Kurs_anglyskogo_yazyka_dlya_finansistov
.pdf5.What ways of raising capital are available for governments?
6.What is a bond?
7.How can the global bond market be subdivided?
8.In what forms can government bonds be issued?
B. 1. What are the components of the Russian financial market?
2.Are volumes of issuance big in the market?
3.Who are the main players in the bond market?
4.What tendencies have been registered in the market lately?
5.How will the introduction of the Euro affect the market?
Ex. 2. Give derivaties of: |
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different adj |
serve v |
purchase v |
participate v |
existing adj |
satisfy v |
need n |
important adj |
measure n |
classification n |
trade n |
depend v |
experience n |
dominant adj |
reliable adj |
doubt n |
divide v |
refer v |
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Ex. 3. Find English equivalents for the following Russian phrases from the main text and dialogue:
A. иметь дело с различными финансовыми инструментами; обслуживать клиентов; со сроком платежа менее (более) одного года; участвовать в сделках на рынке; первичный (вторичный) финансовый рынок; обращаться (к); финансирование путем получения займов; мобилизация капитала с помощью выпуска акций; выпускать облигации; оговоренный срок; эмитент; единая система классификации; внутренний (внешний) рынок облигаций; эмитент, не проживающий постоянно в стране; облигации, которыми торгуют на рынке; выпуск облигаций гарантирован международным синдикатом; выпускать в незарегистрированной форме; офшорный рынок облигаций; сократить расходы, связанные с куплей и продажей облигаций; выпускать облигации в форме сертификата; выпускать облигации в виде записи в компьютере;
B. объем выпуска облигаций; молодые, развивающиеся рынки; снижать заимствования и сокращать национальный долг; диверсифицировать деятельность; рейтинг кредитоспособности; введение валюты евро; выпуски облигаций в евро; самое трудное еще впереди.
Ex. 4. Say in a few words what the main text is about. Use the opening phrases from Ex. 4 (Unit 1). Ex. 5. Sum up the content of the main dialogue. Use the phrases from Ex. 5 (Unit 1).
Ex. 6. Read the dialogue, translate the Russian remarks into English and act it out.
Russian: С моей точки зрения, мы вступили в очень сложный период развития рынка облигаций. Все более важную роль играют крупные институциональные инвесторы, объемы выпусков облигаций возрастают, конкуренция на рынке обостряется.
Foreigner. Besides, big investors have power to demand more transparency and liquidity of the market.
R.: Недавний финансовый кризис на рынках Азии оказал отрицательное воздействие на глобальный рынок ссудного капитала. Инвесторы стали проявлять большую осторожность. Многие корпоративные заемщики испытывают трудности с изысканием необходимых им средств.
F.: Nevertheless the competition in the market is an advantage to borrowers who are trying to extend maturities.
R.: Да, это так. Но инвесторы могут отказаться от инвестирования своих средств в облигации и переместить свой капитал на более привлекательные финансовые рынки.
F.: Of course, the bond market has become a dangerous place for borrowers and investors. However, the importance of our investors for the bond market continues to grow.
R.: Это, безусловно, так. Политическая, экономическая и финансовая стабильность вашей страны позволяет вам успешно конкурировать на этом рынке и оказывать на него большое воздействие.
Ex. 7. Work on vocabulary and grammar.
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a) Study the key words of the unit in the dictionary at the back of this book:
bond, maturity, debt financing, equity financing, placement, surplus, issue, trading, credit rating, investor, return, securities, liquidity;
b) Think of the verbs that are most commonly used with:
maturity, bond, stock, issue, investor, banks, return, depository, sale, credit rating, placement;
c) Think of the nouns that are most often used with:
to raise, to sell, to issue, to borrow, to trade, to divide, to float, to create, to participate, to develop, to attract, to negotiate, to mature, to place, to generate;
d)Make your own sentences with any five word combinations from (b) and (c).
e)Match the verbs from (a) with the nouns from (b) below:
a) to bring together |
b) capital |
to classify |
people |
to underwrite |
issue |
to invest into |
debt financing |
to speed up |
role |
to raise |
use |
to broaden |
real sector |
to rely on |
financial instruments |
to enhance |
placements |
to issue |
bonds |
Ex. 8. a) Supply the articles where necessary.
b)Write down 3-5 questions about the text.
c)Explain how the Eurobond Market operates.
The Eurobond Market
The Eurobond Market is ... major source of corporate financing in ... unregulated international capital market.
This market permits lenders to lend directly to borrowers across ... national borders.
The borrowers or issuers of the bonds include MNCs, public sector organizations, sovereign states and ...
commercial banks. The lenders or purchasers of the bond securities are individual and institutional investors, with ... latter group dominating. Generally, purchasers buy Eurobonds in currencies other than their own and ...
major attraction of these bonds for investors is that in most currencies they are anonymous bearer bonds that exempt individuals from capital gains and withholding taxes in their own domestic system.
Banks play a major role in ... Eurobond market by bringing together lenders and borrowers, underwriting the bond issue, selling or placing the bonds, supporting the secondary market in bonds, and managing the repayment of interest and capital to ... investors. The participating banks will receive ... fee for each of these services rendered to the borrower or investor.
The key to the market is ... established and high quality credit rating with an internationally recognised rating agency such as Moody's or Standard and Poor's.
Eurobonds, of whichever currency denomination, are listed in another country and trade independently of any domestic market. In recent years there has been ... continued rapid expansion of Eurobond issuance that has been one of... most significant developments in bond markets worldwide.
In this context, there was one more fast-growing market that deserves ... mention. It is the ECU (European Currency Unit) bond market which proved to be popular a few years ago and paved the way to the single
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Eurobond market.
Words you may need:
MNC (multinational company) многонациональная компания (корпорация) anonymous adj безымянный, анонимный
Moody's (Investors Service) ведущее агентство по установлению рейтингов ценных бумаг Standard and Poor's (Corporation) ведущая фирма по установлению рейтингов ценных бумаг list v (зд.) зарегистрировать на бирже
ECU (European Currency Unit) Европейская валютная единица (ЭКЮ)
Ex. 9. a) Supply the prepositions where necessary.
b) Say what you have learnt about the debt market in India.
The door is slowly opening on India's debt markets. Foreign investors can now invest 100% of their Indian portfolios in corporate debt as against the 30% allowed previously. The market itself is booming. ... long-term debt worth Rs55 billion ($1.54 billion) raised by Indian corporates in the past few months and fixed-income returns overtaking those of equities, the market is ripe ... reform.
The driving force ... India's debt market reforms is the need to raise capital ... infrastructure projects. India needs ... about $300 billion ... the next 10 years for infrastructure alone. Only half of this can be raised from the commercial banks, the equity market, the government and multilateral agencies like the World Bank. The other half must come from its domestic debt markets. But the Indian debt market is too small to meet this requirement at the moment.
So the market is moving ... the right direction and bonds-not shares – are the hottest selling investments in India today. In the past, equity markets overshadowed debt markets ... both size and returns. While India's total stock market capitalization is still equal ... $138.6 billion, analysts say that investors are increasingly choosing bonds ... equity. Of the total Rs 16.74 billion raised from the capital markets in the month of August, 78% or Rs 13 billion was raised in debt floats. Returns ... debt are also higher than from equity.
In spite of the government's efforts, two major obstacles remain. The government bond market is still closed
... investment banks. The other problem is liquidity.
Besides, secondary market trading in debt is limited ... government securities and is done mainly on the wholesale debt market of the National Stock Exchange. Allowing market-making in government securities is the key ... creating an active secondary debt market in India.
Having this in mind the Reserve Bank of India – the Indian central bank-set ... a system of primary dealers or market makers in government securities. But for debt trading to be successful, several structural changes need to be put in place, including setting up a depository and establishing a REPO market.
Words you may need:
corporate debt облигации, выпущенные корпорацией
The market... is booming. На рынке ... наблюдается повышение деловой активности. fixed-income return доход по бумагам с фиксированным доходом
overtake v обгонять
ripe adj (зд.) готовый к чему-л. overshadow v омрачать, затмевать capitalization n капитализация
debt float выпуск долговых обязательств market-making «делание рынка» primary dealer первичный дилер depository n депозитарий
REPO market рынок РЕПО
Ex. 10. a) Open the brackets putting the verbs in the correct form, b) Explain the essence of public debt management in France.
French Government Securities
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France (to begin) to modernize the management of its public debt in 1985, and this effort now (to bear) fruit. The market in French government securities is today one of the most liquid in the world, second only to the market in US Treasury debt.
By virtue of its position in the French financial markets, the French Treasury (to initiate) a series of reforms over the past several years designed to open up those markets and make them more attractive, thus increasing the competitiveness of Paris as a financial center.
Today, French government debt issuance policy (to combine) three distinctive features, namely simplicity, liquidity, and transparency.
Simplicity. The structure of French government debt (to undergo) a profound transformation since 1980, and today the French Treasury mainly (to issue) three categories of standardized securities:
Fungible Treasury bonds with maturities of up to thirty years, which are the instruments that the government uses to raise long-term funds.
Fixed-rate Treasury notes paying annual interest with maturities of between two and five years. Finally, fixed-rate short-term discount Treasury bills which (to have) a maximum maturity of one year.
Liquidity. Since 1986, the government (to give) priority to fungible issues, so that subsequent bond issues can be added to existing lines of stock having the same financial and fiscal characteristics.
Transparency. A number of organized procedures open to all investors (to keep) the market of French government debt transparent. With the exception of few specific operations arranged through traditional bank syndicates, the French Treasury (to place) its issues through competitive bidding.
Besides, the Treasury (to publish) a calendar of forthcoming auctions for future issues. Published at the start of the year, this provides investors with full and accurate information on the government's mediumand longterm borrowing program for the year.
Preparing for Economic and Monetary Union, the Treasury regularly (to issue) negotiable securities denominated in the Euro, and today the French government is one of the leading sovereign borrowers on the Euro market.
Another fast-growing market (to be) the market in stripped bonds, authorized in May 1991. These two are helping to increase the liquidity of the secondary market.
Words you may need:
public debt государственный долг to bear fruit приносить плоды
by virtue of благодаря, в силу чего-л. fungible bonds взаимозаменяемые облигации treasury notes казначейские облигации
discount treasury bills дисконтные казначейские векселя competitive bidding конкурентные торги
stripped bonds «ободранные» облигации
Ex. 11. a) Fill each gap with a suitable word from the box.
b)Sum up the text in 5-7 sentences and present them in class.
c)Describe the problems the authorities are trying to solve in China.
attention |
discovered |
take |
ago |
bonds |
transaction |
kind |
dealing |
market |
traded (2) |
graduates |
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line |
pass |
bond-trading |
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foreigners |
free |
traded |
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The Chinese Bond Market |
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China's government bond ______ , which is relatively new, is booming now. In July 1996 alone, some Rmb 220 billion worth of bonds changed hands on the Shanghai Stock Exchange.
Modest by international standards, perhaps, but impressive in a country where only three years_______the government funded most of its deficit by printing money.
Banks and securities houses seem confident that, with China's bond market now increasing rapidly in size,
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the underwriting of and trading in government bond issues will be a profitable ______ of business in the future. Several securities companies______in bonds have already been set up. Other securities houses are in the
process of organizing specialist departments to run their bond business.
The focus of this activity is the Shanghai Stock Exchange, where over 80% of China's government bonds are
______. Market participants disillusioned by the ups and downs in China's stock market are finding bonds a more secure _______ of investment, turning Shanghai into the country's principal government bond market.
China's bond market is a relatively new one and, not surprisingly, most of the floor traders do not have a long_______track record.
Most are young, university_______with degrees in international finance from Shanghai universities. Before they can start trading they have to _______ a one-month intensive course organized by the Shanghai Stock Exchange and______an exam.
The Shanghai Stock Exchange has set a limit that one transaction cannot move the market more than 10% up or down from the preceding one.
However, to paint China's bond market as ______ from machinations would be misleading. People try to make the price go up and down, just as in the equity market. The most profitable activity is, of course, getting inside information on the central bank's plans about setting the interest rate.
Besides, short selling is a problem. Both paperless and physical bonds are_______on the Shanghai exchange. If a sell order for a paperless bond is placed and there is no bond in the account, the ______is automatically rejected by the computer. With paper bonds, short selling is_______only after trading at time of settlement, and has to be cancelled then. Fortunately, the Ministry of Finance is trying to issue more and more of its bonds in scripless form.
However, brokers warn that one disadvantage of moving to scripless form is that investors who want to buy and hold bonds tend to prefer physical evidence of their investments, and may not be so keen to buy scripless_______.
China has no central custodian. Under a programme sponsored by the Asian Development Bank, China's Ministry of Finance is implementing a project to build up a central depository in China.
The regulatory authorities are paying much _______ to the development of the REPO market since it has helped stimulate liquidity in China's bond market.
Although Ministry of Finance officials say they are keen to attract foreign investors the bond market is likely to be closed to_______for at least a couple of years.
Words you may need:
to fund the deficit финансировать дефицит to print money печатать деньги
ups and downs взлеты и падения
inside information внутренняя информация (для должностных лиц; не подлежащая использованию на рынке) short selling «короткая продажа»
account n операционный период на бирже
in scripless form (зд.) в электронном варианте ustodian n (зд.) хранилище ценностей
DISCUSSION
Ex. 12. a) Read the text.
b) Discuss the reasons which led to the creation of the UK debt market and its structural changes in the late 80s.
The UK Government bond market is generally the market of gilt-edged securities. These securities are considered to be very safe.
The market origins go back to 1694 when the Bank of England was founded to help the Government raise money to fight the French. Borrowing to finance wars has been common and the outstanding amount of debt has soared during all of the major wars since then. The major expansion, however, came in the post-World War II period, especially in the 1970s and early 1980s. Historically, the market developed with a strict separation between brokers and jobbers. The brokers did business with the public, but the jobbers did business only with brokers, and with each other.
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On 27 October 1986 the market was structurally reorganized. As a result of the "Big Bang" the market switched to a new trading system, modelled on the US bond market. The essential change in this market was that a structure with separate jobbers and brokers was replaced with a structure with gilt-edged market makers (GEMMs) who deal directly with large customers.
The gilt-edged markets constitute the major proportion of money passing through the Stock Exchange. Transactions are typically much larger than in the equity market.
UK gilts consist of two distinct markets, the short gilts market (securities with five years or less to maturity) and the market for medium and long gilts.
Some time in the past there were forecasts that the gilt market would disappear by the end of the century. The Big Bang reforms succeeded in achieving one of the key objectives – to make the market accessible and attractive to international investors. There has been an increasing trend towards investors moving funds between the major bond markets, taking views on both the bonds themselves and the currencies involved. Now, in its current form it is firmly in the mainstream as one of the world's most actively traded bond markets.
As to the UK corporate bond market, it has had a mixed history. Historically, it has been a major source of corporate funds but issuance virtually stopped during the 1970s and early 1980s due to high inflation and large government issuance.
In the last few years, the market has sprung to life again, helped by the fall in long-bond yields due to inflation fall and temporary disappearance of the government's borrowing requirements.
Words у он may need:
gilt-edged securities золотообрезные ценные бумаги origin n происхождение
the outstanding amount of debt размер непогашенного долга soar v стремительно повышаться
broker n брокер jobber n джоббер
Big Bang «Бит бенг» (реорганизация Лондонской фондовой биржи) accessible adj доступный
mainstream n основное направление, главная линия
Ex. 13. Read the dialogue, sum up its content and act it out:
Eurobond Market
Russian: What is a Eurobond? Why are Eurobonds issued?
Foreigner: Eurobond is a bearer security, which is not registered and issued in a market other than that of its currency of denomination. Eurobonds are sold internationally and not in just one domestic market to obtain credits in foreign financial markets.
R.: What organizations can issue Eurobonds?
F.: As a rule, Eurobonds are issued by governments, municipalities, banks, international financial organizations, national companies and trasnationals.
R.: How is a bond placement arranged?
F.: Most often, primary placing of Eurobonds is done by investment banks, which act as lead managers. In such cases investment banks provide a number of advisory services. They give recommendations to issuers about the date of issue, currency of issue, coupons, methods of issuing securities, preparation of the necessary documents, etc.
R.: What is the typical maturity of Eurobonds?
F.: Eurobonds usually mature in five or more years, and have a fixed rate of interest. R.: How is the bond price determined?
F.: It is done on the basis of the credit rating of the issuer. Debt issues are rated according to the credit ratings determined by various financial companies including Moody's, Standard and Poor's. The highest rating assigned by Standard and Poor's is AAA. It means that the capacity to pay the interest and repay the principal sum is extremely strong.
R.: And how often are interest payments made?
F.: Once or twice a year. It's important to say that Eurobonds are not taxed.
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R.: How is the market developing?
F.: It has become one of the world's largest markets for short-term funds. Turnover in the market is now reckoned to be greater than the combined turnover of the New York and London stock exchanges.
R.: As you've said, investment bankers are the main intermediaries in this market, specializing in assisting firms to obtain new financing. And why is the market so attractive to borrowers?
F.: The market is outside the direct control of any national central bank, so it is free, competitive and flexible. It is characterized by relatively low capital costs for borrowers. Issuers can get cheap credits. I've read that Russia has issued its Eurobonds in the international bond market, and the first issues were successful.
R.: Yes, they were. So far Russia has made several placements of Russian Eurobonds. The first $1 billion issue with a 9.25% interest was made in Zurich, the second issue was made in Germany and was denominated in Deutsche marks. We are thinking of new issues.
F.: For what purposes will the funds obtained by your government be used?
R.: The money will be spent on resolving most burning social problems, including elimination of arrears and payment of wages and salaries.
F.: I must say here that in addition to Eurobonds denominated in a single currency, the market is moving in favour of the Euro.
Words you may need:
bearer security предъявительская ценная бумага transnational n транснациональная компания placement n размещение (ценных бумаг)
lead manager банк, являющийся организатором и гарантом займа mature v наступать (о сроке платежа)
rate v присуждать рейтинг turnover n оборот
Ex. 14. Give extensive answers to these discussion questions:
1.What role do financial markets play today?
2.What are the major financial markets today?
3.How can financial markets be classified?
4.What is a bond?
5.What is the difference between debt and equity markets?
6.What does the global bond market consist of?
7.How do you assess the Russian Bond market?
8.How are emerging bond markets developing? What problems are they facing?
9.How are bond placements arranged?
In order to get prepared for participation in the class discussion of the above questions, write a short essay on the following:
a)A bond as a financial instrument.
b)Financial markets.
(Use: to classify, to divide, to create, to develop, to emerge) c) Bond market.
(Use: global, domestic, internal, external, national, foreign, to consist of, to decompose, issuer, to domicile)
Ex. 15. Prepare a short talk on the following:
a)Future of the Russian debt market.
b)Prospects of restructuring Russia's treasury bill debt and GKOs.
c)Your opinion about the role of Russian government bonds as an instrument of monetary policy and a means to finance the budget deficit.
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Ex. 16. Scan the available financial papers and summarize the attitude of foreign investors towards Russian bonds placed abroad.
READING PRACTICE
Ex. 17. a) Look through the text below to say what types of securities are described in it.
b) Reread the text more carefully and explain how the US government uses debt instruments.
US Government Securities
The US government relies heavily on debt financing. Since the 1960s, revenues have seldom covered expenses, and the differences have been financed primarily by issuing debt instruments. Moreover, new debt must be issued in order to get the necessary funds to pay off old debt that comes due.
About two-thirds of the public debt is marketable, meaning that it is represented by securities that can be sold at any time by the original purchaser through government security dealers.
Marketable issues include Treasury bills, notes, and bonds.
US Treasury Bonds have maturities greater than ten years at the time .of issuance, with denominations ranging from $1,000 upward. Some Treasury bond issues have call provisions under which the Treasury has the right to force the investor to sell the bonds back to the government at par value.
US Savings Bonds are nonmarketable securities, offered only to individuals and selected organizations. There is a limit to the amount that may be purchased by any person in a single year. Two types are available: pure discount bonds and bonds that pay interest semiannually but can be redeemed for par value at any time.
To support credit for home purchase, the government has authorized the issuance of participation certificates. The most important certificates of this type are those issued by the Government National Mortgage Association (GNMA or "Ginnie Mae"), they are known as GNMA Modified Pass-Through Securities. Unlike most bonds, GNMA pass-through securities pay investors on a monthly basis an amount of money that represents both a pro rata return of principal and interest on the underlying mortgages.
US Corporate bonds. Corporate bonds are similar to other kinds of fixed-income securities. An issue of bonds is generally covered by an indenture, in which the issuing corporation promises a specified trustee that it will comply with a number of stated provisions, like the timely payment of required coupons and principal on the issue. The major types are as follows:
Mortgage bonds are debt that is secured by the pledge of specific property. In the event of default, the bondholders are entitled to obtain the property in question.
Collateral trust bonds are debt-backed by other securities that are usually held by the trustee.
Debentures are general obligations of the issuing corporation representing unsecured debt. A bond indenture will often require the issuing corporation to make annual payments into a sinking fund.
Words you may need:
treasury bond долгосрочные казначейские обязательства (облигации)
call provision условие займа, предусматривающее право эмитента досрочно выкупить ценные бумаги par value паритет, номинал
participation certificate сертификат участия
Government National Mortgage Association (GNMA) Правительственная национальная ипотечная ассоциация
pass-through security ценная бумага, выпущенная на базе пула ипотек pro rata adj, adv пропорциональный, пропорционально
fixed-income security ценная бумага с фиксированным доходом indenture n письменное соглашение об эмиссии облигаций trustee n доверенное лицо, опекун
mortgage bond облигация, обеспеченная закладной под недвижимость pledge n залог
collateral trust bond облигация, обеспеченная другими ценными бумагами, хранящимися на условиях траста unsecured debt необеспеченный долг
sinking fund выкупной фонд, фонд погашения задолженности
Ух. 18. a) Read the text below quickly to find the developments in the US bond market that occurred in the
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early 90s.
b) Reread the text more carefully to describe the changes in the Yankee offerings and the interests of US investors.
Borrowers Pile Up the Yankees
During the past six years, according to the Federal Reserve, foreign non-financial borrowers placed $170 billion of public and private bonds in the US – nearly four times the volume issued during all of the 1980s and taking the total amount outstanding to $264 billion last September.
Until recently, only the most creditworthy foreign names were able to tap the US bond market, the largest pool of capital in the world. Yankee offerings were mainly limited to Canadian provinces, supranationals such as the World Bank and triple-A-rated governments and corporations. But as long-term US rates have fallen, and some barriers to entry were removed, many more borrowers have entered the market. By some estimates, single-A and lesser credits accounted for 60% of last year's issues (of which 80% were for 10 years or longer).
The introduction of Rule 144a in April 1990 really opened the door, allowing issuers to offer bonds to large US institutional investors without registering the offering with the Securities and Exchange Commission (SEC). This exemption greatly reduces the time, expense and disclosure required, while extending the benefits of underwriting and secondary-market trading to these placements.
The adoption of Rule 144a also helped increase awareness among foreign issuers of the US bond market's unique attractions. "Many can tap 20-, 30and even 100-year maturities at costs not achievable anywhere else in the world".
On the demand side, US investors are becoming increasingly receptive to foreign names. In a recent survey of the 400 most active US institutional investors, JP Morgan found that foreign bonds now account for between 9% and 10% of the average portfolio, compared with 4% to 5% just three years ago. One reason for this interest is a relative decline in the volume of domestic bond issues, especially by US industrials. In these circumstances investors are looking for new ways to diversify their credit exposure and they have looked overseas.
But the most powerful force behind increased demand has been an attempt by US fund managers to boost returns in hopes of outperforming the benchmark indices.
Why Yankees? Since they don't come to the market often, their yield spreads may not be priced efficiently; it is not uncommon to see a 50 bp difference in spreads between apparently similar issues. Sophisticated managers are looking for "inefficiencies which the market will eventually recognize", resulting in higher bond prices.
Not surprisingly, these investors are focusing on Asia, expect more Yankee issues from Indonesia, India, Thailand and the Middle East.
Words you may need:
pile up v накапливать
creditworthy adj кредитоспособный, платежеспособный
to tap the market выпускать ценные бумаги на рынок, использовать ресурсы финансового рынка triple-A-rated имеющий рейтинг ААА (высший кредитный рейтинг по системе Стэндард Энд Пур) single-A credit кредит, имеющий рейтинг А (низкий рейтинг)
Rule 144а правило 144а (правило Нью-йоркской фондовой биржи) disclosure n представление компанией информации о своей деятельности awareness n (зд.) осведомленность
receptive adj восприимчивый
exposure n риск потенциальных убытков benchmark index отправной индекс, базовый индекс spread n спред
bp (basis points) базовые пункты
Ex. 19. Study the financial section from a newspaper, which includes information about the bond prices of different companies, and explain how to read bond quotations:
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UNIT 9. FINANCIAL MARKETS. THE STOCK MARKET
A. TEXT
STOCKS AND MARKETS
Stock Markets are the means through which securities are bought and sold. The origin of stock markets goes back to medieval Italy.1 During the 17th and 18th centuries Amsterdam was the principal centre for securities trading hi the world. The appearance of formal stock markets and professional intermediation resulted from the supply of, demand for and turnover in transferable securities. The 19th century saw2 a great expansion in issues of transferable securities.
The popularity of transferable instruments as a means of finance continued to grow and at the beginning of the 20th century there was an increasing demand for the facilities provided by stock exchanges, with both new ones appearing around the world and old ones becoming larger, more organized and increasingly sophisticated.
The largest, most active and best organized markets were established in Western Europe and the United States. Despite their common European origins there was no single model which every country copied.
Members of stock exchanges drew up rules to protect their own interests and to facilitate the business to be done by creating an orderly and regulated marketplace.
Investors were interested in a far wider range of securities3 than those issued by local enterprises. Increasingly, these local exchanges were integrated into national markets.
The rapid development of communications allowed stock exchanges to attract orders more easily from all over the country and later the barriers that had preserved the independence and isolation of national exchanges were progressively removed, leading to the creation of a world market for securities. The 1980s saw the growing internationalization of the world securities markets, forcing stock exchanges to compete with each other. Cross-border trading of international equities expanded.
Although many securities were of interest to only a small and localized group, others came to attract investors throughout the world. Increasingly, arbitrage between different stock exchanges ensured that the same security commanded the same price4 on whatever market it was traded. London, Paris, New York became dominant stock exchanges.
Stock exchanges emerged as central elements in the financial systems of all advanced countries.
Potential investors, insurance companies, pension funds, governments and corporate enterprises see securities as a cheap and convenient means of finance.
An investor who purchases new securities is participating in a primary financial market. An investor who resells existing securities is participating in a secondary financial market.
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