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How Private Capital Markets Are Disrupting Traditional Finance and Economic Indicators

Since the Federal Reserve’s historic rate hiking campaign and the inversion of the yield curve in late 2022, we have been waiting for an economic downturn. We have yet to see one, and this has confounded economists everywhere. The lingering effects from the COVID pandemic have certainly made this cycle unique. But there are other forces at work, slower moving but potentially longer lasting, that explain the divergence between the economy and traditional economic indicators.

For one, the process of credit formation has changed dramatically in a relatively short period of time, which is a hidden but powerful force on the broad economy. The private capital markets — including venture capital, private equity, real estate, infrastructure, and private credit, among other asset classes — have grown more than threefold over just 10 years to nearly $15 trillion today. While this is just a fraction of the $50.8 trillion public equity market, the public market is increasingly including investment vehicles like ETFs and is more concentrated with large corporations that are not representative of the broader economy.

The Allure of Private Markets

Rolling bank crises and public market volatility have allowed private capital markets to take market share by offering more stable capital to borrowers and earning outsized returns for their investors by charging higher rates for longer-term capital. Investors seeking to maximize their Sharpe ratios in a zero-interest-rate monetary policy world over the past decade found the best way to do so was by locking up their capital with managers who could access uncorrelated and above-market returns. An unintended consequence of doing so, however, was to weaken the causal chain between traditional economic indicators like the yield curve, an indicator of bank profitability, and the real economy because banks and other traditional capital providers are no longer the primary source of capital for the economy.

This shift has increased the diversity of capital providers but has also fragmented the capital markets. Borrowers have more options today but also face challenges in finding the right capital provider for their businesses. This greatly increases the value of the credit formation process, which matches lenders and borrowers in the capital markets and has traditionally been performed by Wall Street firms.

After the repeal of the Glass-Stegall Act in 1999, large banks and broker dealers acquired each other or merged. The impetuous for these mergers was to access the cheap capital from depositors and deploy that in the higher-margin brokerage business. This ended up introducing too much volatility into the economy as seen during the Global Financial Crisis, and regulations like the Dodd-Frank Act were put in place to protect depositors from the risks of the brokerage business. Wall Street firms are notoriously siloed, and the increased regulation only served to complicate the ability of these firms to work across business lines and deliver efficient capital solutions to their clients. This created the space for private capital firms, who also enjoy less regulation, to win clients from traditional Wall Street firms due to their ability to provide more innovative and flexible capital solutions.

The Trade-Off

The demand for uncorrelated and low-volatility returns from investors necessitated a trade-off into the less liquid investment vehicles offered by private capital markets. Since the managers of these vehicles can lock up investor capital for the long-term, they are able to provide more stable capital solutions for their portfolio companies and are not as prone to the whims of the public markets. This longer time horizon allows managers to provide more flexibility to their portfolio companies and even delays the realization of losses.

This means that public market measures of implied volatility and interest rates have less meaning for the broader real economy, because they only represent the price of capital and liquidity from firms that operate in the short-term like hedge funds, retail investors, and money managers. The cost of capital from real money firms like pension funds, endowments, and insurance companies is better represented in private capital markets.

The result is that we have substituted liquidity risk for credit risk in the broader economy due to the growth of private capital markets. When interest rates are low, the future value of a dollar is worth more than the present value of that same dollar. This lowers the natural demand for liquidity and increases the capacity for credit risk which delays the ultimate realization of intrinsic value. Narratives come to dominate investment fundamentals in these environments.

The Changing Playbook

This changes the playbook for companies in how they fund and grow their businesses. Companies can stay private for longer as they increasingly find long-term investors in the private markets and do not have to be subjected to the higher costs and strictures of the public markets.

Source: @LizAnnSonders

The M&A playbook has changed, the universe of publicly traded companies to take private has shrunk, and the marketplace for financing these transactions has changed. In the past, a Wall Street bank might have offered a bridge loan for an acquisition to be followed by permanent capital placements. Today, acquirers can partner with hedge funds, private equity, and family office firms for both short-term and long-term capital in a form of one-stop shop for corporate financing.

Looking forward, as the popularity of the private markets increases there will be an inevitable agitation to democratize access to these attractive investments. However, enabling the masses to invest in these sophisticated strategies requires increasing their liquidity, which in turn will impair managers’ ability to provide long-term capital and delay fundamental realization events. This will result in a reversal of the credit and liquidity risk trade-off we have seen recently and eventually re-establish the link between the traditional public-market-based economic indicators and the real economy.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images / Ascent / PKS Media Inc.

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Tags: capital markets , Monetary Policy , private markets

Joshua J. Myers, CFA

After a successful 20-plus year investing career, Joshua J. Myers, CFA, launched Cedars Hill Group to bring large market expertise to broader audiences. He primarily serves as an outsourced CIO/CFO for family offices, RIAs, and small-to-medium sized businesses. He started as an assistant trader at Susquehanna Investment Group during the Russian default and LTCM failure in 1998. Afterwards, he was head of fixed income at Penn Mutual Life Insurance during the global financial crisis (GFC). He traded distressed CMBS securities in the aftermath of the GFC at Cantor Fitzgerald and most recently was chair of the board for an oil production company during the COVID pandemic. He is a lifelong student of financial markets and writes about current events with a focus on the art of decision making and cognitive psychology.

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Understanding the Basics of Capital Markets: A Comprehensive Guide

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What are capital markets, components of capital markets, key participants in capital markets, types of securities, market efficiency and pricing, factors influencing capital markets, risk and return, regulatory framework.

Capital markets represent the backbone of the global financial system, facilitating the efficient allocation of capital across economies and industries. At their core, capital markets provide a platform for investors and issuers to exchange financial securities, ranging from stocks and bonds to derivatives and commodities. Understanding the basics of capital markets is crucial for individuals and institutions alike, as it unlocks opportunities for wealth creation, investment diversification, and risk management. If you need assistance with your capital markets assignment , grasping these fundamentals will be essential for leveraging the potential of capital markets to achieve financial and strategic objectives.

In this comprehensive guide, we delve into the fundamental principles and dynamics that underpin capital markets. From exploring the components of primary and secondary markets to examining the roles of key stakeholders such as investors, issuers, intermediaries, and regulators, we aim to demystify the complexities of modern finance. By grasping the intricacies of market efficiency, pricing mechanisms, and regulatory frameworks, readers can gain valuable insights into navigating capital markets with confidence and strategic acumen. Whether you're a novice investor, seasoned financial professional, or curious observer, embarking on this journey will enhance your understanding of capital markets and empower you to make informed investment decisions in an ever-evolving financial landscape.

Capital markets serve as the epicenter of global finance, providing a platform for the exchange of financial securities among investors and issuers. Comprising both traditional exchanges and decentralized over-the-counter (OTC) markets, capital markets facilitate the transfer of ownership rights and capital allocation across a spectrum of asset classes. In the primary market, corporations and governments issue new securities, such as stocks and bonds, to raise funds for expansion, innovation, or debt refinancing. This initial issuance process injects fresh capital into the economy while enabling investors to participate in the growth prospects of diverse enterprises.

In the secondary market, investors trade existing securities, fostering liquidity and price discovery through transparent and efficient trading mechanisms. Stock exchanges, electronic trading platforms, and brokerage firms play pivotal roles in facilitating order execution and settlement, ensuring seamless transactions and market integrity. By enabling investors to buy and sell financial assets with ease, capital markets promote capital formation, risk sharing, and investment diversification, driving economic development and wealth creation on a global scale.

Capital markets are multifaceted ecosystems comprised of primary and secondary markets, each serving distinct functions in the process of capital allocation. The primary market acts as the gateway for corporations and governments to raise capital by issuing new securities to investors. Through initial public offerings (IPOs) and debt offerings, issuers access funding for business expansion, infrastructure development, and debt refinancing. In the primary market, securities are sold directly to investors, establishing the initial market price and facilitating the transfer of capital from investors to issuers. This process fosters economic growth, innovation, and entrepreneurship by providing businesses with the financial resources needed to pursue strategic objectives and enhance shareholder value.

In contrast, the secondary market enables the trading of existing securities among investors without involvement from the issuing entities. Stock exchanges, electronic trading platforms, and over-the-counter markets facilitate the buying and selling of stocks, bonds, derivatives, and commodities, fostering liquidity and price discovery. Unlike the primary market, where securities are issued for the first time, the secondary market allows investors to trade previously issued securities based on prevailing market conditions, supply and demand dynamics, and investor sentiment. By providing a venue for investors to buy and sell securities, the secondary market enhances market efficiency, transparency, and investor participation, contributing to the overall vibrancy and resilience of capital markets.

Capital markets thrive on the interactions of various stakeholders. Investors, including individuals, institutional funds, and hedge funds, allocate capital to different securities based on their risk appetite and investment objectives. Issuers, such as corporations and governments, tap into capital markets to raise funds for expansion, innovation, or infrastructure projects. Intermediaries, including investment banks and brokerage firms, facilitate the trading and settlement of securities, providing advisory services and market liquidity. Regulators oversee capital markets to ensure transparency, fairness, and investor protection, enacting rules and regulations to maintain market integrity. Each participant plays a crucial role in shaping the dynamics and functioning of capital markets., each playing distinct roles:

• Investors: Individuals, pension funds, mutual funds, and hedge funds allocate capital to different securities based on risk appetite and return expectations.
• Issuers: Corporations and governments issue securities to raise capital for operational needs or fund infrastructure projects.
• Intermediaries: Investment banks, brokerage firms, and stock exchanges facilitate the trading and settlement of securities, providing advisory services and market liquidity.
• Regulators: Regulatory bodies oversee capital markets to ensure transparency, fairness, and investor protection. They enact rules and regulations governing securities issuance, trading practices, and financial disclosures.

Capital markets offer a variety of securities such as equities, bonds, derivatives, and commodities. Equities represent ownership in corporations, bonds offer fixed-income returns, derivatives provide risk management and speculative opportunities, and commodities serve as inflation hedges. Each type of security caters to different investment objectives and risk profiles, enabling investors to diversify their portfolios accordingly.

• Equities: Common stocks represent ownership stakes in corporations, entitling shareholders to voting rights and dividends.
• Bonds: Fixed-income securities issued by governments and corporations, promising periodic interest payments and return of principal at maturity.
• Derivatives: Financial contracts derived from underlying assets, including options, futures, and swaps, used for hedging, speculation, and risk management.
• Commodities: Raw materials such as gold, oil, and agricultural products traded on commodity exchanges, serving as inflation hedges and speculative investments.

Market efficiency dictates that asset prices quickly reflect all available information, making it challenging for investors to consistently outperform the market. The Efficient Market Hypothesis (EMH) underpins this concept, suggesting that markets efficiently price assets based on new information. Investors analyze fundamentals, technical indicators, and sentiment to identify investment opportunities within this framework.:

• Efficient Market Hypothesis (EMH): EMH posits that asset prices reflect all available information, making it impossible for investors to consistently outperform the market through stock selection or market timing.
• Price Discovery: Market participants collectively determine asset prices based on supply and demand dynamics, fundamental analysis, technical indicators, and market sentiment.

Several factors influence capital market dynamics and investment decisions:

• Economic Indicators: GDP growth, inflation rates, interest rates, employment data, and consumer spending impact investor sentiment and market performance.
• Geopolitical Events: Political instability, trade tensions, regulatory changes, and global conflicts introduce uncertainty and volatility into capital markets.
• Technological Innovation: Advances in financial technology (fintech), algorithmic trading, and high-frequency trading algorithms reshape market structures and trading strategies.
• Market Sentiment: Investor psychology, sentiment surveys, and behavioral biases influence market trends and asset valuations.

Investing in capital markets entails balancing risk and return:

• Risk Management: Diversification, asset allocation, and risk assessment strategies mitigate investment risk and preserve capital during market downturns.
• Expected Return: Investors demand higher returns for assuming greater risk, reflecting the risk-return tradeoff inherent in capital market investments.

Regulatory oversight ensures the integrity and stability of capital markets:

• Securities Laws: Legislation such as the Securities Act of 1933 and the Securities Exchange Act of 1934 regulates securities issuance, trading, and disclosure requirements.
• Market Surveillance: Regulatory agencies monitor market activities, detect insider trading, market manipulation, and fraud, and enforce compliance with securities laws.
• Investor Protection: Securities regulators safeguard investors' interests by promoting transparency, enforcing fair trading practices, and prosecuting securities fraud.

In conclusion, mastering the intricacies of capital markets opens doors to a realm of financial opportunities while also presenting significant challenges. As investors navigate the ebbs and flows of market trends, they must remain vigilant, armed with the understanding that risk and return are inextricably linked. Diversification, prudent risk management, and a long-term investment perspective are essential tools in weathering market volatility and achieving sustainable growth.

Moreover, the regulatory framework surrounding capital markets underscores the importance of integrity, transparency, and investor protection. By upholding ethical standards and adhering to regulatory guidelines, market participants contribute to the stability and credibility of financial markets. As we look to the future, the evolution of technology, shifts in geopolitical dynamics, and ongoing regulatory reforms will continue to shape the landscape of capital markets, underscoring the need for adaptability, resilience, and continuous learning in the pursuit of financial success and prosperity.

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Course info.

• Prof. Gary Gensler

Departments

• Sloan School of Management

As Taught In

• Information Technology
• Artificial Intelligence

Learning Resource Types

Fintech: shaping the financial world, class 9: trading & capital markets.

• Download video
• Download transcript

Lecture Slides

Class 9 Lecture Slides: Trading and Capital Markets (PDF)

Required Readings

‘ How Robinhood Changed an Industry ’ John Divine, US News (October 17, 2019)

‘ Charles Schwab and the New Broker Wars ’ Daren Fonda, Barron’s (October 4, 2019)

‘ Robo-Advisors: Product vs. Platform ’ Henry O’Brien, The Startup (June 10, 2019)

Optional Readings

‘ The Death of Brokerage Fees Was 50 Years in the Making ’ Stephen Mihm, Bloomberg (January 3, 2020)

‘ 8 Best Robo-Advisors of 2020 ’, Eric Rosenberg, The Balance (November 20, 2019)

Study Questions / Issues to Prepare

• How did online brokers emerge during an earlier stage of FinTech development? How were Robinhood and this era’s FinTech startups able to further disrupt the brokerage world?
• How are robo-advisors transforming the provision of retail asset management services? How has Big Finance—incumbent asset managers and banks—reacted?
• What are FinTech trends and applications affecting trading, asset management & capital market infrastructure?

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What are the Different Types of Capital Markets?

• August 28, 2024

Capital markets are financial marketplaces where long-term debt or equity-backed securities are bought and sold. These markets are essential for the economy as they facilitate the raising of capital for businesses, enabling companies to grow and expand. 

Capital markets provide a variety of investment opportunities for individuals and institutions, contributing to wealth creation and financial stability. However, there isn’t a one-size-fits-all model.  Different types of capital markets cater to different market scenarios and needs. 

Knowing about the different types of capital markets is crucial for making smart investment choices and playing an active role in the financial world. We'll explore the basic ideas, purposes, and types of capital markets, which are vital for the overall economy.

Importance of Capital Markets

Capital markets are crucial for the overall growth and stability of any economy. These markets provide a platform where businesses, governments, and other organizations can raise the funds they need to grow, develop, and carry out their operations. Here's why capital markets are so important:

• Raising Capital: A company needs funds to expand, develop a new product, or enter into a new market. Capital markets help in raising this money by issuing capital market instruments like stocks and bonds to investors. This way, they help businesses get the funds they need without all coming through bank loans.
• Investment Opportunities: Capital markets bring lots of opportunities for investment purposes to both individuals and institutions willing to grow wealth. By owning securities, be it stocks, bonds, or mutual funds, one generates a return, which ultimately builds into wealth and accomplishes financial stability.
• Economic growth: When businesses can easily access funds through various types of capital markets, they are more likely to invest in new projects and expand their operations. This investment leads to job creation, increased production, and overall economic growth.
• Resource allocation: Capital markets ensure an effective flow of funds to only the best potential and productive arenas of an economy so that capital can be expended where it can yield the maximum benefit.
• Financial Stability : Sound capital markets, by providing an uninterrupted stream of capital, ensure financial stability in a country. In maintaining investor confidence and sustaining economic growth, this stability is very important.
• Government Funding : Governments also raise finances from capital markets, although they do so mostly through the issuance of bonds. The proceeds are used in public undertakings like building schools and hospitals, which facilitate society's development.

What are the Elements of Capital Markets?

So what constitutes the capital market? Let’s have a look:

• Securities: These are financial instruments used to raise funds and include stocks (equities), bonds, debentures, and other investment vehicles. Stocks represent ownership in a company, while bonds and debentures are forms of debt.
• Investors: Individuals, institutions, and governments who buy and sell securities. Investors can be retail investors (individuals) or institutional investors (such as mutual funds, pension funds, and insurance companies).
• Issuers: Entities that issue securities to raise capital. This includes companies, governments, and other organizations looking to finance operations, expansions, or projects.
• Marketplaces: Platforms where securities are traded. This includes stock exchanges like the NYSE and NASDAQ for equities and over-the-counter (OTC) markets for other securities.
• Regulatory Bodies: Organizations that oversee and regulate the functioning of capital markets to ensure transparency, fairness, and investor protection. Examples include the Securities and Exchange Commission (SEC) in the U.S. and the Financial Conduct Authority (FCA) in the UK.
• Market Participants: Includes brokers, dealers, and financial advisors who facilitate transactions between buyers and sellers and provide financial services.

Types of Capital Markets

Capital markets are primarily divided into two types:

Primary Market:

The primary market, also known as the new issue market, is where new securities are issued and sold to investors directly by the issuing entity. This market is essential for companies, governments, and other organizations to raise capital by issuing stocks, bonds, or other financial instruments. The funds raised in the primary market go directly to the issuer, helping them finance their operations, expansion, or other needs. 

An example of a primary market transaction is an Initial Public Offering (IPO) where a company sells its shares to the public for the first time.

Secondary Market:

The secondary market is where previously issued securities are traded among investors. Unlike the primary market, the issuing company does not receive any money from these transactions. Instead, the secondary market provides liquidity, enabling investors to buy and sell securities like stocks and bonds easily. 

The stock market is a prime example of a secondary market. The prices in the secondary market fluctuate based on supply and demand, investor sentiment, and broader economic factors

Primary vs Secondary Capital Markets: In a Nutshell

What are Capital Market Instruments?

Capital market instruments are financial tools used to raise capital and invest in the financial markets. They serve as mechanisms for businesses, governments, and other entities to secure funds and for investors to grow their wealth. 

Here are the primary types:

Equities (Stocks) : Represent ownership in a company. Shareholders benefit from dividends and potential capital gains as the company's value increases. Stocks are traded on stock exchanges like NYSE and NASDAQ.

Bonds: Debt securities issued by corporations or governments to raise capital. Bondholders receive regular interest payments and get their principal back at maturity. Bonds are considered less risky compared to stocks.

Debentures: A type of bond that is not secured by physical assets or collateral. They are issued based on the issuer's creditworthiness and are typically used by companies to raise long-term capital.

Convertible Securities: Instruments that can be converted into a predetermined amount of the issuer's equity, usually stocks. This conversion feature can provide additional value to the holder.

Derivatives: Financial contracts whose value is derived from the performance of an underlying asset, such as options and futures. They are used for hedging risks or speculative purposes.

Commercial Papers : Short-term, unsecured promissory notes issued by corporations to finance their short-term liabilities. They are typically issued at a discount and do not pay interest until maturity.

Capital markets are a central element of the financial system. Knowledge of how these markets operate helps students grasp the fundamentals of finance, including investment strategies and risk management. Students need to understand how these markets impact economic growth, corporate finance, and economic stability. 

If you are someone looking forward to learning and being a financial expert, a comprehensive financial services course can help you. Imarticus Learning, in collaboration with IIM Lucknow, brings in an Advanced Management Programme In Financial Services And Capital Markets . This course provides a deep dive into digital banking, capital markets, risk management, and fintech, covering critical areas like corporate finance, valuation, fundraising, treasury operations, and financial analytics.

With a detailed curriculum, this financial service course is particularly suited for high-performing middle managers seeking to advance into senior management roles. 

• What are the five types of capital?

The five essential types of capital include natural, financial, produced, human, and social. Proper management and preservation of each type are vital for sustaining long-term economic progress.

• What is a market instrument?

Money market instruments, including certificates of deposit and treasury bills, are short-term investments that you can quickly buy or sell. They usually have durations of less than a year, which makes them very liquid and convenient.

• What are negotiable capital market instruments?

Negotiable capital market instruments are financial securities that can be bought, sold, or transferred in the capital markets. They include stocks, bonds, and other securities that can be traded or exchanged between parties. These instruments are characterized by their liquidity and the ability to be negotiated or transferred to different holders.

• What is the basic differentiation between money market instruments and capital market instruments?

Money market instruments are short-term, typically with maturities of one year or less. Examples include Treasury bills, commercial papers, and certificates of deposit (CDs). In contrast, capital market instruments are long-term, with maturities extending beyond one year, such as stocks and bonds 

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7.2 Understanding International Capital Markets

Learning objectives.

• Understand the purpose of capital markets, domestic and international.
• Explore the major components of the international capital markets.
• Understand the role of international banks, investment banks, securities firms, and financial institutions.

What Are International Capital Markets?

A capital market Markets in which people, companies, and governments with more funds than they need transfer those funds to people, companies, or governments that have a shortage of funds. Capital markets promote economic efficiency by transferring money from those who do not have an immediate productive use for it to those who do. Capital markets provide forums and mechanisms for governments, companies, and people to borrow or invest (or both) across national boundaries. is basically a system in which people, companies, and governments with an excess of funds transfer those funds to people, companies, and governments that have a shortage of funds. This transfer mechanism provides an efficient way for those who wish to borrow or invest money to do so. For example, every time someone takes out a loan to buy a car or a house, they are accessing the capital markets. Capital markets carry out the desirable economic function of directing capital to productive uses.

There are two main ways that someone accesses the capital markets—either as debt or equity. While there are many forms of each, very simply, debt Money that’s borrowed and must be repaid. The bond is the most common example of a debt instrument. is money that’s borrowed and must be repaid, and equity Money that is invested in return for a percentage of ownership but is not guaranteed in terms of repayment. is money that is invested in return for a percentage of ownership but is not guaranteed in terms of repayment.

In essence, governments, businesses, and people that save some portion of their income invest their money in capital markets such as stocks and bonds. The borrowers (governments, businesses, and people who spend more than their income) borrow the savers’ investments through the capital markets. When savers make investments, they convert risk-free assets such as cash or savings into risky assets with the hopes of receiving a future benefit. Since all investments are risky, the only reason a saver would put cash at risk is if returns on the investment are greater than returns on holding risk-free assets. Basically, a higher rate of return means a higher risk.

For example, let’s imagine a beverage company that makes $1 million in gross sales. If the company spends $900,000, including taxes and all expenses, then it has $100,000 in profits. The company can invest the $100,000 in a mutual fund (which are pools of money managed by an investment company), investing in stocks and bonds all over the world. Making such an investment is riskier than keeping the $100,000 in a savings account. The financial officer hopes that over the long term the investment will yield greater returns than cash holdings or interest on a savings account. This is an example of a form of direct finance A company borrows directly by issuing securities to investors in the capital markets. . In other words, the beverage company bought a security issued by another company through the capital markets. In contrast, indirect finance Involves a financial intermediary between the borrower and the saver. For example, if the company deposited the money in a savings account at their bank, and then the bank lends the money to a company (or another person), the bank is an intermediary. involves a financial intermediary between the borrower and the saver. For example, if the company deposited the money in a savings account, and then the savings bank lends the money to a company (or a person), the bank is an intermediary. Financial intermediaries are very important in the capital marketplace. Banks lend money to many people, and in so doing create economies of scale. This is one of the primary purposes of the capital markets.

Capital markets promote economic efficiency. In the example, the beverage company wants to invest its $100,000 productively. There might be a number of firms around the world eager to borrow funds by issuing a debt security or an equity security so that it can implement a great business idea. Without issuing the security, the borrowing firm has no funds to implement its plans. By shifting the funds from the beverage company to other firms through the capital markets, the funds are employed to their maximum extent. If there were no capital markets, the beverage company might have kept its $100,000 in cash or in a low-yield savings account. The other firms would also have had to put off or cancel their business plans.

International capital markets Global markets where people, companies, and governments with more funds than they need transfer those funds to people, companies, or governments that have a shortage of funds. International capital markets provide forums and mechanisms for governments, companies, and people to borrow or invest (or both) across national boundaries. are the same mechanism but in the global sphere, in which governments, companies, and people borrow and invest across national boundaries. In addition to the benefits and purposes of a domestic capital market, international capital markets provide the following benefits:

• Higher returns and cheaper borrowing costs. These allow companies and governments to tap into foreign markets and access new sources of funds. Many domestic markets are too small or too costly for companies to borrow in. By using the international capital markets, companies, governments, and even individuals can borrow or invest in other countries for either higher rates of return or lower borrowing costs.
• Diversifying risk. The international capital markets allow individuals, companies, and governments to access more opportunities in different countries to borrow or invest, which in turn reduces risk. The theory is that not all markets will experience contractions at the same time.

The structure of the capital markets falls into two components—primary and secondary. The primary market Where new securities (stocks and bonds are the most common) are issued. The company receives the funds from this issuance or sale. is where new securities (stocks and bonds are the most common) are issued. If a corporation or government agency needs funds, it issues (sells) securities to purchasers in the primary market. Big investment banks assist in this issuing process as intermediaries. Since the primary market is limited to issuing only new securities, it is valuable but less important than the secondary market.

The vast majority of capital transactions take place in the secondary market The secondary market includes stock exchanges (the New York Stock Exchange, the London Stock Exchange, and the Tokyo Nikkei), bond markets, and futures and options markets, among others. Secondary markets provide a mechanism for the risk of a security to be spread to more participants by enabling participants to buy and sell a security (debt or equity). Unlike the primary market, the company issuing the security does not receive any direct funds from the secondary market. . The secondary market includes stock exchanges (the New York Stock Exchange, the London Stock Exchange, and the Tokyo Nikkei), bond markets, and futures and options markets, among others. All these secondary markets deal in the trade of securities. The term securities Includes a wide range of debt- and equity-based financial instruments. includes a wide range of financial instruments. You’re probably most familiar with stocks and bonds. Investors have essentially two broad categories of securities available to them: equity securities, which represent ownership of a part of a company, and debt securities, which represent a loan from the investor to a company or government entity.

Creditors, or debt holders, purchase debt securities and receive future income or assets in return for their investment. The most common example of a debt instrument is the bond A debt instrument. When investors buy bonds, they are lending the issuers of the bonds their money. In return, they typically receive interest at a fixed rate for a specified period of time. . When investors buy bonds, they are lending the issuers of the bonds their money. In return, they will receive interest payments usually at a fixed rate for the life of the bond and receive the principal when the bond expires. All types of organizations can issue bonds.

Stocks A type of equity security that gives the holder an ownership (or a share) of a company’s assets and earnings. are the type of equity security with which most people are familiar. When investors buy stock, they become owners of a share of a company’s assets and earnings. If a company is successful, the price that investors are willing to pay for its stock will often rise; shareholders who bought stock at a lower price then stand to make a profit. If a company does not do well, however, its stock may decrease in value and shareholders can lose money. Stock prices are also subject to both general economic and industry-specific market factors.

The key to remember with either debt or equity securities is that the issuing entity, a company or government, only receives the cash in the primary market issuance. Once the security is issued, it is traded; but the company receives no more financial benefit from that security. Companies are motivated to maintain the value of their equity securities or to repay their bonds in a timely manner so that when they want to borrow funds from or sell more shares in the market, they have the credibility to do so.

For companies, the global financial, including the currency, markets (1) provide stability and predictability, (2) help reduce risk, and (3) provide access to more resources. One of the fundamental purposes of the capital markets, both domestic and international, is the concept of liquidity In capital markets, this refers to the ease by which shareholders and bondholders can buy and sell their securities or convert their investments into cash. , which basically means being able to convert a noncash asset into cash without losing any of the principal value. In the case of global capital markets, liquidity refers to the ease and speed by which shareholders and bondholders can buy and sell their securities and convert their investment into cash when necessary. Liquidity is also essential for foreign exchange, as companies don’t want their profits locked into an illiquid currency.

Major Components of the International Capital Markets

International equity markets.

Companies sell their stock in the equity markets. International equity markets consists of all the stock traded outside the issuing company’s home country. Many large global companies seek to take advantage of the global financial centers and issue stock in major markets to support local and regional operations.

For example, ArcelorMittal is a global steel company headquartered in Luxembourg; it is listed on the stock exchanges of New York, Amsterdam, Paris, Brussels, Luxembourg, Madrid, Barcelona, Bilbao, and Valencia. While the daily value of the global markets changes, in the past decade the international equity markets have expanded considerably, offering global firms increased options for financing their global operations. The key factors for the increased growth in the international equity markets are the following:

• Growth of developing markets. As developing countries experience growth, their domestic firms seek to expand into global markets and take advantage of cheaper and more flexible financial markets.
• Drive to privatize. In the past two decades, the general trend in developing and emerging markets has been to privatize formerly state-owned enterprises. These entities tend to be large, and when they sell some or all of their shares, it infuses billions of dollars of new equity into local and global markets. Domestic and global investors, eager to participate in the growth of the local economy, buy these shares.
• Investment banks. With the increased opportunities in new emerging markets and the need to simply expand their own businesses, investment banks often lead the way in the expansion of global equity markets. These specialized banks seek to be retained by large companies in developing countries or the governments pursuing privatization to issue and sell the stocks to investors with deep pockets outside the local country.
• Technology advancements. The expansion of technology into global finance has opened new opportunities to investors and companies around the world. Technology and the Internet have provided more efficient and cheaper means of trading stocks and, in some cases, issuing shares by smaller companies.

International Bond Markets

Bonds are the most common form of debt instrument, which is basically a loan from the holder to the issuer of the bond. The international bond market consists of all the bonds sold by an issuing company, government, or entity outside their home country. Companies that do not want to issue more equity shares and dilute the ownership interests of existing shareholders prefer using bonds or debt to raise capital (i.e., money). Companies might access the international bond markets for a variety of reasons, including funding a new production facility or expanding its operations in one or more countries. There are several types of international bonds, which are detailed in the next sections.

Foreign Bond

A foreign bond is a bond sold by a company, government, or entity in another country and issued in the currency of the country in which it is being sold. There are foreign exchange, economic, and political risks associated with foreign bonds, and many sophisticated buyers and issuers of these bonds use complex hedging strategies to reduce the risks. For example, the bonds issued by global companies in Japan denominated in yen are called samurai bonds . As you might expect, there are other names for similar bond structures. Foreign bonds sold in the United States and denominated in US dollars are called Yankee bonds . In the United Kingdom, these foreign bonds are called bulldog bonds . Foreign bonds issued and traded throughout Asia except Japan, are called dragon bonds , which are typically denominated in US dollars. Foreign bonds are typically subject to the same rules and guidelines as domestic bonds in the country in which they are issued. There are also regulatory and reporting requirements, which make them a slightly more expensive bond than the Eurobond. The requirements add small costs that can add up given the size of the bond issues by many companies.

A Eurobond is a bond issued outside the country in whose currency it is denominated. Eurobonds are not regulated by the governments of the countries in which they are sold, and as a result, Eurobonds are the most popular form of international bond. A bond issued by a Japanese company, denominated in US dollars, and sold only in the United Kingdom and France is an example of a Eurobond.

Global Bond

A global bond is a bond that is sold simultaneously in several global financial centers. It is denominated in one currency, usually US dollars or Euros. By offering the bond in several markets at the same time, the company can reduce its issuing costs. This option is usually reserved for higher rated, creditworthy, and typically very large firms.

Did You Know?

As the international bond market has grown, so too have the creative variations of bonds, in some cases to meet the specific needs of a buyer and issuer community. Sukuk , an Arabic word, is a type of financing instrument that is in essence an Islamic bond. The religious law of Islam, Sharia, does not permit the charging or paying of interest, so Sukuk securities are structured to comply with the Islamic law. “An IMF study released in 2007 noted that the Issuance of Islamic securities (sukuk) rose fourfold to $27 billion during 2004–06. While 14 types of sukuk are recognized by the Accounting and Auditing Organization of Islamic Finance Institutions, their structure relies on one of the three basic forms of legitimate Islamic finance, murabahah (synthetic loans/purchase orders), musharakah/mudharabah (profit-sharing arrangements), and ijara (sale-leasebacks), or a combination thereof.” Andy Jobst, Peter Kunzel, Paul Mills, and Amadou Sy, “Islamic Finance Expanding Rapidly,” International Monetary Fund, September 19, 2007, accessed February 2, 2011, http://www.imf.org/external/pubs/ft/survey/so/2007/res0919b.htm .

The Economist notes “that by 2000, there were more than 200 Islamic banks…and today $700 billion of global assets are said to comply with sharia law. Even so, traditional finance houses rather than Islamic institutions continue to handle most Gulf oil money and other Muslim wealth.”

“More worrying still, the rules for Islamic finance are not uniform around the world. A Kuwaiti Muslim cannot buy a Malaysian sukuk ( sharia -compliant bond) because of differing definitions of what constitutes usury (interest). Indeed, a respected Islamic jurist recently denounced most sukuk as godless. Nor are banking licenses granted easily in most Muslim countries. That is why big Islamic banks are so weak. Often they are little more than loose collections of subsidiaries. They also lack home-grown talent: most senior staff are poached from multinationals.” But in 2009, one entrepreneur, Adnan Yousif, made headlines as he tried to change that and create the world’s biggest Islamic bank. While his efforts are still in progress, it’s clear that Islamic banking is a growing and profitable industry niche. “Godly but Ambitious,” Economist , June 18, 2009, accessed February 2, 2011, http://www.economist.com/node/13856281 .

Eurocurrency Markets

The Eurocurrency markets originated in the 1950s when communist governments in Eastern Europe became concerned that any deposits of their dollars in US banks might be confiscated or blocked for political reasons by the US government. These communist governments addressed their concerns by depositing their dollars into European banks, which were willing to maintain dollar accounts for them. This created what is known as the Eurodollar US dollars deposited in any bank outside the United States. —US dollars deposited in European banks. Over the years, banks in other countries, including Japan and Canada, also began to hold US dollar deposits and now Eurodollars are any dollar deposits in a bank outside the United States. (The prefix Euro- is now only a historical reference to its early days.) An extension of the Eurodollar is the Eurocurrency A currency on deposit outside its country of issue. , which is a currency on deposit outside its country of issue. While Eurocurrencies can be in any denominations, almost half of world deposits are in the form of Eurodollars.

The Euroloan market is also a growing part of the Eurocurrency market. The Euroloan market is one of the least costly for large, creditworthy borrowers, including governments and large global firms. Euroloans are quoted on the basis of LIBOR The London Interbank Offer Rate. It is the interest rate that London banks charge each other for Eurocurrency loans. , the London Interbank Offer Rate, which is the interest rate at which banks in London charge each other for short-term Eurocurrency loans.

The primary appeal of the Eurocurrency market is that there are no regulations, which results in lower costs. The participants in the Eurocurrency markets are very large global firms, banks, governments, and extremely wealthy individuals. As a result, the transaction sizes tend to be large, which provides an economy of scale and nets overall lower transaction costs. The Eurocurrency markets are relatively cheap, short-term financing options for Eurocurrency loans; they are also a short-term investing option for entities with excess funds in the form of Eurocurrency deposits.

Offshore Centers

The first tier of centers in the world are the world financial centers Central points for business and finance. They are usually home to major corporations and banks or at least regional headquarters for global firms. They all have at least one globally active stock exchange. While their actual order of importance may differ both on the ranking format and the year, the following cities rank as global financial centers: New York, London, Tokyo, Hong Kong, Singapore, Chicago, Zurich, Geneva, and Sydney. , which are in essence central points for business and finance. They are usually home to major corporations and banks or at least regional headquarters for global firms. They all have at least one globally active stock exchange. While their actual order of importance may differ both on the ranking format and the year, the following cities rank as global financial centers: New York, London, Tokyo, Hong Kong, Singapore, Chicago, Zurich, Geneva, and Sydney.

The Economist reported in December 2009 that a “poll of Bloomberg subscribers in October found that Britain had dropped behind Singapore into third place as the city most likely to be the best financial hub two years from now. A survey of executives…by Eversheds, a law firm, found that Shanghai could overtake London within the next ten years.” “Foul-Weather Friends,” Economist , December 17, 2009, accessed February 2, 2011, http://www.economist.com/node/15127550 . Many of these changes in rank are due to local costs, taxes, and regulations. London has become expensive for financial professionals, and changes in the regulatory and political environment have also lessened the city’s immediate popularity. However, London has remained a premier financial center for more than two centuries, and it would be too soon to assume its days as one of the global financial hubs is over.

In addition to the global financial centers are a group of countries and territories that constitute offshore financial centers. An offshore financial center An offshore financial center is a country or territory where there are few rules governing the financial sector as a whole and low overall taxes. is a country or territory where there are few rules governing the financial sector as a whole and low overall taxes. As a result, many offshore centers are called tax havens. Most of these countries or territories are politically and economically stable, and in most cases, the local government has determined that becoming an offshore financial center is its main industry. As a result, they invest in the technology and infrastructure to remain globally linked and competitive in the global finance marketplace.

Examples of well-known offshore financial centers include Anguilla, the Bahamas, the Cayman Islands, Bermuda, the Netherlands, the Antilles, Bahrain, and Singapore. They tend to be small countries or territories, and while global businesses may not locate any of their operations in these locations, they sometimes incorporate in these offshore centers to escape the higher taxes they would have to pay in their home countries and to take advantage of the efficiencies of these financial centers. Many global firms may house financing subsidiaries in offshore centers for the same benefits. For example, Bacardi, the spirits manufacturer, has $6 billion in revenues, more than 6,000 employees worldwide, and twenty-seven global production facilities. The firm is headquartered in Bermuda, enabling it to take advantage of the lower tax rates and financial efficiencies for managing its global operations.

As a result of the size of financial transactions that flow through these offshore centers, they have been increasingly important in the global capital markets.

Ethics in Action

Offshore financial centers have also come under criticism. Many people criticize these countries because corporations and individuals hide wealth there to avoid paying taxes on it. Many offshore centers are countries that have a zero-tax basis, which has earned them the title of tax havens .

The Economist notes that offshore financial centers

are typically small jurisdictions, such as Macau, Bermuda, Liechtenstein or Guernsey, that make their living mainly by attracting overseas financial capital. What they offer foreign businesses and well-heeled individuals is low or no taxes, political stability, business-friendly regulation and laws, and above all discretion. Big, rich countries see OFCs as the weak link in the global financial chain…

The most obvious use of OFCs is to avoid taxes. Many successful offshore jurisdictions keep on the right side of the law, and many of the world's richest people and its biggest and most reputable companies use them quite legally to minimise their tax liability. But the onshore world takes a hostile view of them. Offshore tax havens have “declared economic war on honest US taxpayers,” says Carl Levin, an American senator. He points to a study suggesting that America loses up to $70 billion a year to tax havens…

Business in OFCs is booming, and as a group these jurisdictions no longer sit at the fringes of the global economy. Offshore holdings now run to $5 trillion–7 trillion, five times as much as two decades ago, and make up perhaps 6–8 percent of worldwide wealth under management, according to Jeffrey Owens, head of fiscal affairs at the OECD. Cayman, a trio of islands in the Caribbean, is the world's fifth-largest banking centre, with $1.4 trillion in assets. The British Virgin Islands (BVI) are home to almost 700,000 offshore companies.

All this has been very good for the OFCs’ economies. Between 1982 and 2003 they grew at an annual average rate per person of 2.8 percent, over twice as fast as the world as a whole (1.2 percent), according to a study by James Hines of the University of Michigan. Individual OFCs have done even better. Bermuda is the richest country in the world, with a GDP per person estimated at almost $70,000, compared with $43,500 for America…On average, the citizens of Cayman, Jersey, Guernsey and the BVI are richer than those in most of Europe, Canada and Japan. This has encouraged other countries with small domestic markets to set up financial centres of their own to pull in offshore money—most spectacularly Dubai but also Kuwait, Saudi Arabia, Shanghai and even Sudan's Khartoum, not so far from war-ravaged Darfur.

Globalisation has vastly increased the opportunities for such business. As companies become ever more multinational, they find it easier to shift their activities and profits across borders and into OFCs. As the well-to-do lead increasingly peripatetic lives, with jobs far from home, mansions scattered across continents and investments around the world, they can keep and manage their wealth anywhere. Financial liberalisation—the elimination of capital controls and the like—has made all of this easier. So has the internet, which allows money to be shifted around the world quickly, cheaply and anonymously. Joanne Ramos, “Places in the Sun,” Economist , February 22, 2007, accessed March 2, 2011, http://www.economist.com/node/8695139 .

For more on these controversial offshore centers, please see the full article at http://www.economist.com/node/8695139 .

The Role of International Banks, Investment Banks, Securities Firms, and Global Financial Firms

The role of international banks, investment banks, and securities firms has evolved in the past few decades. Let’s take a look at the primary purpose of each of these institutions and how it has changed, as many have merged to become global financial powerhouses.

Traditionally, international banks extended their domestic role to the global arena by servicing the needs of multinational corporations (MNC). These banks not only received deposits and made loans but also provided tools to finance exports and imports and offered sophisticated cash-management tools, including foreign exchange. For example, a company purchasing products from another country may need short-term financing of the purchase; electronic funds transfers (also called wires); and foreign exchange transactions. International banks provide all these services and more.

In broad strokes, there are different types of banks, and they may be divided into several groups on the basis of their activities. Retail banks deal directly with consumers and usually focus on mass-market products such as checking and savings accounts, mortgages and other loans, and credit cards. By contrast, private banks normally provide wealth-management services to families and individuals of high net worth. Business banks provide services to businesses and other organizations that are medium sized, whereas the clients of corporate banks are usually major business entities. Lastly, investment banks provide services related to financial markets, such as mergers and acquisitions. Investment banks also focused primarily on the creation and sale of securities (e.g., debt and equity) to help companies, governments, and large institutions achieve their financing objectives. Retail, private, business, corporate, and investment banks have traditionally been separate entities. All can operate on the global level. In many cases, these separate institutions have recently merged, or were acquired by another institution, to create global financial powerhouses that now have all types of banks under one giant, global corporate umbrella.

However the merger of all of these types of banking firms has created global economic challenges. In the United States, for example, these two types—retail and investment banks—were barred from being under the same corporate umbrella by the Glass-Steagall Act Enacted in 1932 during the Great Depression, the Glass-Steagall Act, officially called the Banking Reform Act of 1933, created the Federal Deposit Insurance Corporations (FDIC) and implemented bank reforms, beginning in 1932 and continuing through 1933. These reforms are credited with providing stability and reduced risk in the banking industry. . Enacted in 1932 during the Great Depression, the Glass-Steagall Act, officially called the Banking Reform Act of 1933, created the Federal Deposit Insurance Corporations (FDIC) and implemented bank reforms, beginning in 1932 and continuing through 1933. These reforms are credited with providing stability and reduced risk in the banking industry for decades. Among other things, it prohibited bank-holding companies from owning other financial companies. This served to ensure that investment banks and banks would remain separate—until 1999, when Glass-Steagall was repealed. Some analysts have criticized the repeal of Glass-Steagall as one cause of the 2007–8 financial crisis.

Because of the size, scope, and reach of US financial firms, this historical reference point is important in understanding the impact of US firms on global businesses. In 1999, once bank-holding companies were able to own other financial services firms, the trend toward creating global financial powerhouses increased, blurring the line between which services were conducted on behalf of clients and which business was being managed for the benefit of the financial company itself. Global businesses were also part of this trend, as they sought the largest and strongest financial players in multiple markets to service their global financial needs. If a company has operations in twenty countries, it prefers two or three large, global banking relationships for a more cost-effective and lower-risk approach. For example, one large bank can provide services more cheaply and better manage the company’s currency exposure across multiple markets. One large financial company can offer more sophisticated risk-management options and products. The challenge has become that in some cases, the party on the opposite side of the transaction from the global firm has turned out to be the global financial powerhouse itself, creating a conflict of interest that many feel would not exist if Glass-Steagall had not been repealed. The issue remains a point of ongoing discussion between companies, financial firms, and policymakers around the world. Meanwhile, global businesses have benefited from the expanded services and capabilities of the global financial powerhouses.

For example, US-based Citigroup is the world’s largest financial services network, with 16,000 offices in 160 countries and jurisdictions, holding 200 million customer accounts. It’s a financial powerhouse with operations in retail, private, business, and investment banking, as well as asset management. Citibank’s global reach make it a good banking partner for large global firms that want to be able to manage the financial needs of their employees and the company’s operations around the world.

In fact this strength is a core part of its marketing message to global companies and is even posted on its website ( http://www.citigroup.com/citi/products/instinvest.htm ): “Citi puts the world’s largest financial network to work for you and your organization.”

Outsourcing Day Trading to China

American and Canadian trading firms are hiring Chinese workers to “day trade” from China during the hours the American stock market is open. In essence, day trading or speculative trading occurs when a trader buys and sells stock quickly throughout the day in the hopes of making quick profits. The New York Times reported that as many as 10,000 Chinese, mainly young men, are busy working the night shift in Chinese cities from 9:30 p.m. to 4 a.m., which are the hours that the New York Stock Exchange is open in New York.

The motivation is severalfold. First, American and Canadian firms are looking to access wealthy Chinese clients who are technically not allowed to use Chinese currency to buy and sell shares on a foreign stock exchange. However, there are no restrictions for trading stocks in accounts owned by a foreign entity, which in this case usually belongs to the trading firms. Chinese traders also get paid less than their American and Canadian counterparts.

There are ethical concerns over this arrangement because it isn’t clear whether the use of traders in China violates American and Canadian securities laws. In a New York Times article quotes Thomas J. Rice, an expert in securities law at Baker & McKenzie, who states, “This is a jurisdictional mess for the U.S. regulators. Are these Chinese traders essentially acting as brokers? If they are, they would need to be registered in the U.S.” While the regulatory issues may not be clear, the trading firms are doing well and growing: “many Chinese day traders see this as an opportunity to quickly gain new riches.” Some American and Canadian trading firms see the opportunity to get “profit from trading operations in China through a combination of cheap overhead, rebates and other financial incentives from the major stock exchanges, and pent-up demand for broader investment options among China’s elite.” David Barboza, “Day Trading, Conducted Overnight, Grows in China,” New York Times , December 10, 2010.

Key Takeaways

• Capital markets provide an efficient mechanism for people, companies, and governments with more funds than they need to transfer those funds to people, companies, or governments who have a shortage of funds.
• The international equity and bond markets have expanded exponentially in recent decades. This expansion has been fueled by the growth of developing markets, the drive to privatize, the emergence of global financial powerhouses including investment banks, and technology advancements.
• The international bond market consists of major categories of bonds—including foreign bonds, Eurobonds, and global bonds—all of which help companies borrow funds to invest and grow their global businesses.

(AACSB: Reflective Thinking, Analytical Skills)

• What is a capital market? What is an international capital market?
• What is the role of bond and equity markets.
• Select one global financial center and research its history and evolution to present times. Do you feel that the center will remain influential? Why or why not? Which other global financial centers compete with the one you have chosen?

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Capital Market: Meaning, Structure, Instruments, Roles & More

The Capital Market, as a crucial segment of the financial market, is integral for channeling capital between investors and borrowers. Understanding the its functioning is essential for developing a grasp of the Indian Financial System. This article of NEXT IAS aims to study in detail the Capital Market, including its meaning, components, structure, types, roles, regulations, and other related concepts.

What is Capital Market?

• Thus, it caters to the borrowing needs for medium to long term projects and investments.
• Because of the long maturity period, the Capital Market facilitates the mobilization and allocation of long-term funds.

Components and Structure of Capital Market

The capital market is a complex system, formed by various components. Various components and structure of capital market can be classified into the following 3 categories.

Capital Market Participants

Capital Market participants include the individuals and institutions that interact within the market. These participants can be, broadly, categorized into 2 groups:

• Investors or Suppliers of Capital : These are entities with surplus funds and are looking to invest. They include individuals, pension funds, insurance companies, and commercial banks.
• Borrowers or Issuers of Securities : These are entities that raise funds by issuing various types of securities. They include businesses looking to expand, governments financing projects, and individuals seeking loans.

Capital Market Instruments

Capital Market Instruments or the Instruments of Capital Market refer to various types of financial tools used within the market. They include financial securities and derivatives that serve as mediums and facilitate the flow of money among the participants of the capital market.

Various capital market instruments can be, broadly, classified into the following types:

• Share or Stock
• Debt Instruments
• Derivatives
• Mutual Funds
• Exchange Traded Funds (ETFs)
• Instruments of Foreign Investments

Each type of capital market instrument has been discussed in detail in our article Instruments of Capital Market.

Capital Market Infrastructure

Capital Market Infrastructure refers to the institutions that facilitate the smooth operation of the market. These institutions play a crucial role in connecting various participants and ensuring their regulated interactions for trading through instruments available in the market.

Major types of institutions forming part of the capital market infrastructure are as follows:

• Various concepts regarding Stock Exchanges have been dealt with in detail below.
• Securities and Exchange Board of India (SEBI)
• Reserve Bank of India (RBI)
• Union Ministry of Corporate Affairs, and
• Department of Economic Affairs, Union Ministry of Finance.
• Brokers, investment banks, and underwriters are some examples.

Types of Capital Market

Based on the type of securities traded, the Capital Market is of 2 types:

Primary Market or New Issue Market

• Thus, it is also called the New Issue Market.
• In other words, the market wherein resources are mobilized by companies through the issue of new securities is called the primary market.

Secondary Market or Old Issue Market

• Thus, it is also called the Old Issue Market.
• The secondary market enables securities holders to adjust their holdings in response to changes in their assessment of risk and return or to buy/sell their securities as per their liquidity needs.

Difference between Primary Market and Secondary Market

The functioning dynamics of both types of markets are discussed in detail in the sections that follow.

Primary Market or New Issue Market: Concepts

Types of issues in primary market.

The issue of new securities in the Primary Market occurs through various methods as discussed below.

Public Issue or Public Offering

• Public Issue or Public Offering refers to the process of a company offering its securities (usually stocks or bonds) for sale to the general public for the first time or subsequently.
• It is the usual way through which companies raise capital from a broad range of investors.
• There are 2 main types of public issues:

Initial Public Offering (IPO)

• Initial Public Offering (IPO) refers to the process when a private or unlisted company sells its shares to the public for the very first time.
• This is why an IPO is also referred to as “ going public ”.
• It is generally used by new and medium-sized firms that are looking for funds to grow and expand their business.
• Those shares can be further sold by investors through secondary market trading.

Follow on Public Offering (FPO)

• Follow on Public Offering (FPO) refers to the process when a company, that has already issued shares and is listed on a stock exchange, issues shares again to raise additional fund.
• Public companies have to sell at least 25% of their shares to the public to be traded on a stock exchange. Usually, it is this requirement that makes companies go for FPOs.

Offer For Sale

• Under this method, securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers.
• In this case, a company sells securities enbloc at an agreed price to brokers who, in turn, resell them to the investing public.

Bonus Issue or Scrip Issue or Capitalization Issue

• It refers to offer of share to the existing shareholders against their distributable profit.
• Thus, under this, shareholders’ share in profit is converted as shares.

Rights Issue

• Rights Issue is an invitation to existing shareholders to purchase additional new shares in the company.
• That’s why it is called Rights Issue.

Private Placement

When an issuer makes an issue of securities to a limited group of pre-selected investors, and which is neither a rights issue nor a public issue, it is called a private placement.

Private placement can be of 2 types:

Preferential Allotment

When a listed issuer issues shares or convertible securities to a select group of persons , it is called a Preferential Allotment.

Qualified Institutional Placement (QIP)

When a listed issuer issues shares or convertible securities to a select group of Qualified Institutional Buyers (QIBs), it is called a Qualified Institutional Placement (QIP).

Key Terminologies Related to Primary Market

Declared price issue.

Its a method of pricing new issues wherein the issuer offers securities at a pre-fixed price.

Book Building Issue

Its is another method of pricing new issues wherein the price is not announced beforehand. Rather, the issuer, first, offers the shares and gets application from public and then based on the demand fixes the price.

Authorized Capital

It is the maximum amount authorized by Memorandum of Association of a company that can be raised by the company. The issuer can issue securities upto worth this amount only.

Issued Capital

It is the actual amount issued by the issuer. It may be equal to or lesser than the Authorized Capital.

Subscribed Capital

After the company issues shares, the public starts subscribing to those shares. The subscription can be oversubscribed (demand of shares more than the issued number of shares) or undersubscribed (demand of shares less than the issued number of shares). The actual amount subscribed is called Subscribed Capital.

Merchant Bankers

A “merchant banker” means any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management.

Underwriting

Underwriting means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them.

Underwriter

The financial intermediary which agrees to purchase the undersubscribed portion of issued capital is called Underwriter.

Called Up Capital

The company usually collects the subscribed capital in installments. The portion of money demanded from subscriber is known as Called Up Capital.

Paid Up Capital

The amount actually paid by subscribers, when the money is demanded by the issuer, is known as Paid Up Capital.

Reserve Capital

Usually, the issuer does not demand the whole amount from the subscriber. A small portion of money is left un-demanded, which is called Reserve Capital.

Secondary Market or Old Issue Market: Concepts

Components of secondary market.

Based on the type of trading, the secondary market has 2 components:

Over-The-Counter (OTC) Market

• Over-The-Counter Markets or OTC Markets are essentially informal markets for trading securities.
• It is a decentralized marketplace where securities are traded directly between two parties, bypassing a central exchange.
• OTC markets are generally subject to less stringent regulations than exchanges.

Stock Exchange Market

It refers to markets for trading of securities through a centralized exchange, usually called Stock Exchange.

Key Terminologies Related to Secondary Market

Listed securities.

Listed Securities refer to those securities that are accepted to be traded in stock exchanges.

Cash Trading

Its a type of trading in the Secondary Market wherein the sale and purchase of securities takes place at the prevailing price on the day of trading.

Forward Trading

Its another type of trading in the Secondary Market wherein both buyer and seller agree to buy and sell respectively at a future date at a pre-agreed price, irrespective of the price that prevails on the day of trade.

Third Market

• Third Market refers to the trading of exchange-listed securities in the over-the-counter (OTC) market.
• It allows institutional investors to trade blocks of securities directly, rather than through an exchange, providing liquidity and anonymity to buyers.

Fourth Market

Fourth Market refers to institution-to-institution trading directly, without using the service of broker-dealers, thus avoiding both commissions, and the bid–ask spread.

Stock Exchange

• It acts as a central hub for facilitating stock trading in a secure and efficient manner.
• In India, a Stock Exchange can operate only if it is recognized by the Government under the Securities Contracts (Regulation) Act, 1956.

Stock Exchanges of India

Bombay stock exchange (bse).

• The Bombay Stock Exchange (BSE) is India’s largest and earliest securities market.
• It is also Asia’s first stock exchange.
• BSE On-Line Trading (BOLT) is a screen-based automated trading platform of BSE.
• The BSE also offers depository services through one of its arms called the Central Depository Services Limited (CDSL)

National Stock Exchange of India Ltd. (NSE)

• The National Stock Exchange of India Ltd. (NSE) is India’s largest financial market.
• It ranks fourth in the world by equity trading volume.
• NSE is the first exchange in India to provide modern, fully automated electronic trading.

Stock Market Index

• A Stock Market Index is a statistical measure that reflects the overall performance of a specific segment of the stock market, or the entire market itself.
• Each index is composed of a weighted values of specific group of stocks chosen based on certain criteria such as Market Capitalization, Representation of various sectors, etc.
• These companies are called Blue Chip Companies.
• It acts as an indicator of rise or fall in the prices of shares or other securities.
• Investors use Stock Market Indices as a benchmark to track market movements and compare the performance of their investments.

Important Stock Market Indices in India

Bse sensex or sensitive index.

It is an index of BSE, which measures the price movement of top 30 companies’ shares.

Nifty or National Index for Fifty

It is an index of NSE, which measures price movement of top 50 companies.

Nifty Junior

It is an index of NSE, which measures the price movement of the next top 50 companies.

Roles and Importance of Capital Market

The Capital Market, as the major channel for mobilization of funds, plays very crucial role in an economy. Some of the its major roles and importance can be seen as follows:

• Mobilization of Savings : It mobilizes idle savings or funds from people for further investments in the productive channels of an economy.
• Capital Formation : Through mobilization of ideal resources it helps in formation of capital.
• Investment Avenues : It enables to raise resources for longer periods of time. Thus it provides an investment avenue for people who wish to park their resources for a long period of time and earn reasonable return.
• Economic Growth and Development : As it makes funds available for long period of time, the financial requirements of business houses are met by the capital market. This, in turn, helps them grow.
• Optimal Allocation of Fund : By enabling price discovery as per the demand and supply, it helps in optimal allocation of financial resources.
• Service Provision : As an important financial set up, capital market provides various types of services. It includes long term and medium term liquidity to industry, underwriting services, consultancy services, export finance, investor education by widening ownership base.
• Barometer of Economic Health : The performance of the Secondary Market acts as the barometer of economic health. The investors use the level of stock exchange indices as a benchmark to track market movements and compare the performance of their investments.

Regulation of Capital Market in India

• stock exchanges – through a process of recognition and continued supervision.
• contracts in securities, and
• listing of securities on stock exchanges.
• The Companies Act is mainly administered by the Union Ministry of Corporate Affairs.
• SEBI Act, 1992 : It has established the Securities and Exchange Board of India (SEBI) as the primary regulator of securities markets in India.
• Depositories Act, 1996 : It provides a legal framework for establishment of depositories to facilitates holding of securities in physical/dematerialised form and to effect the transfer of securities through book entry only.
• RBI’s Provisions for NBFCs : Of late, the RBI has proposed a significant shift in its regulatory approach towards the NBFCs.

The Capital Market serves as a vital channel for mobilizing savings into investments, and hence driving economic growth and prosperity. As India aims to grow faster in the time times to come, the role of the Capital Market is going to become even more important. Efforts should be taken to ensure its efficient functioning by focusing on transparency, fairness, and regulatory oversight to maintain investor confidence and market integrity.

Related Concepts

Qualified institutional buyers (qibs).

• Qualified Institutional Buyers (QIBs) are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets.
• Some prominent examples of QIBs are – Insurance companies, provident funds, pension funds.

Commodity Exchange

• A commodity exchange is an exchange where various commodities, derivative products, agricultural products and other raw materials are traded.
• The commodity exchanges in India includes – National Spot Exchange Limited (NSEL), Indian Commodity Exchange Limited (ICEX), Multi Commodity Exchange (MCX), etc.
• Earlier, they were regulated by the Forward Markets Commission (FMC), which got merged with the SEBI on September 28, 2015.

FAQs on Capital Market

What is indian capital market.

Indian Capital Market is a component of Indian Financial Market which provides a market for borrowing and lending of medium and long-term funds, above 1 year.

Who controls the Capital Market in India?

The Indian capital market isn’t controlled by a single entity, but rather overseen by a number of regulatory bodies, including Securities and Exchange Board of India (SEBI), Union Ministry of Corporate Affairs, Reserve Bank of India (RBI), etc.

Who regulates the Capital Market in India?

There are several bodies involved in regulation of Capital Market in India. They include – Securities and Exchange Board of India (SEBI), Union Ministry of Corporate Affairs, Reserve Bank of India (RBI), etc.

Why do we need Capital Market?

The Capital Market is the major channel for mobilization of funds from investors to borrowers.

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Debt Capital Markets (DCM): The Definitive Guide

If you're new here, please click here to get my FREE 57-page investment banking recruiting guide - plus, get weekly updates so that you can break into investment banking . Thanks for visiting!

If someone tells you, “I work in Debt Capital Markets (DCM)” , you might immediately think: Bond. Investment-grade bond.

Or, you might not think of anything at all, since there’s much less information about the debt markets than there is about the equity markets.

Everyone can recall famous IPOs of technology companies, but hardly anyone outside the finance industry can name a “famous” debt offering.

Debt is lower-profile than equity, but it also offers many advantages – both to the companies issuing it and the bankers advising them in the context of DCM.

Similar to its counterpart, Equity Capital Markets , Debt Capital Markets is a cross between sales & trading and investment banking.

But that’s where the similarities end:

Debt Capital Markets Explained: What You Do in the DCM Group

Definition:  A Debt Capital Market (DCM) is a market in which companies and governments raise funds through the trade of debt securities, including corporate bonds, government bonds, Credit Default Swaps etc.

Therefore, in the DCM Team, you advise companies, sovereigns, agencies, and supra-nationals that want to raise debt.

“Raising debt” means that an entity borrows funds and then pays interest on those funds – as opposed to equity, where the entity sells a percentage ownership in itself and pays no interest.

It’s similar to borrowing money for a student loan or mortgage, but organizations do it on a much greater scale than individuals.

As a junior-level banker in this group, you’re responsible for three main tasks:

• Pitching clients and potential clients on debt issuances and answering their questions.
• Executing debt issuances for clients.
• Responding to requests from other groups, updating market slides, and creating case studies of recent deals.

As a specific example of task #1, a company might come to you and say:

“We have $500 million of debt maturing in 5 years. Interest rates have fallen, so we think we could ‘refinance’ by raising new debt at a lower interest rate and using the proceeds to repay the existing issuance.

However, we’d also have to pay a prepayment penalty fee if we do that. Does this plan make sense? What terms could we get on the new debt? What interest rate is necessary for us to come out ahead?”

Or, a company might ask you something like:

“We want to raise debt to fund our everyday operations – what type do you recommend, and what should we expect regarding the interest rate, maturity, and prepayment penalty?”

You’ll answer these types of questions and advise organizations on their best options.

On the execution side – task #2 – much of your work will consist of drafting memos for internal committees and sales teams.

These memos help get your bank comfortable with deals and provide the sales force with the numbers and analysis they need to ‘sell’ the offerings to institutional investors.

Finally, you will also spend a fair amount of time answering requests from industry groups and product groups , updating market slides, and creating case studies of recent debt deals.

There is some quantitative and financial modeling work, but it is usually not as in-depth as you might think.

DCM tends to be a higher-volume, lower-margin business than ECM.

The global credit markets are far bigger than the global equity markets, there are more deals, and the deals happen more quickly – days rather than weeks or months.

As a result, investment banks charge lower fees than they do for, say, IPOs , and they have to make up for it with higher deal flow.

Debt Capital Markets vs. Leveraged Finance vs. Corporate Banking

Several other groups at investment banks also advise on debt issuances; the two most similar ones are Leveraged Finance and Corporate Banking .

The differences between these three departments vary from bank to bank.

DCM is different from Leveraged Finance because it focuses on investment-grade issuances that are used for everyday business purposes.

By contrast, Leveraged Finance focuses on higher-risk, higher-yielding issuances (“high-yield bonds”) that are often used to fund acquisitions, leveraged buyouts, and other transactions.

Corporate Banking groups focus on “bank debt” (Revolvers and Term Loans) that is kept on the bank’s Balance Sheet and not syndicated to outside institutional investors.

By contrast, DCM focuses on investment-grade bonds that are syndicated and sold to outside investors.

These are general guidelines, but in practice, there can be significant overlap between these groups, and there may be exceptions to these guidelines.

For example, Leveraged Finance is sometimes called “Leveraged Debt Capital Markets,” and a DCM team might focus exclusively on syndicated debt assignments of all types.

DCM Interview Questions and Answers

As with any other IB group, some students intern in DCM and accept full-time offers there, while others are placed into the group via a sell-day or off-cycle recruiting.

Sometimes lateral hires with credit analysis experience at rating agencies or corporate banking join, and you’ll find former industry coverage bankers here as well.

The recruiting process is similar to the one for any other investment banking role: Start early or be left behind !

The main difference is that the interview questions are often closer to the ones you might receive in sales & trading interviews .

Since DCM is a hybrid group and often sits on the trading floor , interviewers from fixed-income trading desks could easily ask you questions about how to hedge interest rate or FX risk (for example).

You could even get macroeconomic questions about the activities of central banks or the impact of trade policy on FX rates.

At the minimum, you should have a solid understanding of bond analysis: Yields, prices, call and put options, the yield to maturity (YTM) and yield to worst (YTW), make-whole analysis, and how companies think about refinancing decisions.

(For more, please see our full tutorials on the bond yield , the Current Yield , the Yield to Maturity , the Yield to Call , and the Yield to Worst .)

You should also know something about how credit ratings are assigned, why companies raise debt vs. equity , and how to advise a company on the most appropriate type of debt.

We cover these points in the IB Interview Guide in the Equity vs. Debt section and in more depth in the Core Financial Modeling (CFM) course :

Core Financial Modeling

Learn accounting, 3-statement modeling, valuation/DCF analysis, M&A and merger models, and LBOs and leveraged buyout models with 10+ global case studies.

The Interview Guide is best for more of a “quick review,” while the CFM course is more about learning the concepts from the ground up, for both interview prep and internship/full-time job preparation.

You should also be prepared to discuss debt market trends; you can find that information on sites such as LeveragedLoan.com and sometimes directly from banks (ex:  Société Générale’s year-end reports ).

To prepare for deal discussions, you can look at GlobalCapital’s list of recent bond issuances and research the names you find there.

Finally, if you’re still in the networking phase, check out the Fixed Income Analysts Society, Inc. (FIASI) and the CFA Society.

The DCM Team Structure: Variance 101

The structure of Debt Capital Markets teams varies a lot because of the hybrid nature – some banks might even combine DCM with Leveraged Finance.

Some teams are divided into corporate vs. government issuers, and then they are further divided into industry verticals.

Just as in ECM, there’s also a syndicate team that’s responsible for allocating orders between different investors and building the books for bond offerings.

Junior Analysts typically work across a few verticals and then specialize as they move up the ladder.

DCM Jobs: Workstreams, Projects, and Sample Assignments

As in ECM, your main task in DCM is to tell stories about companies, governments, and other organization so they can raise capital more easily – but the plot points and characters in those stories differ.

For example, equity investors like to hear about the growth potential and upside of a company’s business, but debt investors care most about avoiding losses since their upside is capped.

As a result, they’ll focus on the stability of a company’s cash flows, its recurring revenue, the interest coverage, and the business risk.

They want to hear a story that ends with: “You’ll earn an annual yield of XX%, and even in the worst-case scenario, the company will still repay your principal.”

If you’re working in Debt Origination , you can expect these types of tasks:

• CEEMEA Markets Update by Citi
• Credit Market Considerations by Goldman Sachs
• Credit Materials (Pages 28-33) by Goldman Sachs
• Credit Market Update by Merrill Lynch
• Debt Comparables (Comps): The idea is similar to comparable public companies (public comps) or Comparable Company Analysis , but since these are for debt issuances, they present very different data. You might show the issuer’s name, the offering date and amount, the coupon rate, the security type (e.g., senior secured notes vs. subordinated notes), the current price, the issuer’s credit rating, the Yield to Maturity (YTM) and Yield to Worst (YTW), and credit stats and ratios such as Debt / EBITDA, EBITDA / Interest, and Free Cash Flow / Interest. You can see a few examples below:

• Gazprom by ABN Amro
• Industry and Construction Bank by ABN Amro
• Bond Offering by Goldman Sachs
• Situation Overview
• Credit Considerations
• Risk Factors
• Sources & Uses
• Capitalization Table
• Operating Summary and Credit Statistics
• Company Information
• Industry Overview
• Business Unit Overviews
• Comparables Analysis

It’s incredibly difficult to find public examples of this type of memo, so our team of ninjas did the next-best thing: They found leaked examples from everyone’s favorite failed bank:

• Debt and Equity Financing for Archstone-Smith Trust by Lehman Brothers
• Bridge Loan for Archstone-Smith Trust by Lehman Brothers

Yes, they’re old, but these memos do not change much over time, and it’s almost impossible to post anything recent and not get sued.

• Offering Summary (the purpose of the offering)
• Key Dates and Road Show Schedule (an abbreviated timetable outlining the sequences of marketing to investors to offering pricing)
• Summary Financials
• Company Overview
• Investment Highlights (why the investors should participate)
• Summary Valuation
• Products/Services Overview
• Growth Strategy
• Capitalization
• Comparables Analysis and Operations Benchmarking
• Speaking with Clients and Investors: You’ll do more of this as an Associate, but frequently investors will call the group to find out more about a company’s issuance – sometimes via the sales force. If everyone else is busy or gone, you’ll take these calls. The DCM group will also send out indicative pricing to clients each week so they can get an idea of the terms of new potential offerings.
• Financial Modeling: In credit analysis, you focus on building 3-statement models with different scenarios (e.g., Base, Downside, and Extreme Downside) and assessing how a company’s credit stats and ratios (Debt / EBITDA, EBITDA / Interest, etc.) change… at least in theory. In practice, you do little financial modeling in many DCM groups because investment-grade issuances are so straightforward to analyze. Bond pricing and terms are often based on a client’s credit rating and basic financial stats.

DCM Products: Originate, Structure, and Market

DCM deals differ based on the type of issuer (corporation vs. sovereign vs. agency vs. supranational vs. municipal) and the terms of the issuance.

For example, issuing senior secured notes for a mature industrial company will be quite different than issuing a 10-year bond for the government of Brazil.

Many people put debt into different categories, such as Senior Secured Notes vs. Junior Subordinated Notes vs. Subordinated Notes vs. Senior Notes vs. a laundry list of others.

That’s a useful start point, but it can get confusing because there’s overlap between the categories, and sometimes the dividing lines are not clear-cut.

It’s more helpful to think about the key terms of any bond issuance:

• Principal Amount: How much money the organization raised or is planning to raise.
• Coupon Rate: This is usually a fixed rate for corporate bonds, such as 5.0% or 7.0%. On the other hand, government bonds are often priced at spreads to prevailing rates such as the 10-year U.S. Treasury rate.
• Maturity Date: When does the organization need to repay the bond in full? Five years? Ten years? Thirty years (for government bonds)?
• Frequency: Many corporate bonds have semiannual (twice per year) interest payments, but some bond payments are annual, quarterly, or even monthly.
• Seniority: Where does this bond rank in the company’s capital structure? This point is critical in the case of a bankruptcy or liquidation scenario .
• Redemption / Redemption Prices: Can the organization repay the bond early? If so, how much extra will it pay to do so? Normally, corporate bonds cannot be repaid for the first few years after issuance, but they can be repaid as the maturity date approaches, according to a downward sliding scale of prepayment premiums (e.g., 103%, 102%, and 101% in the three years before maturity). A company might want to repay debt early to reduce its interest expense (if rates have fallen).
• Covenants: What does this issuance prohibit the company from doing? Maintenance covenants limit the company’s credit stats and ratios (e.g., it must stay below 5x Debt / EBITDA at all times), while incurrence covenants limit its actions (e.g., it cannot divest a division or issue dividends above a certain level, which might be an issue depending on its dividend yield ).
• Original Issue Discount (OID) : Was this bond issued at a discount to par value? If so, why? How is the amortization of this discount reflected on the financial statements?

To further complicate things, there are also different types of mandates besides bonds: Loans (more senior, with floating interest rates), asset-backed securities, and commercial paper, for example.

Other teams, such as corporate banking or structured finance , may take the lead on these assignments, with DCM involved but not necessarily leading the deal.

And Debt Capital Markets itself has grown to include products for hedging interest-rate and FX risk – which is yet another reason why it’s a hybrid group.

At PwC, there is even a team that covers debt capital advisory.

In a financing assignment, your team might act in any of the following roles:

• Bookrunning Manager
• Lead / Co- / Sole Manager
• Initial Purchaser
• Sole / Joint Placement Agent

Similar to equity deals, the bookrunners have the most responsibility and earn the highest fees.

When you work with an industry group at the bank, the industry group will provide the market analysis and valuation, and DCM will handle the credit analysis and answer questions about the pricing and terms of an offering.

The process of executing a debt deal isn’t that much different from the process of executing an equity deal.

The main differences are that borrowers issue debt more frequently and deals happen more quickly, so you don’t need to do as much work educating investors.

Finally, there are also block trades (bought deals) and agency transactions in some regions, such as Canada.

In bought deals, the bank acts as a principal and buys the client’s debt before reselling it to investors, and in agency deals, the bank acts as an agent and allocates the debt to institutional investors on a “best-efforts” basis.

Since DCM sits between sales & trading and investment banking , the culture is also somewhere between those two.

In the best-case scenario, you might work close to “market hours,” i.e., roughly 12 hours per day on weekdays.

In practice, however, many DCM bankers work more than that, and the hours can approach the traditional IB grind .

That’s partially because it’s a higher-volume business, so you’re more likely to get staffed on deals consistently.

An average day might start with you at the desk at 7 AM, followed by team meetings with the sales force and traders.

Those two groups leave, and syndication stays behind to discuss possible and pending deals.

You finish up with meetings at 8 AM and then spend the next hour catching up on the news, overnight events, and monitoring traders in other offices.

Deals start launching when the market opens at 9:30 AM in NY (the market open time varies based on your region), so you’ll be quite busy if your bank is leading deals.

After that, the day varies based on your team’s deal flow. If you’re launching deals, you’ll have to monitor their performance and be around to answer questions.

If there are no live deals, a “quiet day” might consist of updating market slides, responding to requests from industry groups, and creating case studies based on recent bond offerings.

Debt Capital Markets Salary and Bonus Levels

At the Analyst level, compensation in DCM is similar to compensation in any other group .

However, the pay ceiling for Managing Directors and senior bankers is lower because fees and margins are lower, and the fees are split more ways.

A decent-performing MD in a financial center can still earn $1 million+ USD per year, but he/she is unlikely to go far beyond that.

Some argue that DCM offers better long-term career prospects than ECM because it’s “more stable” and bankers are less likely to be cut in downturns.

There is some truth to that because equity markets tend to shut down more quickly and decisively than debt markets; also, the skill set in DCM transfers to a wider variety of other fields.

But this claim is also a bit exaggerated because in a true recession, a lot of bankers across all groups will be cut.

DCM Exit Opportunities: Credit-Related Anything?

The good news is that you do have access to a wider set of exit opportunities in DCM than you do in ECM.

Not only could you move to different groups at your bank, but you could also apply to Treasury roles in corporate finance at normal companies , credit rating agencies, corporate banking, and fixed income research .

The bad news is that DCM is still not an ideal group for getting into private equity  or  getting into hedge funds .

“But wait,” you say, “you work with debt in DCM. Private equity firms use debt to do deals! And many hedge funds are credit-focused! They should want DCM bankers.”

Yes, but the problem is that PE firms use debt to fund transactions – whereas most debt issuances in DCM are not M&A/LBO-related.

As a result, you don’t get much practice with modeling acquisitions or leveraged buyouts or understanding the dynamics of those deals.

Also, while there are quite a few credit hedge funds , most invest in high-yield bonds, mezzanine , or other securities with higher risk/potential returns instead of investment-grade issuances.

So, if you’re interested in private equity careers or hedge fund exits, you’re better off joining a strong industry group or M&A team.

But if you want to make a long-term career out of banking, DCM is a good option since you’ll have a better lifestyle and you’ll still earn a lot.

And if you’re interested in other credit-related roles, or in corporate finance at normal companies, Debt Capital Markets also gives you solid options.

So Why Work in Debt Capital Markets?

Similar to ECM, DCM tends to attract a lot of negative comments online – often from people with zero experience in the finance industry.

It isn’t necessarily “the best group,” but it’s still far better than most entry-level jobs outside of investment banking.

And if you intern or work in the group and find out it’s not for you, just transfer to another team – they’re always looking, especially after bonuses are paid.

Further Reading

You might be interested in:

• Capital Markets vs. Investment Banking: Deals, Careers, Recruiting, Exits, and Offer Decisions
• Investment Banking League Tables: Neutral Arbiter of Bank Rankings or Marketing Manipulation?
• Fixed Income Trading : The Definitive Guide

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

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64 thoughts on “ Debt Capital Markets (DCM): The Definitive Guide ”

Brian – love your content. I have 1 year experience in FI S & T at a MM IB. It is a client facing role, with little modeling experience. Graduated with a 3.4 from a non-target, majored in FINE/minored in ACCT, and have experience in equity research as well. Would I be able to lateral into DCM with a little bit of luck and a lot of interview prep? I have no urge to lateral into corporate banking –> DCM because that would take longer but would that look better in terms of gaining skills/ being more of a generalist? Especially for my long term career skills? Also, how would you navigate this job market right now? With the interest rate environment, it seems most banks are in a hiring freeze. Thanks for the help!

Thanks. Yes, I think you can probably go from fixed income S&T to DCM. I don’t really think it’s worth doing corporate banking first because DCM doesn’t require that much technical knowledge / that many hard skills vs. other groups, and it has a lot more overlap with S&T than other groups already.

Unfortunately, the current hiring market is terrible due to macro factors, banks over-hiring during covid, etc., and you can’t do much about that. All you can really do is keep networking, consider other firms, and hope that an opening pops up eventually. Even in a terrible job market, people still quite unexpectedly, and when they do, you want to be top of mind for anyone in the group who’s tasked with finding a replacement.

Hi, thank you so much for an insightful article! In terms of lateral hiring, between fixed income sales and corporate banking, which one would be easier to make a move from aforementioned place into dcm? Also, is it possible to leverage fixed income sales or corporate banking internship experience and get a full time directly at dcm? Thanks again!

I would say corporate banking because it’s much more closely related than a sales role at the junior levels, and you’d presumably be moving over from an internship or entry-level full-time role. I don’t know if you can switch right after the internship, though. Normally it’s easier to do that when you’re already in a FT role.

Thanks so much for posting this article — I found it very insightful.

I was curious to know, as DCM is closer to the markets side of things, is the math required harder than other IB teams?

I’ve recently committed to a DCM team at a reputable IB firm, and after reading some articles it seems that in some situations calculus level math is essential. I wouldn’t say I’m comfortable with much beyond algebra. Is this something I should improve before starting?

Thanks in advance.

Thanks. Traditionally, DCM requires very little math or financial modeling skills. This is why people often say it’s a lot of mindless market updates, slide creation, etc. There may be groups where more math is required, but that is mostly on the S&T side of fixed income with some of the more complex products they trade. So… I think algebra is more than enough for most DCM roles.

what does a “debt advisory” or “capital markets” group do at a boutique bank (EVR/PWP) on the debt side. How is that job different day-to-day and functionally from the larger levfin/DCM groups at BBs?

Good question. I’m not 100% certain because those groups have not been the focus of boutique banks traditionally, but I would assume that they perform a similar function to LevFin/DCM at the large banks, but focus more on the external process raising funds from investors in syndicated deals, as these firms do not have real Balance Sheets in the same way the BB banks do.

Thank you for such a great and insightful article. I am planning to make a move from Auditing to DCM. I wanted to check how tough it would be to crack the interview.

Thanks, Ravina

Thanks. DCM interviews are about the same difficulty as any other entry-level IB interview. You should know the accounting very well, but need to be prepared for valuation and M&A/LBO questions as well.

Hi Brian, great article btw, learned lots! I was wondering if you could give me some of your insights on my career plans. I will be interning in Corporate Banking this summer (Cdn Big 5) but my team isn’t the usual credit team, I work in Cash Management/Transaction Banking role. After a couple months of research and taking courses, I noticed I became very interested with the bond market and was wondering if pivoting into a more credit heavy side of Corporate Banking would help my transition to DCM? Or will staying in my current team for full time and then network my way into DCM also work? Thank you very much in advance!

Yes, try to get into something more credit-heavy within corporate banking.

Thank you for the great article. I have the opportunity to choose among the following three teams for my full time team placement at a BB: municipal syndicate desk, municipal underwriting team under DCM, credit research within Sales and Trading Division (I am leaning toward to cover distressed sector once I am onboard). Besides above, I can also choose desks within S&T division. I am a more fundamental person and I want to either transfer to traditional IBD groups within my firm, or exit to buyside straightaway, so I am trying to get into a team that is closer to IBD. I would really appreciate if you could give some insights regarding these options. Thank you!

Usually, sales desks within S&T are the best options if you want to transfer into IB. Credit research may also work because it’s a bit closer to what credit-focused IB groups do. I would avoid municipal desks because then then it may be more difficult to transfer unless you go for something like public finance rather than a traditional IB group.

Thank you Brian! Quick follow up question, what do think of ABS syndicate desk in DCM? My rationale is if I am in DCM, it is in Captial Markets so closer to IBD compared to S&T.

I don’t know, ABS is also fairly specialized and not that relevant to most IB teams except for structured finance (if you consider that a part of IB). Sales and credit research are still probably better bets, but if this desk is actually within DCM and not classified as S&T, it may be about the same.

Hi Brian! Before anything else, I’d like to thank you for running this extremely helpful website. So, I’m currently in the process of being interviewed for an Associate role for a local bank in the Philippines (very small IB market, few deals). I just got interviewed by the recruiter and they said they’ll get in touch in a week or two. The bank has around a 30% share in the country’s bond market and has repeatedly won awards as the Best Bond House / equivalent.

My background is quite unique. I took up Business Administration in college, interned at ING as I wanted to get into investment banking, but I accepted a full-time sales and marketing role at a large multinational consumer goods company because starting salaries for investment banking analysts are much lower than the offer that i got and i needed to provide for our family. I spent a year at the large multinational, and I now work at a middle market management consulting firm.

Was hoping to get your advice on how best i can prepare myself for the (hopefully) succeeding interviews for the job. Thank you!

I’m not sure I can add much beyond what’s in this article: study accounting, financial statement analysis, and valuation, learn the markets, and be able to explain the debt issuance process, why companies choose debt or equity, and so on. You can’t master all those concepts in 1-2 weeks, but you can learn enough to perform better in interviews.

Hi Brian. Thanks so much for sharing your insights! I am now a corporate banking SA at a BB bank, working for treasury service team. But I am quite keen on getting a FT job in DCM or any other roles in investment banking after graduation. Do you think it’s possible to make this move? BTW, I had a DCM internship before at a large bank, but only did some daily work and not much exposure to the deal. How should I best prepare for next job hunting for IB? Thanks in advance.

Yes, it’s possible to move from corporate banking to DCM, but you probably won’t be able to go directly from an internship in CB to a FT role in DCM. It’s better to win a FT offer in CB, work there for a while, and then transition to DCM through the normal networking tactics.

Thanks for the great article. It seems DCM only covers investment grade. Many countries (sovereigns) are not investment grade (ie. countries in LatAM , Africa and Asia). So, at most banks, are some sovereigns covered by the DCM group and some by the LevFin group? Or even non-investment grade sovereigns are covered by the DCM group?

I believe that even non-investment-grade sovereigns are covered by DCM teams, but it may vary a bit by bank.

Thanks, Bryan!

Is it possible to move from a Market Risk role to DCM?

Sure, you probably interact with DCM and trading desks frequently, so it should be possible.

Thanks for your informative article. I just wanted to ask your advice. I am a recent grad starting a role in January in Fixed income emerging market sales at Morgan Stanley, but I am keen to break into Capital markets ECM/DCM/LevFin. Do you think this transition could be possible over the coming months? I don’t know how easy it will be to move from S&T towards such a role? Figured some internal networking perhaps? Or maybe my CV doesn’t fit here?

Yes, it should be possible because there’s a lot of overlap between the different groups in fixed income. It will probably be some combination of internal networking + waiting for someone to leave the DCM (or other) team unexpectedly and asking about the opening as soon as it comes up.

Hi Brian, I am currently an analyst within a coverage CIB group at a MM bank. I am very interested in making a move to a DCM group at another bank in a financial center around the next bonus cycle. Just wanted to know if this is doable and if there is a certain way I should go about the networking process in the meantime? I also come from a Semi/full target school if that’s still relevant.

Yes, it’s doable. People often move from corporate banking to capital markets. I don’t think there’s anything special you have to do, it comes down to the normal networking tactics – reach out several months in advance, ask for advice about the switch, follow up to check on openings, etc.

Thanks in advance for answering my question.

I’m a junior at a semi-target school who recently received a DCM Summer Analyst offer from a BB In NYC. I was wondering about your thoughts on how best to

(continued) lateral to an M&A /coverage group. Should I pursue recruiting FT or stay in this role and then lateral after 1-3 years?

It is generally best to focus on winning a full-time return offer in the DCM group, perform well there, and then move to another group after a year or so. It’s not a great idea to try to switch groups at the end of your internship in many cases because everyone else is trying to do the same thing, some banks hold accelerated recruiting, etc., so it is a giant scramble with a lot of competition. But people start dropping out once they’re on the job, so more opportunities pop up then.

Thanks so much for your insight!

Also, I would greatly appreciate if you could make my name anonymous on my previous post. Thanks!

Thanks for the fantastic post M&I, really useful info.

I will be interning in DCM at an EB soon in Italy, I was expecting to be placed in a M&A/Restructuring team, and will probably transition at a later date if I get a grad offer (as analyst program has 3 rotations). The DCM team is very small and I am excited to start and learn. I was hoping to get some advice from you.

The DCM team actually sit with the restructuring/M&A (Chemicals) teams. I was hoping to get exposure in either restructuring/chemicals while I’m working there too. The internship is long (6 months minimum) so I think it’s possible.

I was wondering how I should best approach this situation to get into the restructuring/chemicals team. I don’t want to say to HR I want to switch immediately as it won’t give a good impression + I am now also interested in DCM after researching. I have already asked HR if I could move to another M&A team (once I found out allocation of groups) earlier and they said I should talk to my manager, but I will be based in DCM. Basically, I want to learn some financial modelling skills in the 6 months too to open up opps. How should I approach restructuring/chemicals desk and when? If you have already written an article about networking with other teams I will try search for it on your site.

Thanks for all your help and your website is truely awesome.

You can approach the restructuring/chemicals team maybe around the halfway mark of your internship and ask about working there. You should focus on proving yourself with the DCM team first and getting a strong reference so that if you apply for other teams, someone in your group will recommend you.

Hi, i was interested to know if it is possible to move to a capital markets team with a background in Financial control in CIB working for the CFO) in a major Investment bank?

thanks for yout help

Yes, I think so, especially since capital markets is closer to CIB than other groups in IB.

Thanks a lot for your post, it looks exhaustive and covers a lot the subject and goes in-depth. Thanks a lot as well for the examples, they are trully adding values. I’ll begin an off-cycle in DCM in a G-SIB bank soon, in the meantime I’ll work on the subjects you mentioned.

Thanks! Glad to hear it.

Would be great if you could also provide some content on the corporate derivatives units within the capital markets groups (day-to-day, skillset, lifestyle etc.). Thanks!

We don’t have anything on that at the moment, but I’ll see if we can cover it in a future interview.

Super chill role. Great in terms of work you are doing. If you like arithmetic and are into stuff like caps, floors, SWAPS, and understand basic markets, this is great because it is intellectually challenging enough to not make it monotonous. Hours will fly by quick when executing trades. Either way, you don’t work more than 12-14 (max., only sometimes) on weekdays. Weekends exist for you.

A GREAT GUIDE AND POST. THXX!!

Thanks for reading!

Hi, this is a fantastic article. I need a little advice. I was wondering, do you think it’s possible to break into DCM after having some sort of credit analysis experience with? Assuming I network as best as humanly possible? I am 23 with a B.S. in Finance from Louisiana state public school, and working towards a Master of Finance at Colorado state public school. So no ivy league schools for me. I currently work as a market research analyst at a hotel wit one internship at a city government. I am also willing to move anywhere!

Just looking for real advice on how to leverage my little experience. Thank you!!!

Thanks. Yes, it’s possible to get into DCM if you gain credit analysis experience in some other field first. The lack of brand-name schools will count against you, but if you can use your experience to do something directly focused on credit, it’s possible to make a move. I’m not sure that “market research analyst” will look relevant on your resume, though.

Thanks for this detailed article into DCM.

I am currently in a rotational graduate scheme (2yrs) at a BB based in London within Corporate Banking. My long term goal is to eventually transition into DCM.

How/when would I kick off the networking process internally to transition into a DCM group within the bank? (bearing in mind HR requires me to complete a 2yr rotational scheme within CB, before seeking any other jobs internally).

Is it easier to make the leap externally at some point instead (say a year), and is this leap from IB to non IB a relatively difficult one, or an easier one?

I don’t think it’s worth staying 2 years just to move into the DCM group at the same bank. You should probably move externally after a year or so, and stay only if that doesn’t work out. It is usually not that difficult to go from CB to DCM, but it depends heavily on deal activity.

Thanks Brian for the insight

Just wondering whether the internal move is not worth it because chances of transitioning internally are low after 2 years, or because its simply easier to move externally – so waiting 2 years would be wasting time?

It’s just easier to move externally, and you don’t need to wait 2 years to do it.

Thanks for another great post! Will be starting SA gig at BB DCM, any advice on how to prepare myself before the internship starts? Thanks again

Learn about the topics mentioned above: bond math basics, how various fixed-income instruments work, get good at Excel and PowerPoint (PPT is especially important in most DCM roles and is consistently overlooked by people), and do a bit of networking with people in the group.

Thanks a lot Brian!

Thanks so much for your introduction. In fact, I am interested in DCM in IBD. Currently, I am very likely to win an internship offer (in the summer of my second year) as a credit analyst at a BB bank. And I will deal with the liquidity risk for the DCM group on the issuance of bonds of the bank. Therefore, I was wondering if this experience will benefit a lot for me to get an IB internship in the summer of my third year?

Yes, credit analysis will help with IB/DCM internships.

So what if the credit analysis work I mentioned is in a back office? e.g. the credit risk group. Would you say this transition is probable: credit risk internship ? DCM analyst ? coverage analyst ? hedge fund?

The question marks above are rightwards arrows.

Assuming you network and prepare effectively, yes.

So moving from dcm to a regular ib coverage group within a BB shouldn’t be too difficult after bonuses are paid? Should I be prepared for standard ib interview questions if trying to make the move, in addition to networking and building a reputation as a good analyst within the dcm group?

Moving around to different groups within IB is fairly common, so yes, it should be possible to do that. Yes, the interview questions for that other group will be standard, but they’ll focus more on your deal experience and how much you have learned about non-debt deals. Industry trend/specific company questions will also come up if you’re moving to an industry group.

As someone who spent a couple years as a DCM analyst, it should be made clear that you pick up zero modeling skills. At a BB firm, you do a fair amount of acquisition financing analysis but all of the financial analysis will be outsourced to industry team and you will be left with mind-numbing market update. I was able to jump to a distressed credit firm through a LOT of self-study and some luck, but there is virtually no buyside exit opp coming out of DCM. I would caution against believing that direct lending is an available option – you will not be competitive against lev fin candidates as an average DCM analyst.

Thanks for adding that. I mostly agree with you, but I hesitate to write “zero modeling skills” because someone will inevitably reply and say that their group was different, or it was combined with LevFin, or something else happened and they learned some modeling as a result. But yes, if it’s a pure-play DCM group at a large bank, your buy-side options are limited.

Great article. You mention corporate banking a few times, would you be able to provide insight into this area? I know you have a corporate banking 101 article, but it’s not quite as extensive as this and I think corporate banking is even less covered than DCM in all the forums out there.

Thanks. Yes, the current corporate banking article is not as detailed. We don’t have much on the topic at the moment, but we are planning to publish an updated article on corporate banking with links to outside resources (and more) later this year. I would summarize corporate banking as “DCM lite” – the analysis can be even simpler because you’re mostly working with Term Loans and Revolvers, but the hours/lifestyle are better (but lower bonuses to compensate). It’s a good starting point if you want to move elsewhere at a bank, especially other credit-related groups. It’s probably not as appealing as a long-term career since the pay differential vs. IB is large, even though it’s not really that much different than DCM.

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Reinsurance capital predicted to grow again in 2024

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• Aug 23, 2024

Dedicated global reinsurance capital is expected to grow more than 9% by the end of 2024 to between $620 billion and $625 billion, according to a report by A.M. Best Co. Inc. released Friday.

Traditional reinsurance capital is expected to grow 10% and third-party capital, which includes insurance-linked securities, is expected to grow between 5% and 10%.

This follows a 7.2% increase in global reinsurance capital in 2023, including a 13.9% increase in traditional capital, according to Best.

Reinsurer earnings improved last year as some companies exited the catastrophe reinsurance market due to poor results and the remaining reinsurers increased rates, Best said.

“The absence of start-up reinsurers has allowed traditional reinsurers to maintain their market shares without compensating with softening conditions. The property reinsurance market has stabilized through the first half of 2024 and even softened slightly at the highest attachment points,” the report said.

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Medieval history

Modern history, administrative and municipal status, demographics, transportation, notable people, twin towns and sister cities, external links.

Astrakhan was formerly the capital of the Khanate of Astrakhan (a remnant of the Golden Horde ) of the Astrakhan Tatars , and was located on the higher right bank of the Volga, seven miles (11   km) from the present-day city. Situated on caravan and water routes, it developed from a village into a large trading centre, before being conquered by Timur in 1395 and captured by Ivan the Terrible in 1556 and in 1558 it was moved to its present site.

The oldest economic and cultural center of the Lower Volga region, [16] it is often called the southernmost outpost of Russia, [17] and the Caspian capital. [18] [19] The city is a member of the Eurasian Regional Office of the World Organization United Cities and Local Governments . [20] The great ethnic diversity of its population gives a varied character to Astrakhan. The city is the center of the Astrakhan metropolitan area .

The name is a corruption of Hashtarkhan, itself a corruption of Haji Tarkhan ( حاجی‌ ترخان )—a name amply evidenced in the medieval writings. Tarkhan is possibly a Turco-Mongolian title standing for "great khan ", or "king", while haji or hajji is a title given to one who has made the Islamic requisite of pilgrimage to Mecca . Together, they denoted "the king who has visited Mecca". [ citation needed ] The city has given its name to the particular pelts from young karakul sheep , and in particular to the hats traditionally made from the pelts. [ citation needed ]

Colloquially, the city is known by the short form Astra . Another popular nickname is The Caspian Capital . [ citation needed ]

Astrakhan is in the Volga Delta , which is rich in sturgeon and exotic plants. The fertile area formerly contained the capitals of Khazaria and the Golden Horde . Astrakhan was first mentioned by travelers in the early 13th century as Xacitarxan . Tamerlane burnt it to the ground in 1395 during his war with the Golden Horde . From 1459 to 1556, Xacitarxan was the capital of Astrakhan Khanate by the Astrakhan Tatars . The ruins of this medieval settlement were found by archaeologists 12   km upstream from the modern-day city.

Starting in A.D. 1324, Ibn Battuta , the famous Berber Muslim traveler, began his pilgrimage from his native city of Tangier , present-day Morocco to Mecca. Along the 12,100-kilometer (7,500   mi) trek, which took nearly 29 years, Battuta came in contact with many new cultures, which he writes about in his diaries. One specific country that he passed through on his journey was the Golden Horde ruled by the descendants of Genghis Khan , located on the Volga River in southern Russia; which Battuta refers to as the river Athal. He then claims the Athal is, "one of the greatest rivers in the world". In the winter, the Khan stays in Astrakhan. Due to the cold water, Özbeg Khan ordered the people of Astrakhan to lay many bundles of hay down on the frozen river. He does this to allow the people to travel over the ice. When Battuta and the Khan spoke about Battuta visiting Constantinople, which the Khan granted him permission to do, the Khan then gifted Battuta with fifteen hundred dinars, many horses, and a dress of honor. [21] [22]

In 1556, the khanate was conquered by Ivan the Terrible , who had a new fortress, or kremlin , built on a steep hill overlooking the Volga in 1558. This year is traditionally considered to be the foundation of the modern city. [3]

In 1569, during the Russo-Turkish War , Astrakhan was besieged by the Ottomans, who had to retreat in disarray. A year later, the Ottoman sultan renounced his claims to Astrakhan, thus opening the entire Volga River to Russian traffic. [ citation needed ] The Ottoman Empire , though militarily defeated, insisted on safe passage for Muslim pilgrims and traders from Central Asia as well as the destruction of the Russian fort on the Terek River . [23] In the 17th century, the city was developed as a Russian gate to the Orient. Many merchants from Armenia , Safavid Persia , Mughal India , [24] [25] and Khivan Khanate settled in the town, giving it a cosmopolitan character.

For seventeen months in 1670–1671, Astrakhan was held by Stenka Razin and his Cossacks . Early in the following century, Peter the Great constructed a shipyard here and made Astrakhan the base for his hostilities against Persia, and later in the same century Catherine the Great accorded the city important industrial privileges. [26]

The city was held from 1707 by the Cossacks under Kondraty Bulavin during the Bulavin Rebellion until they were defeated the next year. A Kalmuck khan laid an abortive siege to the kremlin several years before that.

In 1717, it became the seat of Astrakhan Governorate , whose first governors included Artemy Petrovich Volynsky and Vasily Nikitich Tatishchev . Six years later, Astrakhan served as a base for the first Russian venture into Central Asia . In 1702, 1718 and 1767, it suffered severely from fires; in 1719 it was plundered by the Safavid Persians; and in 1830, cholera killed much of the populace. [26]

The Astrakhan Kremlin was built from the 1580s to the 1620s from bricks taken from the site of Sarai Berke . Its two impressive cathedrals were consecrated in 1700 and 1710, respectively. Built by masters from Yaroslavl , they retain many traditional features of Russian church architecture, while their exterior decoration is definitely baroque .

In March 1919 after a failed workers' revolt against Bolshevik rule, 3,000 to 5,000 people were executed in less than a week by the Cheka under orders from Sergey Kirov . Some victims had stones tied around their necks and were thrown into the Volga. [27] [28]

During Operation Barbarossa , the German invasion of the Soviet Union in 1941, the A-A line running from Astrakhan to Arkhangelsk was to be the eastern limit of German military operation and occupation. The plan was never carried out, as Germany captured neither the two cities nor Moscow . In the autumn of 1942, the region to the west of Astrakhan became one of the easternmost points in the Soviet Union reached by the invading German Wehrmacht , during Case Blue , the offensive which led to the Battle of Stalingrad . Light armored forces of German Army Group A made brief scouting missions as close as 35   km to Astrakhan before withdrawing. In the same period, elements of both the Luftwaffe 's KG 4 and KG 100 bomber wings attacked Astrakhan, flying several air raids and bombing the city's oil terminals and harbor installations.

In 1943, Astrakhan was made the seat of a Soviet oblast within the RSFSR . The oblast was retained as a national province of the independent Russian Federation in the 1991 administrative reshuffle after the dismemberment of the Soviet Union .

In the present day, Astrakhan is a large industrial centre of the Volga country, Russia, with a population of over 500,000. Starting nearly 400 years ago and continuing to the present day, Astrakhan has been Russia's main center of fish processing. The market for fish is a large component of the economy in this city. [29]

Owing to shared Caspian borders, Astrakhan recently has been playing a significant role in the relations between Russia and Azerbaijan. As the latter's government has been heavily investing into the wellbeing of the city, Astrakhan has recently begun to symbolize the friendship between both countries. In 2010 a bridge was constructed with donations from Azerbaijan, which was named "Bridge of Friendship". [30] Moreover, Azerbaijani government sponsored secondary school number 11, which carries the name of the national leader Heydar Aliyev , as well as a children's entertainment center named "Dream". [31] Apart from that, a park has been built in the center of Astrakhan which is dedicated to friendship between the two countries. In the last 5 years Astrakhan has been visited by top Azerbaijani delegations on several occasions. [32] [33] [34] [35]

After fraud was alleged in the mayoral election of 2012 and the United Russia candidate was declared the winner, organizers of the 2011–2012 Russian protests supported the defeated candidate, Oleg V. Shein of Just Russia , in a hunger strike . Protestors, buoyed by celebrities who support the reform movement, attracted 5,000 people to a rally on April 14. [36]

Astrakhan is the administrative center of the oblast . [10] Within the framework of administrative divisions , it is incorporated as the city of oblast significance of Astrakhan —an administrative unit with the status equal to that of the districts . [1] As a municipal division , the city of oblast significance of Astrakhan is incorporated as Astrakhan Urban Okrug . [11]

The city of Astrakhan is further subdivided into four administrative districts: Kirovsky, Leninsky, Sovetsky and Truskovsky.

Astrakhan is the archiepiscopal see of one of the metropolitanates and (as Astrakhan and Yenotayevka) eparchies of the Russian Orthodox Church , its only other suffragan being Akhtubinsk. [ citation needed ] There is also a Catholic community, served by the Church of the Assumption of Mary (Astrakhan) . There is also a substantial Muslim population made up of Astrakhan Tatars and other Muslims. [37] At 1777 the white Mosque was built, [38] and the Baku Mosque was built in 1907–1909.

According to the results of the 2021 Census, the population of Astrakhan was 475,629. [15]

At the time of the official 2021 Census, the ethnic makeup of the city's population was: [39]

The city lies on two banks of the Volga, in the upper part of the Volga Delta, on eleven islands of the Caspian Depression, 60 miles (100 km) from the Caspian Sea. At an elevation of 28 meters (92 ft) below sea level, it is the lowest city in Russia.

Astrakhan features a continental cold semi-arid climate ( Köppen climate classification : BSk ) with cold winters and hot summers. Astrakhan is one of the driest cities in Europe. Rainfall is scarce but relatively evenly distributed throughout the course of the year with, however, more precipitation (58%) in the hot season (six hottest months of the year).

The below sea-level elevation and long distance from the ocean of Astrakhan significantly influences the climate. Winters are cold with average January temperature -3.6 °С (25.5 °F). Summer temperatures in Astrakhan are one of the highest in Russia with average Jule temperature 26.1 °С (79 °F) and may reach 40 °С (104 °F) and higher. The summers are much hotter than found further west on similar latitude in Europe and worldwide for 46°N with the notable exception of the interior Pacific Northwest of the United States. [ citation needed ] The mean annual temperature amplitude (difference between the mean monthly temperatures of the hottest and coldest months) is thus equal to 29.7 °С (85.5 °F) so the climate is truly continental. Spring and fall are basically transitional seasons between summer and winter.

Astrakhan has five institutions of higher education. Most prominent among these are Astrakhan State Technical University and Astrakhan State University .

The city is served by Narimanovo Airport named after Soviet Azerbaijani politician Nariman Narimanov . It is managed by OAO Aeroport Astrakhan. After its reconstruction and the building of the international sector, opened in February 2011, Narimanovo Airport is one of the most modern regional airports in Russia. There are direct flights between Astrakhan and Aktau , Istanbul , St. Petersburg and Moscow.

There is also a military airbase nearby ( Astrakhan (air base) ).

Astrakhan is linked by rail to the north ( Volgograd and Moscow), the east ( Atyrau and Kazakhstan ) and the south ( Makhachkala and Baku). There are direct trains to Moscow, Volgograd, Saint Petersburg , Baku , Kyiv , Brest and other towns. Intercity and international buses are available as well. Public local transport is mainly provided by buses and minibuses called marshrutkas . Until 2007 there were also trams, and until 2017 trolleybuses.

• Luara Hayrapetyan , singer
• Boris Kustodiev , painter
• Joseph Deniker , naturalist and anthropologist
• Ilya Ulyanov , father of Aleksandr Ulyanov and Vladimir Lenin .
• Rinat Dasayev , association football player
• Marziyya Davudova , actress
• Velimir Khlebnikov , poet
• Emiliya Turey , handball player
• Andrei Belyanin , science fiction writer
• Dmitri Dyuzhev , actor
• Maksim Gleykin , former professional football player
• Vasily Trediakovsky , academic, poet, translator
• Tamara Milashkina , soprano
• Valeria Barsova , soprano
• Maria Maksakova, Sr. , mezzo-soprano
• Elena Nikitina , skeleton racer
• Yelena Shalamova , rhythmic gymnast
• Natalia Sokolovskaya , pianist and composer
• Nikolai Petrovich Skarzhinsky Russian Cossack Lieutenant decorated at the Battle of Borodino . [42]
• Pytor Mikhailovich Skarzhinsky Russian general and governor of Astrakhan. [43]

Astrakhan is twinned with:

• Astrakhan Jews
• Astrakhan Tatars

Related Research Articles

Privolzhsky District is the name of several various districts in Russia. The name literally means "something near the Volga".

Krasnoyarsky District is the name of several administrative and municipal districts in Russia:

Akhtubinsk is a town and the administrative center of Akhtubinsky District in Astrakhan Oblast, Russia, located on the left bank of the Akhtuba River, 292 kilometers (181 mi) north of Astrakhan, the administrative center of the oblast. Population: 41,853 (2010 Russian census) ; 45,542 ; 50,261 (1989 Soviet census) ; 30,000 (1968).

Znamensk is a closed town in Astrakhan Oblast, Russia. Population: 29,401 (2010 Russian census) , 24,628

Narimanov is a town and the administrative center of Narimanovsky District in Astrakhan Oblast, Russia, located on the western bank of the Volga River, 48 kilometers (30 mi) northwest from Astrakhan, the administrative center of the oblast. Population: 11,521 (2010 Russian census) ; 11,202 (2002 Census) ; 11,084 (1989 Soviet census) ; 3,400 (1979).

Kamyzyak is a town and the administrative center of Kamyzyaksky District in Astrakhan Oblast, Russia, located on the Kamyzyak River, 27 kilometers (17 mi) south of Astrakhan, the administrative center of the oblast. Population: 16,314 (2010 Russian census) ; 16,052 (2002 Census) ; 15,084 (1989 Soviet census) .

Volodarsky District is the name of several administrative and municipal districts in Russia. The districts are generally named after V. Volodarsky, a Russian revolutionary and politician.

Chernoyarsky District is an administrative and municipal district (raion), one of the eleven in Astrakhan Oblast, Russia. It is located in the north of the oblast. The area of the district is 4,217.99 square kilometers (1,628.58 sq mi). Its administrative center is the rural locality of Chyorny Yar. As of the 2010 Census, the total population of the district was 20,220, with the population of Chyorny Yar accounting for 38.5% of that number.

Ikryaninsky District is an administrative and municipal district (raion), one of the eleven in Astrakhan Oblast, Russia. It is located in the south of the oblast. The area of the district is 1,950 square kilometers (750 sq mi). Its administrative center is the rural locality of Ikryanoye. As of the 2010 Census, the total population of the district was 47,759, with the population of Ikryanoye accounting for 21.0% of that number.

Limansky District is an administrative and municipal district (raion), one of the eleven in Astrakhan Oblast, Russia. It is located in the southwest of the oblast. The area of the district is 5,234 square kilometers (2,021 sq mi). Its administrative center is the urban locality of Liman. As of the 2010 Census, the total population of the district was 31,952, with the population of Liman accounting for 28.2% of that number.

Privolzhsky District is an administrative and municipal district (raion), one of the eleven in Astrakhan Oblast, Russia. It is located in the south of the oblast. The area of the district is 840.9 square kilometers (324.7 sq mi). Its administrative center is the rural locality of Nachalovo. Population: 43,647 (2010 Russian census) ; 38,649 ; 38,575 (1989 Soviet census) . The population of Nachalovo accounts for 12.5% of the district's total population.

Yenotayevsky District is an administrative and municipal district (raion), one of the eleven in Astrakhan Oblast, Russia. It is located in the west of the oblast. The area of the district is 6,300 square kilometers (2,400 sq mi). Its administrative center is the rural locality of Yenotayevka. Population: 26,786 (2010 Russian census) ; 27,625 ; 29,093 (1989 Soviet census) . The population of Yenotayevka accounts for 28.4% of the district's total population.

Kharabali is a town and the administrative center of Kharabalinsky District in Astrakhan Oblast, Russia, located on the left bank of the Akhtuba River 142 kilometers (88 mi) northwest of Astrakhan, the administrative center of the oblast. Population: 18,117 (2010 Russian census) ; 18,296 (2002 Census) ; 18,566 (1989 Soviet census) .

Ikryanoye is a rural locality and the administrative center of Ikryaninsky District of Astrakhan Oblast, Russia. Population: 10,036 (2010 Russian census) ; 9,925 (2002 Census) ; 9,629 (1989 Soviet census) .

Krasny Yar is a rural locality and the administrative center of Krasnoyarsky District of Astrakhan Oblast, Russia. Population: 11,824 (2010 Russian census) ; 10,926 (2002 Census) ; 10,875 (1989 Soviet census) .

Nachalovo is a rural locality and the administrative center of Privolzhsky District of Astrakhan Oblast, Russia. Population: 5,451 (2010 Russian census) ; 4,830 (2002 Census) ; 3,922 (1989 Soviet census) .

Volodarsky is a rural locality and the administrative center of Volodarsky District of Astrakhan Oblast, Russia. Population: 10,005 (2010 Russian census) ; 9,553 (2002 Census) ; 9,326 (1989 Soviet census) .

Liman is an urban-type settlement and the administrative center of Limansky District of Astrakhan Oblast, Russia. Population: 9,024 (2010 Russian census) ; 8,899 (2002 Census) ; 9,185 (1989 Soviet census) .

Volgo-Kaspiysky is an urban-type settlement in Kamyzyaksky District of Astrakhan Oblast, Russia. Population: 2,581 (2010 Russian census) ; 2,674 (2002 Census) ; 3,088 (1989 Soviet census) .

Kirovsky is an urban-type settlement in Kamyzyaksky District of Astrakhan Oblast, Russia. Population: 2,249 (2010 Russian census) ; 2,259 (2002 Census) ; 2,446 (1989 Soviet census) .

• 1 2 3 4 5 Law #67/2006-OZ
• ↑ Decision #123
• ↑ Charter of Astrakhan, Article   35
• ↑ Charter of Astrakhan, Article   32
• ↑ Official website of Astrakhan. Head of the City Administration Archived May 9, 2015, at the Wayback Machine (in Russian)
• ↑ Russian Institute of Urban Planning. Генеральный план города Астрахань. Основные технико-экономические показатели. Archived October 2, 2013, at the Wayback Machine ( General Plan of the City of Astrakhan. Main Technical Economical Measures ). (in Russian)
• ↑ Russian Federal State Statistics Service (2011). Всероссийская перепись населения 2010 года. Том   1 [ 2010 All-Russian Population Census, vol.   1 ] . Всероссийская перепись населения 2010   года [2010 All-Russia Population Census] (in Russian). Federal State Statistics Service .
• ↑ Astrakhan Oblast Territorial Branch of the Federal State Statistics Service . Население Archived March 5, 2016, at the Wayback Machine ( Population ) (in Russian)
• 1 2 Charter of Astrakhan Oblast, Article   9
• 1 2 3 Law #43/2004-OZ
• ↑ "Об исчислении времени" . Официальный интернет-портал правовой информации (in Russian). 3 June 2011 . Retrieved 19 January 2019 .
• ↑ Почта России. Информационно-вычислительный центр ОАСУ РПО. ( Russian Post ). Поиск объектов почтовой связи ( Postal Objects Search ) (in Russian)
• ↑ Charter of Astrakhan, Article   6
• 1 2 "Оценка численности постоянного населения по субъектам Российской Федерации" . Federal State Statistics Service . Retrieved 26 March 2023 .
• ↑ "Официальный сайт органов местного самоуправления" . Archived from the original on 11 December 2013 . Retrieved 14 May 2023 .
• ↑ "В военных подразделениях Астраханской области работают 35 тысяч специалистов — Российская газета — Спецвыпуск № 4762" . rg.ru . October 2008 . Retrieved 6 September 2017 .
• ↑ Howard Amos (17 July 2011). "Astrakhan" . themoscowtimes.com . Archived from the original on 19 September 2018 . Retrieved 18 September 2018 .
• ↑ "Gazprom dobycha Astrakhan to be major partner for Days of Spain in Russia within Astrakhan Oblast" . www.gazprom.com . 8 April 2011. Archived from the original on 25 July 2021 . Retrieved 18 September 2018 .
• ↑ "Публикации – Члены ОГМВ Евразия" . euroasia-uclg.ru . Retrieved 6 September 2017 .
• ↑ " Lands of the Golden Horde & the Chagatai: 1332 - 1333 Archived August 12, 2018, at the Wayback Machine ". University of California, Berkeley (UCB).
• ↑ Batuta, Ibn, and Samuel Lee. The Travels of Ibn Battuta in the Near East, Asia and Africa. pp79
• ↑ Janet Martin, Medieval Russia:980-1584 , 356.
• ↑ "Astrakhan's India Connection" . 16 March 2020.
• ↑ Staff, Homegrown (8 June 2021). "Fascinating Accounts Of Indians In Russia Dating Back To The 17th Century" . Homegrown . Retrieved 14 May 2023 .
• ↑ [books.google.com.sg/books?id=00o2eO8w06oC&pg=PA5]
• ↑ "Archived copy" . Archived from the original on December 22, 2011 . Retrieved March 12, 2012 . {{ cite web }} : CS1 maint: archived copy as title ( link )
• ↑ "Astrakhan" . russia.rin.ru . Retrieved 14 May 2023 .
• ↑ "Heydar Aliyev Foundation - Azerbaijan-Russia Friendship Bridge in Astrakhan" . heydar-aliyev-foundation.org . Retrieved 6 September 2017 .
• ↑ "Azerbaijan, Russian Astrakhan mull relations" . azernews.az . 12 May 2014 . Retrieved 6 September 2017 .
• ↑ APA Information Agency, APA Holding. "APA - Presidents of Azerbaijan and Russia met in Astrakhan - PHOTO" . en.apa.az . Retrieved 6 September 2017 .
• ↑ "News.Az - Azerbaijani first lady Mehriban Aliyeva receives Astrakhan Oblast Order of Merit" . news.az . Retrieved 6 September 2017 .
• ↑ "tass.ru/en/world/699466" . tass.ru . Retrieved 6 September 2017 .
• ↑ "Гейдар Алиев на полях сражений Ивана Грозного - астраханские записки Эйнуллы Фатуллаева" . Haqqin . 19 April 2015 . Retrieved 6 September 2017 .
• ↑ David M. Herszenhorn (14 April 2012). "Moscow Protesters Take Their Show on the Road" . The New York Times . Retrieved 15 April 2012 .
• ↑ "TATAR MUSLIM COMMUNITY OF ASTRAKHAN IN THE EARLY TWENTIETH CENTURY" . Retrieved 14 May 2023 .
• ↑ "White Mosque of Astrakhan attraction reviews - White Mosque of Astrakhan tickets - White Mosque of Astrakhan discounts - White Mosque of Astrakhan transportation, address, opening hours - attractions, hotels, and food near White Mosque of Astrakhan" .
• ↑ "Итоги::Астраханьстат" . Retrieved 26 March 2023 .
• ↑ "Pogoda.ru.net (Weather and Climate-The Climate of Astrakhan)" (in Russian). Weather and Climate . Retrieved 8 November 2021 .
• ↑ "Astrahan (Astrakhan) Climate Normals 1961–1990" . National Oceanic and Atmospheric Administration . Retrieved 3 November 2021 .
• ↑ "Генерал Скаржинский и его дети: неизвестное о представителях известного рода" . 19 November 2016.
• ↑ "رشت و آستارا خان خواهر خوانده شدند+ تصاویر | پایگاه خبری تحلیلی 8دی نیوز" . 8deynews.com (in Persian). 28 April 2014 . Retrieved 6 September 2017 .
• Государственная Дума Астраханской области.   Закон   №67/2006-ОЗ   от   4 октября 2006 г. «Об административно-территориальном устройстве Астраханской области», в ред. Закона №46/2017-ОЗ от   5 сентября 2017 г.   «О преобразовании муниципальных образований и административно-территориальных единиц "Лебяжинский сельсовет", "Образцово-Травинский сельсовет", "Полдневский сельсовет" и внесении изменений в Закон Астраханской области "Об установлении границ муниципальных образований и наделении их статусом сельского, городского поселения, городского округа, муниципального района" и Закон Астраханской области "Об административно-территориальном устройстве Астраханской области"». Вступил в силу   по истечении 10 дней со дня официального опубликования. Опубликован: "Сборник законов и нормативных правовых актов Астраханской области", №47, 19 октября 2006 г. (State Duma of Astrakhan Oblast.   Law   # 67/2006-OZ   of   October   4, 2006 On the Administrative-Territorial Structure of Astrakhan Oblast , as amended by the Law   # 46/2017-OZ of   September   5, 2017 On the Transformation of the Municipal Formations and the Administrative-Territorial Units of "Lebyazhinsky Selsoviet", "Obraztsovo-Travinsky Selsoviet", "Poldnevsky Selsoviet", and Amending the Law of Astrakhan Oblast "On Establishing the Borders of the Municipal Formations and on Granting Them the Status of Rural, Urban Settlement, Urban Okrug, Municipal District" and the Law of Astrakhan Oblast "On the Administrative-Territorial Structure of Astrakhan Oblast" . Effective as of   after ten days from the day of the official publication have passed.).
• Государственная Дума Астраханской области.   Закон   №43/2004-ОЗ   от   6 августа 2004 г. «Об установлении границ муниципальных образований и наделении их статусом сельского, городского поселения, городского округа, муниципального района», в ред. Закона №47/2017-ОЗ от   5 сентября 2017 г.   «О внесении изменений в Закон Астраханской области "Об установлении границ муниципальных образований и наделении их статусом сельского, городского поселения, городского округа, муниципального района"». Вступил в силу   через 10 дней со дня официального опубликования. Опубликован: "Астраханские известия", №34, 12 августа 2004 г. (State Duma of Astrakhan Oblast.   Law   # 43/2004-OZ   of   August   6, 2004 On Establishing the Borders of the Municipal Formations and on Granting Them the Status of Rural, Urban Settlement, Urban Okrug, Municipal District , as amended by the Law   # 47/2017-OZ of   September   5, 2017 On Amending the Law of Astrakhan Oblast "On Establishing the Borders of the Municipal Formations and on Granting Them the Status of Rural, Urban Settlement, Urban Okrug, Municipal District" . Effective as of   the day which is 10 days after the official publication.).
• Городская Дума муниципального образования "Город Астрахань".   Решение   №24   от   31 марта 2016 г. «Устав муниципального образования "Город Астрахань"», в ред. Решения №91 от   17 июля 2017 г.   «О внесении изменений в Устав муниципального образования "Город Астрахань"». Вступил в силу   22 апреля 2016 г. (за исключением отдельных положений). Опубликован: "Астраханский вестник", №15, 21 апреля 2016 г. (City Duma of the Municipal Formation of the "City of Astrakhan".   Decision   # 24   of   March   31, 2016 Charter of the Municipal Formation of the "City of Astrakhan" , as amended by the Decision   # 91 of   July   17, 2017 On Amending the Charter of the Municipal Formation of the "City of Astrakhan" . Effective as of   April   22, 2016 (with the exception of certain clauses).).
• Государственная Дума Астраханской области.   №21/2007-ОЗ   9 апреля 2007 г. «Устав Астраханской области», в ред. Закона №49/2017-ОЗ от   25 сентября 2017 г.   «О внесении изменения в статью   17 Устава Астраханской области». Вступил в силу   30 апреля 2007 г. (за исключением отдельных положений). Опубликован: "Сборник законов и нормативных правовых актов Астраханской области", №18, 19 апреля 2007 г. (State Duma of Astrakhan Oblast.   # 21/2007-OZ   April   9, 2007 Charter of Astrakhan Oblast , as amended by the Law   # 49/2017-OZ of   September   25, 2017 On Amending Article   17 of the Charter of Astrakhan Oblast . Effective as of   April   30, 2007 (with the exception of several clauses).).
• Городской Совет города Астрахани.   Решение   №123   от   1 ноября 2000 г. «Об утверждени гимна города Астрахани». (City Council of the City of Astrakhan.   Decision   # 123   of   November   1, 2000 On Adopting the Anthem of the City of Astrakhan . ).
• Kropotkin, Peter Alexeivitch (1911). "Astrakhan (town)"   . Encyclopædia Britannica . Vol.   2 (11th   ed.). p.   795.
• Official website of Astrakhan (in Russian)
• Directory of organizations in Astrakhan (in Russian)
• Old photos of Astrakhan
• Akhtubinsky
• Chernoyarsky
• Ikryaninsky
• Kamyzyaksky
• Kharabalinsky
• Krasnoyarsky
• Narimanovsky
• Privolzhsky
• Yenotayevsky

Notable Places in the Area

Astrakhan state puppet theatre.

Astrakhan State Drama Theatre

Astrakhan State Conservatory

Localities in the Area

Prigorodny, astrakhan oblast.

• Type: City with 469,000 residents
• Description: city in the south of Russia
• Categories: city or town , big city , administrative territorial entity , port and locality
• Location: Astrakhan , Astrakhan Oblast , Volga Region , Russia , Eastern Europe , Europe
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Astrakhan Satellite Map

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