pricing, the Greeks, and more. We also map options strategies (showing diagrams of profits) by investment objective and market environment. We finalize this primer with the exchange landscape, fun facts, and a history of markets.

Exchange-Traded Funds (ETF) Primer

Analyzing Market Metrics and Fundamentals of Markets

In this report, we explain the fundamentals of ETFs – definitions, a comparison to other investment products, legal structures – as well as review the regulatory environment and exchange landscape. The report also details the creation/redemption process, crucial to the functioning of the ETF markets.

Fixed Income & Electronic Trading Primer

Analyzing Market Metrics and Fundamentals of Markets and A Look at the Evolution of Electronic Trading

We note the “s” in markets, as there is not one market, but several markets based on multiple subcategories within each main category: UST, corporates, MBS, agency, munis, and ABS (+money markets and repo). This report describes the purpose of the different markets and analyzes issuance, trading, and outstanding metrics. This report also looks at the evolution of electronic trading in the fixed income markets.

Credits

Katie Kolchin, CFA, Managing Director, Head of Research

Related Resources

• Statistics

  Capital Markets Fact Book

• Statistics

  US Equity & Related Statistics

• Reports

  Research Quarterly: Equity & Related

• Statistics

  US Fixed Income Securities Statistics

• Reports

  Research Quarterly: Fixed Income - Issuance & Trading

• Reports

  Research Quarterly: Fixed Income - Outstanding