4/17/2023 - economy-and-finance

What is the capital market and how does it work?

By gustavo neffa

What is the capital market and how does it work?

The capital market is the area in which short, medium and long-term financial assets are negotiated. This flow of savings and investment contributes to economic development, since the resources of the traders are put at the service of productive investment.

In it are those who save and those who seek funding. But the capital market is only one of the two paws on which the financial system is supported, here in Argentina and in the world. On the one hand, there is the BANCARY system in which intermediary financial institutions between borrowers and borrowers (among many other businesses that have banks). It is the financing through the banking intermediation. On the other hand, there is the CAPITAL MARKET, in which the different long-term financial instruments such as actions, obligations and other securities are negotiated. Investors analyze the risks with advice from the intermediaries themselves who purchase and sell, or appropriate external advisers.

In the capital market, debt securities are created (when a debt instrument is issued or a company's shares are issued) or the same securities are subsequently issued at their origin. The first is called the primary market, and the second secondary market, is already bought and sold under the umbrella of a stock exchange, which is the one that guarantees the operations that are carried out.

Financial instruments allow investors to obtain a profitability of their investment and companies to obtain funds to fund their projects and expansions. The government is also a net borrower of funds to cover its eternal fiscal deficit. What cannot be financed by debt is done with emission, but in this second case the risk is the acceleration of inflation.

Inverters may be individuals, or Institutional Inverters. Among them is Anses (the pension fund of the government's allocation system), the Common Investment Funds, the companies, the banks and the stock exchange companies operating on their own and the professional pension systems (professional boxes), among others.

In Argentina, the capital market is comprised of several entities: among them there are Argentine exchanges and Markets (BYMA), which is the entity responsible for managing the capital market, being the one in charge of authorizing and overseeing the negotiation of the different values negotiated in the exchanges.

They also participate in the Buenos Aires Trade Exchange (BCBA), which is the country's main stock exchange and the oldest in Latin America. Negotiating shares, bonds, transactionable obligations or debts of undertakings, deferred payment checks, exchange letters, among other securities is ensured.

The Electronic Open Market (MAE) is an electronic trading platform for public and private securities, a point-to-point institutional market that most of the banks participate in. MATBA-ROFEX is the futures exchange par excellence: there are futures and options of the dollar, major commodities, as well as the Rofex 20 index and recently the futures of Bitcoin.

Law 26.831 fully regulates the market and the negotiation of securities, the enforcement authority being the National Securities Commission (CNV): it is the body responsible for regulating and overseeing the capital market, ensuring the transparency and proper functioning of it. The CNV is the contralor body with police power over shareholders and stock exchanges, in addition to any intermediary of securities or financial instruments. It is the one that grants the certificate of aptitude, after examination surrendered by those who wish to be suitable in the matter. It defines the regime of public supply (through which financial instruments are issued), the rules of transparency and best practices in the government of societies.

Markets must be formed as anonymous societies, dictate their operating regulations. They have the obligation to accept the companies that wish to “list”. They may authorize, suspend and cancel the list (or negotiation) of negotiable values. Also fix warranty margins for your agents (such as insurance to operate). Emit newsletters. Organize the agents. They must constitute a guarantee fund and invest that fund where to indicate the CNV. The public supply of its own shares and the constitution of Arbitral courts.

With regard to the operation of the scholarships in Argentina, they work through the supply and demand of the different negotiated values (in stock exchanges or markets): companies issue securities acquired by investors, and these securities are traded in the stock exchange. Investors can buy and sell these securities according to market fluctuations and their profitability expectations.

Those who can operate the markets are the shareholders. And there are different figures. To act as agents, you must have prior authorization and registration of the CNV, and are subject to the disciplinary competence of the CNV. You must keep secret for operations that you perform on behalf of third parties. The legal figures are:

  • Trading agent – AN.
  • Producer agents of trading agents – AP.
  • Placement and distribution agents – ACD.
  • brokerage agents – AC.
  • Settlement and compensation agents – ALyC.
  • Corporate investment product management agents.
  • Custodians of collective investment products.
  • Collective deposit agents – ADC.
  • Risk notation agents - ACR.
  • Global investment advisors – AAGI.
Agents operate, but the custody of the securities is centralized in the Values Box, where the securities are stored to prevent them from being manipulated by third parties.

In the Argentine capital market, there are a variety of financial instruments, including:

  • Actions: are securities representing a fair share of a company's social capital, i.e. a share of ownership in it.
  • Bonos: these are debt instruments that emit companies or the State in order to obtain funding. The issuer undertakes to return the capital invested on a given date, along with the corresponding interest.
  • Treasury letters: they are debt securities issued by the National State, which are used as a means of financing the fiscal deficit. They have a short or medium term and offer a determined interest rate.
  • Financial trusts: they are a set of financial assets grouped into a common investment fund, which is divided into quotas or equal parts, and which are sold to investors.
  • Options and futures: are derived financial instruments, which allow investors to speculate on the future price of an asset, such as an action, an index of actions, a raw material, among others.
  • Caution of the bag: it is a contract by which an investor lends funds to another, in exchange for the delivery of securities that act as a guarantee of the operation.
Each of these financial instruments has particular characteristics and risks, and it is important to have detailed information and advice before investing in them.

  • _: emission terms and conditions are known from the beginning. Fund flows are omission. Profitability can be calculated in advance.
  • VARIABLE RENT: at the time of initial investment, the funds which will be obtained in return are unknown. They depend on the evolution of the company, its market price, the economic and financial context, etc. Fund flows are not omission. Typical example: the shares (and the Cedears of foreign companies, which are about 300 foreign shares listed in ByMA and can be purchased in weights).
It's never too late to start operating in the bag. To be advised well, to choose a good agent to operate and to do so prudently knowing our own degree of risk aversion. Every time an instrument is issued, the issuer with the help of lawyers and the company (or the State, depending on what is issued) must draw up the information leaflet is the basic document through which the public offer is made: it is the document containing information on the issue of securities (economic, financial, patrimonial, accountant, directors, principal shareholders, etc.), the characteristics of the transactionable values to issue. Its real function is to condense the operational aspects of the station and the main rules of the contract to subscribe.

In the Information Brochure you will find detailed information about what is issued, but once issued is the new information that will arrive what mobilizes the prices of assets in the markets, will be incorporating or “discounting” in prices. The more information better, but less saturated, than in a digital world and information as the current one is easy to feel.

Do you want to validate this article?

By validating, you are certifying that the published information is correct, helping us fight against misinformation.

Validated by 0 users
gustavo neffa

gustavo neffa

I'm Gustavo Neffa. Director of Economics and Finance at FinGurú. Partner and director of Research for Traders, leading a team of market analysts. I spent the last 24 years in the financial sector in both domestic and foreign entities, having occupied the post of Senior Research Analyst in Macrosecurities of the Banco Macro and the BBVA Banco Francés, as well as economic analysts with the economist in chief of the BBVA Banco Francés. I am also a professor in Corporate Finance, Investment Portfolio Management, Financial Asset Valuation, Valuation of International Investment and Finance Projects in various MBAs and postgraduate courses in Buenos Aires and in the interior of the country and professor of the MBA of the UNLP and the UNNE of Financial Asset Assessment and the postgraduate degree in the UBA Capital Market in agreement with ByMA. Co-director of the UNLP Advanced Finance Programme.

Twitter

Total Views: 39

Comments