The Surge of Capital Markets

By Ted Ryrie, Managing Director, Sharp Decisions, Inc

Ted Ryrie, Managing Director, Sharp Decisions, Inc

In its simplest form, Capital Markets are any number and variety of financial intermediaries between buyers and sellers that allows capital requirements to be satisfied. The Capital Market is used by a variety of entities–companies, governments and individuals–to provide liquidity to promote operations or expansion of the entity. However, unlike the Money Market, the Capital Market is usually employed for a larger and longer term need for capital. Capital Markets are funded by a variety of investors, including retail, institutional and individual who are looking for a return on their willingness to invest. Capital Markets investments are usually considered long-term investments and can be in the form of stocks, bonds, derivatives and others.

Capital markets are perhaps the most widely publicized and followed markets. Both the stock and bond markets are closely followed and their daily movements are analyzed as indicators for the general economic condition of world markets. As a result, the institutions operating in capital markets–stock exchanges, commercial banks, investment banks and all types of corporations, including nonbank institutions such as insurance companies and mortgage banks–are carefully monitored for compliance. 

“Capital markets are perhaps the most widely publicized and followed markets”

The buyers of securities in the capital market tend to use funds that are targeted for longer-term investing. Capital Markets are risky and are not usually used to invest short-term funds. Many investors access the capital markets to save for retirement or education, as long as the investors have long time horizons for their investments, which usually means they are younger and are willing to absorb some measure of risk. 

When such Capital Markets instruments are initially issued, they appear on the primary market.Once these instruments have been offered in the primary market (initial public offering), any subsequent trading is performed in the secondarymarket. Most trading is performed in that secondary market.

As Capital Markets activity continue to expand both in the variety of instruments and the amount of trading in the associated markets, digital transformation is being pursued to bring more agility. The industry is using the value of digital transformation in the following areas:

• Connectivity with customer and internal stakeholders (across all platforms 24/7).
• Refine decision makingthrough use of advance analytics and Big Data.
• Straight through processing through automation and elimination of repetitive, low risk and value processes.
• Taking on innovationacross products and business models–interactive social marketing and digital centric business models.

As we look towards the near term direction of Digital Transformation in the Capital Markets, it is safe to assume that driving more information to users’ personal devices and computers will only help find new paths to disruption and methods for more flexible tools–especially for individual investors. Up to this point, most of the real benefit (speed and agility) brought about by Digital Transformation has been focused on the retail and institutional investors. With the advent of mobile devices with more processing power and speed, the gap between these different classes of Capital Market investors will begin to move closer.

However, with Digital Transformation and the sharing of information to devisesoutside the secure network comes the question of data security.  Questions around methods for identifying valid entities vs. malicious ones and how to encrypt data as it travels out of and into the network are areas that are currently of concern.  As we have seen in many instances, there are players that are always looking for the vulnerabilities that are inherent in our newly advanced technologies.