Introduction to the securities market
Concepts of the securities markets are Briefly discussed in this section below. concepts of the securities markets is important part of Macroeconomics.
One of the main subjects of business turnover in the financial markets is securities. In the modern economy, the term “security” equally refers to any legal form of securing property rights both in the form of a paper document and in electronic form, including in the form of an entry in the register of owners or on a depo account in a specialized financial institution — a depository. This property of securities is accurately reflected by the English term security — in the sense that property rights associated with the possession of a security are legally secured .
According to the legislation of the Russian Federation, “false paper” means “a document certifying, in compliance with the established form and mandatory details, property rights, the exercise or transfer of which is possible only upon its presentation” (Article 142 of the Civil Code of the Russian Federation).
The transfer of ownership is carried out in accordance with paragraphs 1-3 of Art. 146:
• for a bearer security — delivery of it;
• for a registered security — in accordance with the procedure established for the assignment of claims (cession);
• for an order security — making a transfer inscription (endorsement) on this paper.
The procedure for transferring ownership of securities assumes (clause 1, article 142) that “with the transfer of a security, all the rights certified by it pass in the aggregate”.
However, not all financial investments can be presented in the form of securities that are subject to free purchase and sale.
For example, a loan agreement, which is an agreement on the exchange of today’s value for the future, and, unlike deals with securities, the obligations of the lender to the lender are not subject to free sale and purchase.
The securities market is a part of the financial market in which the circulation, purchase and sale of securities takes place.
Since not all securities are derived from money capital (for example, bills of exchange, bills of lading, simple warehouse receipts, pledge certificates, warrants, etc.), the securities market is often called the stock market.
F. Kotler defined the securities market as “the sphere of potential exchanges”, KR McConnell and S.L.Brew as “an institution or mechanism that brings together buyers (bearers of demand) and sellers (suppliers) of certain goods and services.” In our case, this market differs from all others primarily in the commodity that circulates on it — securities. In turn, this determines the composition of market participants, its location, operating procedure and regulation rules, etc. .
From the general picture of financial markets, three main participants can be distinguished.
1) Firms that are ultimately borrowers of capital. They are currently raising funds to invest in their plants and equipment. The profit from these real assets provides income to investors who purchase the securities issued by the firm.
2) Households, whose role is usually reduced to the end of the provision of money. They purchase securities issued by firms that need to raise funds.
3) Governments can be both borrowers and lenders, depending on the relationship between tax revenue and government spending.
Financial intermediaries are organizations that “connect” the financial needs of borrowers and lenders by placing funds from lenders and providing them in the future to borrowers. Financial intermediaries are banks, investment companies, insurance companies and credit unions. Financial intermediaries issue their own securities in order to raise funds for the purchase of securities of other companies.
The inter mediation activities of these companies have similar advantages. First of all, by pooling the funds of many small investors, they are able to provide significant loans to large borrowers. Second, by providing loans to a large number of borrowers, intermediaries achieve significant diversification. This way, they can handle loans that are too risky in themselves. Third, intermediaries improve their skills through the volume of business they perform. They can also take advantage of the economies of scale and new opportunities for risk assessment and monitoring.
Investment companies – companies that manage pooled investor funds, which pool and manage the money of many investors in a common fund (pool), also benefit from business growth.
The advantages of mutual funds include large-scale securities trading and professional asset portfolio management. The participants in the mutual fund receive their shares according to their share of the total investment. This system will give small investors advantages for which they are willing to pay for the services of a mutual fund company.
Investment companies can also design portfolios specifically for large investors, taking into account their individual goals.
In contrast, mutual fund stocks are widely available and they try to diversify their investment strategies to attract a large number of clients. Scale economies also explain the rapid growth in the number of analytical services useful to investors.
Newsletters, databases, research brokerage services — all are used in research that is offered to a large number of clients.
Investment bankers are firms that specialize in the sale of new issues of securities, usually by subscription (underwriting).
Investment bankers advise a corporation that is planning to issue securities what price to set for the issued instruments, what interest rates to set, etc.
After all, investment banks are marketing the issue of securities to a wide range of investors.
The securities market performs a number of functions, which can be conditionally divided into general market (inherent in each market) and specific (distinguishing this market from all others). The general market functions of the securities market include :
• integrating — the securities market — this constituent part of the financial market is a complex system that mediates the accumulation, distribution and redistribution of loan capital in order to ensure the continuity and profitability of social reproduction;
• Regulatory — unites and regulates the activities of various market entities by creating a system of stock market infrastructure, which was a link between investors and issuers;
• stimulating — by directing financial flows to purchase securities of issuers that give the highest yield, the stock market promotes the investment of free investment resources in the most profitable (or developing) sectors of the economy;
• pricing — the unification of all participants in economic relations into a single stock market system allows, using all possible information about the prospective demand for a security and its income, to assess its investment value and form current rates for specific types of securities;
• informational — the situation on the stock market, presented in the form of a stock exchange rate, informs investors about the state of the economic situation on the market and gives them guidelines for the most profitable placement of their capital. The specific functions of the securities market include:
• redistribution function, which, in turn, can be divided into three subfunctions: redistribution of funds between industries and areas of market activity; transferring savings (primarily of the population) from unproductive to productive form; financing the state budget deficit on a non-inflationary basis, i.e. without issuing additional funds into circulation;
• the function of insurance of price and financial risks (hedging), which became possible due to the emergence of a class of derivative financial instruments — futures and options contracts.
The state actively participates in the redistribution of capital, acting through its credit institutions as both a seller and a buyer of securities. The state determines and controls the legal basis of market relations, primarily by guaranteeing property rights and defining the basic rules of economic relations of financial market participants.
The sphere of state regulation of securities markets includes, in addition to legislative support, regulation and definition of rules for the issue and circulation of securities, registration of new issues, licensing of professional activities in the securities market, protection of investors’ rights, control over compliance with anti monopoly legislation, control of the pricing system and the activities of professional market participants.
The function of regulation of the securities market in the Russian Federation is performed by a specially created body – the Federal Service for Financial Markets. The terms of reference of the service include: the formation and implementation of state policy in the field of market development, control of the issue and circulation of securities, registration of new issues, licensing of professional activities, etc.
In addition to government bodies, an important role in regulating activities in the securities market is played by self-regulatory organizations of stock market participants (SROs) – non-profit, non-governmental organizations created by participants in the securities market on a voluntary basis in order to regulate certain aspects of the market on the basis of government guarantees of support expressed in assigning them the state status of a self-regulatory organization. The basis for the creation of such organizations is the presence of the interest of market participants in determining and monitoring compliance with general rules of conduct in the market, defending their own interests, preventing unfair competition, organizing the performance of specific functions in which many market participants are interested .
In many countries, government bodies delegate to self-regulatory organizations the functions of overseeing the securities market.
An example of self-regulatory organizations in the Russian securities market is the current public associations of professional market participants such as the National Association of Stock Market Participants (NAUFOR), the Professional Association of Registrars, Transfer Agents and Depositories (PA TRAD) in Moscow, the Committee of Professional Stock Market Participants in St. Petersburg, the Association of Stock Dealers of Siberia, in Novosibirsk, etc.
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