Overview of Capital Markets

1
Overview of Capital Markets
money managers demanding cash and supplying
contracts or claims
money managers supplying cash and demanding
contracts or claims
cash
individuals
individuals
financial and market intermediaries
businesses
businesses
government
claims - bonds - prefs - com shs
government
financial instruments
2
Security Markets

• Money markets
• Capital markets
• Private
• Public
• Primary
• Secondary
• Organized exchanges
• Over-the-counter (OTC)
• Investment dealer roles
• Underwriting
• Advisory
• Distribution

3
Debt versus Equity

• Features
• Payments
• Taxes (investor)
• Security
• Rights (voting)
• Similarities
• Differences

4
Overview of Bonds

• A form of borrowing
• Typically issued at par or face value (e.g.,
  1,000)
• Semi-annual interest or coupon payments (e.g.,
  35)
• Annual coupons/face value coupon rate (e.g.,
  7)
• Special features
• sinking funds
• call provisions
• Bond ratings depend on credit assessment

5
Overview of Preferred Shares

• Hybrid securities
• Bond features
• Equity features
• Issued with a par or face value but no principal
  repayment
• Receive a stream of dividends (typically
  quarterly) specified as a predetermined rate
  (e.g., 6 of par)
• Get dividends before common dividends
• Preference of claims before common (if
  bankruptcy)

6
Overview of Common Equity

• Ultimate owners of the firm
• Residual claimants
• Initial public offering (IPO) then often
  subsequent secondary equity offerings (SEO)
• Often receive quarterly dividends, but no
  guarantee
• Earnings not paid as dividends reinvested through
  retained earnings
• Voting rights board of directors ? management

7
Global Equity Market Capitalization (USB)
8
Global Equity Market Capitalizations
1990
2001
Source Securities Industry Association Fact Book
(2001)
9
US Equity and Debt Outstanding (B)
Source Securities Industry Association Fact Book
(2002)
10
Value of International (non US) Security
Offerings (USB)
Source Securities Industry Association Fact Book
(2002)
11
US Security Offerings (B)
Source Securities Industry Association Fact Book
(2002)
12
US Underwriting
13
US Individual Investors
14
Bond Market TrendsMarket capitalization in B-
US (source Salomon Bros.)

15
Canadian Stock Markets

• Statistics as of the end of 2002 (Source TSE
  Annual Report)
• 1,304 companies listed on TSE, 2504 on CDNX
• Total market value of 1.3 trillion on TSE, 88
  billion on CDNX
• 26m trades on TSE (1.3m on CDNX), total trading
  volume of 46b shares on TSE (8.7b on CDNX) or
  638b in value on TSE (3.2m on CDNX)
• 27.2b capital raised by companies listed on TSE
  CDNX (25.8b on TSE)

16
Canadian Stock Markets Equity Financing
Source Investment Dealers Association of Canada
Chartbook (June 2003)
17
Canadian Stock Markets - Returns
Source Investment Dealers Association of Canada
Chartbook (June 2003)
18
Canadian Stock Markets Debt Financing
Source Investment Dealers Association of Canada
Chartbook (June 2003)