Securities Market

The securities market is in close cooperation with the money market. The securities market differs from other types of market by the specific nature of the traded goods. A security is a very special commodity. It is both a title deed and a debt obligation. This is the right to receive income and the obligation to pay this income. This is a commodity that, having a meager own value, can be sold at a very high market price. A security is “fictitious capital”, but at the same time it represents a certain amount of real capital.

Fictitious capital is a paper symbol of real capital. The price of fictitious capital is determined, firstly, by the ratio of supply and demand for capital and, secondly, by the amount of capitalized income on securities. The difference between the size of fictitious and actual capital is the constituent profit, which is received primarily by the founders of high-yield enterprises. One of the ways to obtain it is the dilution of capital – the issue of shares in an amount significantly exceeding the capital actually invested in enterprises.

The source of income on fictitious capital is completely hidden, it seems that securities have the ability to generate income on their own. This is especially evident in government bonds. This form of fictitious capital not only has no value, but often does not represent any real capital, since interest on bonds is mainly paid through taxes.

The securities market is divided into primary and secondary. New issues of securities are placed on the primary market, the issuers of which are corporations, the government, and municipal bodies. Stock values are acquired by individual investors and credit and financial institutions, which are called institutional investors. Securities can be placed by direct appeal of the issuer to investors or through an intermediary. To sell a specific issue of securities, a modern formation is created – an emission syndicate. The placement of securities by public subscription through intermediaries is called underwriting. If the issuer negotiates directly with a group of institutional investors to buy the entire issue, then there is a so-called private placement.

Securities bought by investors during the issue may be resold by them. Transactions of purchase and sale of previously issued securities are made on the secondary market, consisting of two parts: stock exchanges and over-the-counter turnover. On exchanges, intermediary functions are performed only by their members. Membership on the stock exchange is the subject of purchase and sale. The price of the “exchange place” depends on the ratio of supply and demand.

An indispensable figure in the secondary market is a professional intermediary in securities trading – a financial broker. By uniting, financial brokers created the most strictly organized “regular” sector of the secondary market – the stock exchange. The role of stock exchanges is multifaceted. They stimulate the attraction and accumulation of capital, including foreign capital; regulate investment and inflationary processes; they open up opportunities for financing enterprises by issuing shares, bonds and other securities.

An important place in servicing the turnover of securities belongs to the over-the-counter market. It is a rival to stock exchanges and their organic complement. In the over-the-counter market, investment banking firms, as well as specialized companies, perform the functions of intermediaries. An intermediary, called a dealer, combines the functions of a broker and a specialist.

An important component of the financial market is the promissory note market. The promissory note was “invented” in the British Empire several centuries ago and is considered one of the leading means to simplify and speed up settlements, as well as expand the credit capabilities of enterprises.

The promissory note is becoming a very popular tool among professionals. Many believe that it is conquering new markets and countries, operations with it are becoming an important factor in: a) the financial management of an increasing number of companies, b) solving the debt problems of enterprises and regions, c) the activities of stock exchanges and over-the-counter trading, d) the payment turnover of countries with economies in transition.

The promissory note market consists of primary and secondary markets, which are not subject to strict regulation for the following reasons:

a promissory note is an extremely democratic and flexible tool that can support and accompany almost any trade transaction; in some cases, the promissory note is the result of a confidential agreement between the creditor and the debtor and therefore its transfer to a new creditor is possible only with great precaution and reservations; the method of passing a bill from hand to hand is different from the method of changing the owner of a stock or bond – the algorithm for the movement of a promissory note is based on the division of labor and wholesale channels.

The main market participants are promissory note traders – traders, lenders, potential investors. Speculation in the promissory note market makes the promissory note a liquid instrument.

The main question of the functioning of the bill market is whether it is possible to find a buyer for the bill. A potential buyer is the central point of issuing bills of exchange. The promissory note market, in fact, itself creates potential buyers.

Bills enter the market mostly by accident and even by force. To overcome the inefficiency of the promissory note market, it is necessary to monitor information related to the movement of bills of exchange. Today, the promissory note market provides a fundamentally new look at the role of this tool in the economy – possible participation in the process of offsetting mutual debt, transformation of debts into shareholder form.