A capital market is a financial market in which long-term debt (over a year) or equity-

backed securities are bought and sold.[6] Capital markets channel the wealth of savers

to those who can put it to long-term productive use, such as companies or
governments making long-term investments.[a] Financial regulators like 
Securities and Exchange Board of India (SEBI), Bank of England (BoE) and the 
U.S. Securities and Exchange Commission (SEC) oversee capital markets to protect
investors against fraud, among other duties.
Modern capital markets are almost invariably hosted on computer-based 
electronic trading platforms; most can be accessed only by entities within the financial
sector or the treasury departments of governments and corporations, but some can be
accessed directly by the public. As an example, in the United States, any American
citizen with an internet connection can create an account with TreasuryDirect and use
it to buy bonds in the primary market, though sales to individuals form only a tiny
fraction of the total volume of bonds sold. Various private companies provide browser-
based platforms that allow individuals to buy shares and sometimes even bonds in the
secondary markets. There are many thousands of such systems, most serving only
small parts of the overall capital markets. Entities hosting the systems include stock
exchanges, investment banks, and government departments. Physically, the systems
are hosted all over the world, though they tend to be concentrated in financial centres
 like London, New York, and Hong Kong.
• A capital market can be either a primary market or a secondary market. In primary
market, new stock or bond issues are sold to investors, often via a mechanism
known as underwriting. The main entities seeking to raise long-term funds on the
primary capital markets are governments (which may be municipal, local or
national) and business enterprises (companies). Governments issue only bonds,
whereas companies often issue both equity and bonds. The main entities
purchasing the bonds or stock include pension funds, hedge funds, 
sovereign wealth funds, and less commonly wealthy individuals and investment
banks trading on their own behalf. In the secondary market, existing securities are
sold and bought among investors or traders, usually on an exchange, 
over-the-counter, or elsewhere. The existence of secondary markets increases the
willingness of investors in primary markets, as they know they are likely to be able
to swiftly cash out their investments if the need arises.[7]
• A second important division falls between the stock markets (for equity securities,
also known as shares, where investors acquire ownership of companies) and the 
bond markets (where investors become creditors).[7]
• The money markets are used for the raising of short-term finance, sometimes for loans that are
expected to be paid back as early as overnight. In contrast, the "capital markets" are used for the
raising of long-term finance, such as the purchase of shares/equities, or for loans that are not
expected to be fully paid back for at least a year.[6]
• Funds borrowed from money markets are typically used for general operating expenses, to provide
liquid assets for brief periods. For example, a company may have inbound payments from customers
that have not yet cleared, but need immediate cash to pay its employees. When a company borrows
from the primary capital markets, often the purpose is to invest in additional physical capital goods,
which will be used to help increase its income. It can take many months or years before the
investment generates sufficient return to pay back its cost, and hence the finance is long term.[7]
• Together, money markets and capital markets form the financial markets, as the term is narrowly
understood.[b] The capital market is concerned with long-term finance. In the widest sense, it
consists of a series of channels through which the savings of the community are made available for
industrial and commercial enterprises and public authorities.
• Regular bank lending is not usually classed as a capital market transaction, even when loans are extended for a
period longer than a year. First, regular bank loans are not securitized (i.e. they do not take the form of a
resaleable security like a share or bond that can be traded on the markets). Second, lending from banks is
more heavily regulated than capital market lending. Third, bank depositors tend to be more risk-averse than
capital market investors. These three differences all act to limit institutional lending as a source of finance. Two
additional differences, this time favoring lending by banks, are that banks are more accessible for small and
medium-sized companies, and that they have the ability to create money as they lend. In the 20th century,
most company finance apart from share issues was raised by bank loans. But since about 1980 there has been
an ongoing trend for disintermediation, where large and creditworthy companies have found they effectively
have to pay out less interest if they borrow directly from capital markets rather than from banks. The tendency
for companies to borrow from capital markets instead of banks has been especially strong in the United States.
According to the Financial Times, capital markets overtook bank lending as the leading source of long-term
finance in 2009, which reflects the risk aversion and bank regulation in the wake of the 2008 financial crisis.[8]
• Compared to in the United States, companies in the European Union have a greater reliance on bank lending
for funding. Efforts to enable companies to raise more funding through capital markets are being coordinated
through the EU's Capital Markets Union initiative.[9][10][11][12]
• While the Italian city-states produced first formal bond markets, they did not develop the other
ingredient necessary to produce a fully fledged capital market: the formal stock market.[15] The Dutch
were the first who effectively used a fully-fledged capital market (including the bond market and the
stock market) to finance companies (such as the Dutch East India Company and the 
Dutch West India Company). It was in the 17th-century Dutch Republic that the global securities market
 began to take on its modern form. The Dutch East India Company (VOC) became the first company to
offer shares of stock. The dividend averaged around 18% of capital over the course of the Company's 200-
year existence. The launch of the Amsterdam Stock Exchange (a.k.a. Beurs van Hendrick de Keyser in
Dutch) by the VOC in the early 1600s, has long been recognised as the origin of 'modern' stock exchanges
that specialise in creating and sustaining secondary markets in the securities (such as bonds and shares of
stock) issued by corporations.[16] Dutch investors were the first to trade their shares at a regular stock
exchange. The process of buying and selling these shares of stock in the VOC became the basis of the first
official (formal) stock market in history.[17][18] It was in the Dutch Republic that the early techniques of 
stock-market manipulation were developed. The Dutch pioneered stock futures, stock options, 
short selling, bear raids, debt-equity swaps, and other speculative instruments.[19]
• Examples
• When a government wants to raise long-term finance it will often sell bonds in the capital
markets. In the 20th and early 21st centuries, many governments would use investment banks to
organize the sale of their bonds. The leading bank would underwrite the bonds, and would often
head up a syndicate of brokers, some of whom might be based in other investment banks. The
syndicate would then sell to various investors. For developing countries, a 
multilateral development bank would sometimes provide an additional layer of underwriting,
resulting in risk being shared between the investment bank(s), the multilateral organization, and
the end investors. However, since 1997 it has been increasingly common for governments of the
larger nations to bypass investment banks by making their bonds directly available for purchase
online. Many governments now sell most of their bonds by computerized auction. Typically, large
volumes are put up for sale in one go; a government may only hold a small number of auctions
each year. Some governments will also sell a continuous stream of bonds through other
channels. The biggest single seller of debt is the U.S. government; there are usually several
transactions for such sales every second,[c] which corresponds to the continuous updating of the
U.S. real-time debt clock.[20][21][22]
• When a company wants to raise money for long-term investment, one of its first decisions is whether to do so
by issuing bonds or shares. If it chooses shares, it avoids increasing its debt, and in some cases the new
shareholders may also provide non-monetary help, such as expertise or useful contacts. On the other hand, a
new issue of shares will dilute the ownership rights of the existing shareholders, and if they gain a controlling
interest, the new shareholders may even replace senior managers. From an investor's point of view, shares offer
the potential for higher returns and capital gains if the company does well. Conversely, bonds are safer if the
company does poorly, as they are less prone to severe falls in price, and in the event of bankruptcy, bond
owners may be paid something, while shareholders will receive nothing.
• When a company raises finance from the primary market, the process is more likely to involve face-to-face
meetings than other capital market transactions. Whether they choose to issue bonds or shares,[d] companies
will typically enlist the services of an investment bank to mediate between themselves and the market. A team
from the investment bank often meets with the company's senior managers to ensure their plans are sound.
The bank then acts as an underwriter, and will arrange for a network of brokers to sell the bonds or shares to
investors. This second stage is usually done mostly through computerized systems, though brokers will often
phone up their favored clients to advise them of the opportunity. Companies can avoid paying fees to
investment banks by using a direct public offering, though this is not a common practice as it incurs other legal
costs and can take up considerable management time.[20][23]
• Most capital market transactions take place on the secondary market. On the primary market, each security can be sold only once, and the
process to create batches of new shares or bonds is often lengthy due to regulatory requirements. On the secondary markets, there is no limit to
the number of times a security can be traded, and the process is usually very quick. With the rise of strategies such as high-frequency trading, a
single security could in theory be traded thousands of times within a single hour.[e] Transactions on the secondary market do not directly raise
finance, but they do make it easier for companies and governments to raise finance on the primary market, as investors know that if they want
to get their money back quickly, they will usually be easily able to re-sell their securities. Sometimes, however, secondary capital market
transactions can have a negative effect on the primary borrowers: for example, if a large proportion of investors try to sell their bonds, this can
push up the yields for future issues from the same entity. An extreme example occurred shortly after Bill Clinton began his first term as President
of the United States; Clinton was forced to abandon some of the spending increases he had promised in his election campaign due to pressure
from the bond markets [source?]. In the 21st century, several governments have tried to lock in as much as possible of their borrowing into long-
dated bonds, so they are less vulnerable to pressure from the markets. Following the financial crisis of 2007–08, the introduction of 
quantitative easing further reduced the ability of private actors to push up the yields of government bonds, at least for countries with a 
central bank able to engage in substantial open market operations.[20][22][23][24]
• A variety of different players are active in the secondary markets. Individual investors account for a small proportion of trading, though their
share has slightly increased; in the 20th century it was mostly only a few wealthy individuals who could afford an account with a broker, but
accounts are now much cheaper and accessible over the internet. There are now numerous small traders who can buy and sell on the secondary
markets using platforms provided by brokers which are accessible via web browsers. When such an individual trades on the capital markets, it
will often involve a two-stage transaction. First they place an order with their broker, then the broker executes the trade. If the trade can be done
on an exchange, the process will often be fully automated. If a dealer needs to manually intervene, this will often mean a larger fee. Traders in
investment banks will often make deals on their bank's behalf, as well as executing trades for their clients. Investment banks will often have a
division (or department) called "capital markets": staff in this division try to keep aware of the various opportunities in both the primary and
secondary markets, and will advise major clients accordingly. Pension and sovereign wealth funds tend to have the largest holdings, though they
tend to buy only the highest grade (safest) types of bonds and shares, and some of them do not trade all that frequently. According to a
2012 Financial Times article, hedge funds are increasingly making most of the short-term trades in large sections of the capital market (like the
UK and US stock exchanges), which is making it harder for them to maintain their historically high returns, as they are increasingly finding
themselves trading with each other rather than with less sophisticated investors.[20][22][23][25]
• There are several ways to invest in the secondary market without directly buying shares or bonds. A common method is to invest in mutual funds
[f] or exchange-traded funds. It is also possible to buy and sell derivatives that are based on the secondary market; one of the most common type

of these is contracts for difference – these can provide rapid profits, but can also cause buyers to lose more money than they originally invested.
[20]