Capital markets bring buyers and sellers together to trade stocks, bonds, currencies, and other financial assets. Market-based finance promotes the transformation of ideas into entrepreneurial initiatives and small businesses into big companies
Capital markets have evolved and now offer a wide range of products to fill the different needs of companies, while providing information transparency and legal certainty for all market participants and enhancing liquidity of all products traded. Their main functions are to:
Finance the economy
Capital markets offer continuous availability of funds to finance companies, by linking companies, savers, and investors, facilitating transaction settlement, promoting saving habits, and channelling part of the savings into new and attractive investment opportunities. Such process contributes to the financing of the economy while improving the effectiveness of capital allocation, supporting innovation, and facilitating entrepreneurship.
Promote liquidity in the markets
Capital markets provide the possibility to invest in securities with different risk profiles, appealing to different investors’ preferences. Accordingly, the capital markets facilitate the movement of capital and liquidity, given the possibility to invest and divest through the purchase and/or sale of the securities in the market.
Easily quantify and regulate securities’ prices
Capital markets enable real time assets’ pricing, by having prices determined by matching supply and demand.
Provide an alternative to bank-based financing
Capital markets minimize transaction and information costs for issuers and investors, and may provide a “healthier” alternative to companies, when compared with bank-based financing.