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Debt and Equity Market

Investment banks play a key role in capital markets by producing the financial products that companies and institutions use to raise money. They underwrite stocks and bonds, acting as intermediaries between issuers and investors by assuming risk and doing the work to bring securities to market. Stocks provide ownership in a company and are traded on equity markets, while bonds provide debt financing with fixed interest payments and principal repayment and are traded on debt markets. Recent years have seen strong growth in initial public offerings and increased activity from private equity firms driving companies to once again seek public financing after restructuring.

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317 views2 pages

Debt and Equity Market

Investment banks play a key role in capital markets by producing the financial products that companies and institutions use to raise money. They underwrite stocks and bonds, acting as intermediaries between issuers and investors by assuming risk and doing the work to bring securities to market. Stocks provide ownership in a company and are traded on equity markets, while bonds provide debt financing with fixed interest payments and principal repayment and are traded on debt markets. Recent years have seen strong growth in initial public offerings and increased activity from private equity firms driving companies to once again seek public financing after restructuring.

Uploaded by

prahladtripathi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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http://www.pwc.co.uk/eng/publications/Listing_on_UK_capital_markets.

html
UK capital market structure

http://news.efinancialcareers.com/SECTOR_PROFILE_ITEM/newsItemId-5500

Debt and Equity Capital Markets


May 30, 2007

Traded financial products are born in the capital markets divisions of investment banks. Bankers there produce
the securities used by companies and institutions who want to raise money on the public markets. Their two main
products are stocks, traded on the equity capital markets, and bonds, traded on the debt capital markets.
Stocks, also known as shares or equities, are bought by investors who want to share in the profits of a company
through dividends or the appreciation of the stock's value. If the share price rises, investors can sell stock to other
investors at a profit. If it falls, they might sell them at a loss. This trading occurs in the secondary markets, and
the company itself doesn't directly benefit. It's raised the capital it needs through the shares' initial public offering,
or "IPO."
Investment banks act as "underwriters" on behalf of the company issuing stock. They assume the risk of issuing
the stock, and do the work necessary to bring it to market, in return for a fee known as the underwriting spread.
The underwriting spread represents the difference between the price the issuing company receives for the stock
and the price at which it's offered to shareholders. In order to spread the risk, particularly for large IPOs,
investment banks typically pool their resources, with one acting as the lead underwriter, which manages the deal.
The fees charged from the offering are shared proportionately between the underwriting banks based on a written
agreement between them.
Bonds are a form of debt. Like equities, they're issued by a company or government in order to raise money. At
some designated point in the future, the issuer has promised to pay the bondholders back. In the meantime,
bonds can be sold to other investors in the secondary bond markets. So, the bondholder who is eventually
reimbursed is likely to be different from the original buyer. As with equities, investment banks act as the
underwriters to create bonds and bring them to market.
Until the redemption date, the bondholder receives interest payments in return for the service of lending the
issuer money. Because these payments take the form of a fixed cash sum paid at regular intervals, bonds are
known as fixed income products. Similarly, the bond markets can be known as the fixed income markets.
Capital markets divisions also issue more complex products, such as equity-linked securities - or bonds that can
be converted into equities at a pre-arranged price - and derivatives.
ECM divisions and DCM divisions have traditionally been separate businesses. Recent years, however, have
been a trend toward combining them into a single division.
IPO activity grew strongly in 2006 and shows little sign of abating this year. According to the accounting firm
PricewaterhouseCoopers, proceeds to issuing companies increased by 28 percent compared to 2005. The size
of deals also increased dramatically, with proceeds from the year's top 10 IPOs increasing 58 percent in 2006.
Eight of the top 10 deals exceeded the $1 billion mark. The number of IPOs rose from 221 in 2005 to 236 last
year in the U.S. alone. At the same time, markets have become increasingly global, with more total capital being
raised in Europe than in the U.S. The 236 IPOs in the U.S. during 2006 generated $50 billion. On average, each
of those deals was bigger than the IPOs in Europe, where 653 new stock listings generated $82 billion.
One of the trends driving the IPO market recently is the increased buy-out activity from private equity firms.
These firms typically buy public companies using leverage - otherwise known as debt - and take them private.
After a period of restructuring them outside of the glare of public-company disclosure rules, they often return
them to the public sector through an IPO, reaping a profit as they do. Such activity is expected to continue to
drive IPOs for the foreseeable future. In such cases, capital markets divisions handle the underwriting, just as
they assisted in the creation of the bonds needed to take the target company private to begin with.
Roles and Career Paths

If you work in the capital markets division of an investment bank you could do anything from originating, to
structuring, to syndicating. You could also work for a law firm that specializes in securities law and handles the
legal aspects of submitting registration paperwork and other tasks.
Origination specialists are usually senior capital markets bankers. Their job involves a lot of travel as they meet
clients in an effort to gain insight into their financing needs and persuade them to offer up business to the bank.
Essentially, this is a senior level sales position.
By comparison, structurers are desk-bound. They spend their time creating complex financial products to suit a
company's financing needs as communicated by the originators.
It's up to the people on the syndication desk to ready the market for the sale. They calculate the best price range
for the product concerned, assess demand, and make sure the correct documents are in place.
Skills and Qualities
- Analytical ability and statistical aptitude
- Strong communication skills
- Ability to manage multiple projects
- Perseverance

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