One of the essential steps of investing is to know the key players in the capital market and their roles. A capital market is a market where fund providers and capital seekers meet beyond the banking system. There are two types of market in the capital market; primary and secondary markets. Each market has its players and their respective roles. In addition, careers are also available across the capital markets that may suit your desired potential occupation.
Primary vs. Secondary Markets
Primary Market: is the market where government or corporations’ securities are issued for the first time. In this market, there are four key players: corporations (capital seekers), institutions (fund providers), investment banks (intermediaries), and public accounting firms (analysis service). Initial Public Offering (IPO) occurs within this type of market. Corporations use this market to expand or grow business or, if it is necessary, they use it to arrange collected capital for working capital needs. On the other hand, the government can finance its national budget by issuing government bonds in this market.
Secondary Market: is the market where previously issued securities in IPO are exchanged via intermediaries, such as investment banks or stock brokerage companies. Within this market, investors can easily trade securities. It enables both existing investors and new investors to sell their securities. Additionally, it equips existing securities with liquidity and marketability.
Four Key Players in the Primary Market
1) Corporations or Governments (Capital Seekers)
The corporation is one of the key players in the primary capital market. A business entity needs capital to grow and run its operations. When it finds difficulty or prefers not to use banking financing facilities to finance required projects or expansion, it can use capital market instruments, common stocks, and bonds or Sukuk. Meanwhile, the government can resort to bond or Sukuk issuance to finance required projects. Careers at corporations that relate to the markets include corporate development, investor relations, and financial planning and analysis (FP&A).
Here are the examples of the stocks of public-traded corporations from different countries:
- Apple, Inc (NASDAQ: AAPL) from the USA
- Toyota (TYO: 7203) from Japan
- BHP Group (NYSE: BHP) from Australia
- PT. Telekomunikasi Indonesia (IDX: TLKM) from Indonesia
- BMW, Bayerische Motoren Werke AG (ETR: BMW) from Germany
Meanwhile, below are the examples of government bonds:
- US 10-Year Treasury Government Bond, issuance date: 15-Nov-2021
- China 10-Year Treasury Bond, issuance date: 17-Nov-2021
2) Institutions (Fund Providers)
Fund managers, institutional investors, and individual investors are all examples of fund provider institutions. These investment managers supply financing to firms that want to expand and operate. Corporations issue debt or equity to institutions in the form of bonds or shares in exchange for their capital. Meanwhile, capital and debt or stock exchanges complete the cycle of the capital markets’ two primary players. The examples of these fund providers are Bridgewater Associates, Blackstone, Apollo Global Management, Eastspring Investment Global, BNP Paribas Asset Management, etc.
3) Investment Banks (Intermediaries)
Investment banks are employed to act as intermediaries in corporations and institutions’ transactions. Moreover, their role is to connect institutional investors with corporations in accordance with their risk and return expectations and investment styles. Investment banking careers require a high level of financial modelling and value analysis skills. For example, Goldman Sachs, JP Morgan, Credit Suisse, HSBC, Morgan Stanley, Mirae Asset Global Investment, etc are the top prominent investment banks.
4) Public Accounting Firms (Analysis Services)
Public accounting companies can play a variety of functions in the main market, depending on their divisions. These tasks include financial reporting, financial statement audits, tax preparation, accounting system consultancy, mergers and acquisitions counselling, and capital raising. As a result, corporations frequently hire public accounting firms to provide accounting and counselling services. Examples of top public accounting firms are Deloitte, PwC, Ernst & Young, KPMG, and Grant Thornton.
Key Players in the Secondary Market
1) Buyers and Sellers
In this market, buyers and sellers can be classified as either traders (short term) or investors (long term). Traders normally rely mostly on technical analysis, such as moving average, Bollinger band, stochastic, etc, to decide their buying-selling execution. Meanwhile, investors prefer to optimize fundamental analysis from the value of the selected stock. Transactions are enabled by a centralized marketplace, including a stock exchange (done by brokerage companies and clients via an application) or an over-the-counter market (OTC, where investors deal directly with the listed companies via brokerage company).
2) Investment Banks
While investment banks facilitate issuing bonds and stock in the primary market, they also facilitate the sale and trading of issued debt and equity in the secondary market. Additionally, they offer research and analysis services on single stock and its market price movement. Sometimes, they also provide recommendations for buyers and sellers to consider their investment decision in the secondary market. The available careers in this market include securities analyst, financial analyst, marketing agent, etc.
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