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Financial markets are defined as places where it is possible sell or buy financial instrumentswhether stocks, bonds, derivatives, fund shares, etc.

Today, financial markets are no longer physical places, but virtual platforms which are also called trading venues. Here the purchase or sale offers are entered into the system electronically.

Índice
  1. Historical background
  2. Characteristic
  3. Activities
  4. operators
  5. Types
  6. Stock market
  7. primary market
  8. Secondary market
  9. Over-the-counter (OTC) market
  10. The bag
  11. bond market
  12. foreign exchange market
  13. Regulated markets
    1. The sender:
    2. The financial instruments traded:
  14. Multilateral trading systems
  15. Systematic internalizers
  16. outside the financial markets

Historical background

The history of finance and financial markets, places the first sale of securities in the Belgian city of Bruges, at the beginning of the year 1500. At that time, securities were bought from merchants who represented a credit or merchandise that arrived by sea. and that it was not yet materially available.

However, it is considered that the first real financial market was the one that arose in Antwerp in 1532 and became an important meeting place for merchants and bankers. From then on, numerous stock exchanges flourished in Europe.

Loan operations in favor of the monarchs and the issuance of negotiable public debt securities began to take place in these places: the first government bonds.

also starts trading shares in companieswhich become true joint-stock companies thanks to the enormous profits of the Dutch and English colonial campaigns.

financial markets
Financial markets

Characteristic

Financial markets are characterized by:

  • Precise rules on the admission of operators and financial instruments and on the operation of stock exchanges.
  • A company (normally the one that organizes the market) to which the supervisory activity is attributed, in collaboration with the reference control authority.

Activities

Within a financial market, money is transferred from those who accumulate savings to those who demand them.

Those who need liquidity are called "subjects with financial deficit" and, to obtain financing, they issue financial instruments (for example, shares, BOT, bonds, etc.) that are sold to "subjects with financial surplus".

This exchange allows redistribute economic riskssince they are assumed, in part, by those who buy the financial instruments.

The latter can also resell them by selling them in special markets to other economic subjects. Thus, there are stock markets, bond markets, derivatives markets, options markets, warrants markets, etc.

Each of them has its own rules and regulations. Each of them has its own rules and characteristics.

operators

In a financial market there are three different actors:

  • investorswho buy and sell financial instruments;
  • the issuerswhich issue securities or financial instruments;
  • financial intermediarieswhich facilitate exchanges and monitor transactions to ensure that everything is done correctly and in accordance with the law.
financial markets
Financial markets

Types

Financial markets are divided into many different types, according to the criteria used to differentiate them. For example, with reference to duration, a distinction is made between the money market and the capital market, or with reference to the issuance of financial instruments between the primary and secondary markets.

There are other distinctions

  • between the markets cash and derivatives,
  • between the market auctions and market makerseither
  • between the market physical and electronic.

But perhaps the most outstanding differentiation is the one that uses the nature of the instruments traded in the financial market as a criterion, thus isolating the stock, bond and currency markets.

Stock market

The stock market is where the shares of publicly traded companies are traded. It is divided into different segments, depending on when the share is bought or sold or whether the exchange is made by directly contacting the specific company from which it is purchased.

Thus, it speaks of primary, secondary and over-the-counter markets.

primary market

First-issue securities, that is, those that have not yet been acquired by anyone, are placed on the primary market. In this case, it is the company itself that issues the shares.

Secondary market

Instead, securities that are already in circulation are resold on the secondary market, without the company that originally issued them directly participating in the exchange.

Over-the-counter (OTC) market

The OTC market allows investors to participate in the buying and selling of securities from a decentralized market. Decentralized means that the buying or selling transaction takes place between two parties, such as the merchant and the broker.

Trades are usually executed electronically or by phone, email or through a trading platform. Normally, the values ​​and prices found in the OTC market are different from those on the stock market.

The bag

The stock market is the traditional means through which financial instruments are traded on the stock market. In fact, the exchange offers facilities for the issuance and redemption of financial instrumentsincluding the payment of profits and dividends.

Most publicly traded companies use local stock exchanges as a platform to list their securities.

bond market

When companies and states need financing, they issue special titles called "bonds" using the bond market. Here, investors or banks can buy these bonds by fixing their interest rate based on various criteria, such as the risk of default and the yield.

The bond market is also divided into a primary market and a secondary market.

foreign exchange market

The largest financial market in the world, in terms of transaction value, is the foreign exchange market (or foreign exchange market for short). Forex).

Trades between different currencies take place here, which is why it is also called the foreign exchange market.

Nearly $2 trillion is traded on the foreign exchange market every day, with most transactions conducted by central banks, commercial banks, multinational companies and governments, among others.

In financial markets, money is transferred between those who have it and those who need it. As economists say: between households and businesses.

But also between investorsbetween those who already own securities and want to sell them and those who do not own them and want to buy them.

The transfer is made through intermediaries and special instruments, such as shares, bonds and so-called derivative instruments.

Over the last century and a half, financial markets have acquired increasing importance as a place of investment and wealth generation, to the point that they themselves have become not only the effect, but also the cause of major crises. economic.

Financial markets are spaces where it is authorized and it is possible to buy and sell financial instruments such as stocks, bonds, derivatives and fund shares.

  • In the primary market, securities are bought when they are issued.
  • In the secondary market (the so-called "financial markets" by all) the titles are then bought from those who have already subscribed to them.

Financial markets have long since ceased to be physical places to become computer platforms called "trading venues". In them the purchase and sale proposals are crossed. The markets operating in Italy are divided into 3 subgroups:

  • regulated markets;
  • multilateral trading facilities (MTFs);
  • systematic internalizers.

Regulated markets

Regulated markets are systems in which proposals to buy or sell financial assets They are placed by various intermediaries, either independently or on behalf of third parties.

Proposals on the financial markets are executed in such a way that they are "against each other", that is, in such a way that they are associated with proposals that are compatible in terms of quantity and price, but of opposite sign.

These are entered into the system by other intermediaries, without the interposition of the market operatoraccording to a trading system called multilateral.

The coordination of the financial markets is carried out through the market management companies authorized by the Consob.

A relevant aspect in the financial markets is the scope of the information that is made available to investors, these refer to

The sender:

His financial situation, relevant facts about him, main shareholders, people who exercise control of the company.

The financial instruments traded:

significant short sales of shares, shares bought or sold by the senior management of the issuers.

Multilateral trading systems

Multilateral trading facilities constitute the second subdivision of the financial market. These systems are analogous to regulated markets in that they are coordinated in accordance with multilateral trading facilities.

The difference is, however, that they can also be managed by banks or SIMs, for example, and, in general, by subjects other than market management companies, provided that they are authorized subjects.

In addition, in this case, the amount of information made available is less extensive: the main shareholders, the control of the company and the transactions carried out by the directors, auditors and managers of the issuer's securities (senior executives) are not disclosed. ).

Systematic internalizers

Systematic internalizers constitute the third subgroup. These are intermediaries, mostly banks, authorized to trade financial assets on their own account. It is a bilateral trade system.

The only intermediary present, in fact, is the systematic internalizer: he intervenes in all transactions, buying from those who sell and selling to those who buy, at the price set by him. There are no special rules for the disclosure of information about the issuers of the securities traded.

outside the financial markets

Finally, to complete the picture of the financial markets, it should be added that the purchase and sale of financial assets is also possible outside the markets, in a modality known as over-the-counter.

These operations are usually carried out in counterpart with an authorized intermediary, such as a bank or a SIM.

The integrity of the financial markets is guaranteed by the supervisory authorities, which impose sanctions on those who commit market abuse according to precise categories, such as the use of inside information or false information to manipulate the market or distort prices.

The sanctions consist of fines or the confiscation of the benefit of the infraction. Criminal penalties are also established for various intentional offences.

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