watch the videoInvestment Banking Areas Explained: Capital Markets
6 issues that will define the future of capital markets
08 Sep 2021
Matthew BlakeHead of Shaping the Future of Financial and Monetary Systems, World Economic Forum
Akash ShahChief Growth Officer, BNY Mellon
- In the wake of the pandemic and an unequal economic recovery, global capital markets are being transformed by a number of interrelated forces.
- The democratization of public markets has brought benefits and challenges, as has greater access to new wealth creation opportunities in private markets and alternatives.
- Other significant issues include concerns around data and cyber security, the changing dynamics of financial intermediation, and environmental, social and governance transparency.
In the wake of the pandemic and an unequal economic recovery, several interrelated forces are transforming the way global capital markets work. As the world's economies rebound, market participants broadly recognize a need for reforms to the established modus operandi, to build resilience, to remain competitive in the face of innovation, and to retain their customers’ trust.
The World Economic Forum's platform on Shaping the Future of Financial and Monetary systems, in collaboration with BNY Mellon, will launch a new series of multi-stakeholder conversations on the future of capital markets. The project aims to help financial market participants to better understand the dynamics shaping the future of capital markets, while strengthening trust in the system. The following six areas will be central to the discussion:
1. Democratization of public markets
In January, a contingent of retail traders (non-professional traders) on Reddit’s WallStreetBets launched the equivalent of a market revolt by drastically influencing the prices of several publicly-traded companies. These episodes cost hedge funds and professional investors – many of whom had been betting against these same stocks – billions of dollars, and raised questions about market practices and resilience.
Historically, access to capital markets was global capital markets mediated, available only to institutions or individuals who had the time, money and resources to manage their assets with the help of brokers and financial advisors. Today, market data is readily accessible online and new technologies have significantly reduced the cost of trading and other barriers to entry. This means that more people can trade, at any time, from anywhere.
Retail investors now make up an estimated 23% of US equity trading volume, which represents more than a two-fold increase since 2010. Increased access to markets is a positive development, but it is not without risk. It raises important questions about market and institutional resilience, and investor safeguards, as well as opening a broader discussion on financial education.
2. Greater access to new wealth creation opportunities
Private market investment opportunities, with their more lucrative return profiles, were historically available only to institutional and accredited investors. This exclusive access was based on a perceived level of sophistication and risk management expertise among these investors. Today, new products are being developed that allow retail investors to allocate capital to private market alternatives.
Here again, challenges surface when opening these products to a larger community of investors. People need to know about the associated risks, which differ materially from investing in traditional stocks and bonds.
3. Blurring of public and private markets
More companies than ever before are entering public markets worldwide, and yet in the United States we are seeing firms remain private for longer, and others electing to transition from public to private. This trend is fuelled by heightened disclosure requirements and regulatory scrutiny for publicly-held firms, as well as investor eagerness to fund private companies. Firms are also exploring other avenues to raise capital and reduce dependency on equity markets.
More recently, we have seen a burgeoning market for special purpose acquisitions companies (SPACs) as an alternative route to the traditional Initial Public Offering (IPO). Many businesses have turned to SPACs as a means of streamlining the process of raising capital in public markets, but increased competition and potential regulatory scrutiny have raised questions around their future.
4. Concerns around data and cyber security
Capital markets processes have become more digital as market participants demand faster execution speeds and seamless access to information. These technologies accelerate changes in the industry, but also raise concerns around cybersecurity and data protection.
Data is emerging as its own asset class, and data management infrastructure is a key growth area for traditional financial firms. Institutions are actively seeking ways to leverage analytics to remain nimble and promote growth.
The World Economic Forum's FinCyber initiative, in partnership with the Carnegie Endowment for International Peace, is working to connect the industry’s various cybersecurity initiatives. But questions remain around how firms can innovate safely, benefiting from a more agile use of data while mitigating risks.
5. New roles for financial firms
Some functions traditionally performed by large financial firms are being performed by a new set of competitors. As a result, institutions across the value chain are redefining their roles, taking on new responsibilities, partnering with new technology providers, and introducing new ways of operating in order to keep pace with their clients' needs.
As of 2020, 250 of the top private fintech startups internationally had raised nearly $50 billion in aggregate funding. These platforms often provide complementary services to those offered by legacy institutions, presenting new chances for collaboration and integration. While industry stakeholders have made substantial progress in understanding how consumer-facing fintechs are reshaping financial services, the role of fintech in institutional capital markets is less well understood.
For instance, Blockchain and distributed ledger technologies have the potential to disrupt core functions within capital markets, including trading processes, settlement systems, payments, and capital raising. At the same time, regulators and lawmakers are increasingly vocal about concerns around cryptocurrencies, raising important questions around their future viability as an asset class.
What is the World Economic Forum doing about digital trade?
The Fourth Industrial Revolution – driven by rapid technological change and digitalization – has already had a profound impact on global trade, economic growth and social progress. Cross-border e-commerce has bank of america 1 800 number please trillions of dollars in economic activity continues to accelerate and the ability of data to move across borders underpins new business models, boosting global GDP by 10% in the last decade alone.
The application of emerging technologies in trade looks to increase efficiency and inclusivity in global trade by enabling more small and medium enterprises (SMEs) to repeat its benefits and by closing the economic gap between developed and developing countries.
However, digital trade barriers including outdated regulations and fragmented governance of emerging technologies could potentially hamper these gains. We are leading the charge to apply 4IR technologies to make international trade more inclusive and efficient, ranging from enabling e-commerce and digital payments to designing norms and trade policies around emerging technologies (‘TradeTech’).
6. Transparency around ESG
ESG is a top priority for financial firms. As investors, asset owners, and corporations navigate their roles in supporting the transition to net-zero and stakeholder capitalism—including adopting consistent reporting standards around ESG metrics—significant questions remain about what market structures and tools are needed to support sustainable investing.
We are living through a unique moment in history. The COVID-19 pandemic has forced reflection and accelerated change. Capital markets will continue to evolve, and they must do so in an inclusive and collaborative manner in order to retain public trust.
Matthew Blake, Head of Shaping the Future of Financial and Monetary Systems, World Economic Forum
Akash Shah, Chief Growth Officer, BNY Mellon
The views expressed in this article are those of the author alone and not the World Economic Forum.
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Investors, regulators and stock exchangesare key audiences of sustainability reporting. They play a vital role in using reported information to offer responsible investment and create transparent and sustainable capital markets.
GRIbrings investors, stock exchanges, and capital market regulators in dialogue with reporting organizationsto support the knowledge and use of sustainability reporting andhelp lay the groundwork for resilient markets and sustainable finance.
Investor-relevant sustainability reporting
The GRI Standards provide information on an organization’s outward impacts: on the economy, environment and society. This informationgives insight into the organization’s efforts to contribute to sustainable development. It also provides a window into financially material risks and opportunities facing the organization.
GRI engages with investors to improve their understanding of sustainability reporting and to align corporate sustainability reporting with investors’ informationneeds so that it can form the backbone ofresponsible investing and sustainable finance.
Transparent and sustainable capital markets
Resilient and responsible markets begin global capital markets transparency. Many market regulators now promote some level of ESG disclosure by companies listed on their exchanges, not just to foster transparency for better-functioning markets, but also to promote good corporate governance and encourage organizations to play their part in contributing to sustainable development.
GRI collaborates with market global capital markets and operators, including the Sustainable Stock Exchanges (SSE) initiative, Ceres’s Investor Network on Climate Risk (INCR), the Sustainable Working Global capital markets of the World Federation of Exchanges (WFE), and Principles for Responsible Investment (UN-PRI), increasing the uptake of sustainability reporting and helping reporting organizations meet investors’ needs for ESG information.
Investors and the SDGs
As part of our set of tools for integrating SDGs into sustainability reporting, we have provided reporting companies with guidance on addressing investor needs in business reporting on the SDGs. GRI developed this resource in partnership with UN Global Compact and PRI.
GRI and stock exchanges
A growing number of stock exchanges and regulators around the world reference or require use of the GRI Standards for sustainability (or ESG) reporting by listed companies.
These include: Australian Securities Exchange (ASX), Australian Securities & Investments Commission, Brasil Bolsa Balcao (BBB), Bolsas Y Mercandos Espanoles, Borsa Istanbul (BIST), Bolsa Devalores De Guayaquil, Bursa Malaysia, Capital Markets Development Authority of the Maldives (CMDA), Deutsche Borse (DB), Egyptian Exchange (EGX), Hong Kong Exchange (HKE), Johannesburg Stock Exchange (JSE), NASDAQ, New Zealand Exchange (NZX), Ontario Securities Commission (OSC), Oslo Bors (OSB), Securities Exchange Commission of Pakistan (SECP), Securities and Exchange Commission of the Philippines, Securities & Exchange Board of India, Stock Exchange of Thailand (SET), Singapore Exchange (SGX), Swiss Exchange (SIX), Taiwan Stock Exchange (TAIEX), US Securities & Exchange Commission, Zimbabwe Stock Exchange (ZSE).
The capital markets and investment banking (CMIB) industry is in the midst of a multiyear transformation that necessitates tough strategic choices. In the fixed-income, commodities, and currencies (FICC) arena, for example, some players are pulling out of capital-intensive businesses and radically scaling back large parts of their fixed-income units. Other institutions are leaving the commodities space, providing opportunities for competitors—either existing or new—to gain share. In cash equity brokerage, some European players are either restructuring or exiting altogether. And the industry has still not recovered to its peak precrisis performance levels.
Indeed, after-tax ROE levels of 15 to 20 percent appear to be a thing of the past for most players. The industry average was in the 10 to 13 percent range at the end of 2012, and we estimate that a further 3 percentage points of negative impact from regulation has yet to be absorbed, which will push current ROE levels down to the 7 to 10 percent range.
This situation poses a fundamental question, one that is currently being debated in the market: with other financial-services sectors yielding higher ROE, is the CMIB industry likely to find global capital markets support from impatient investors and boards of directors to survive in the long term? The answer is yes, but global capital markets caveats.
Overall, we believe that the central role of CMIB institutions in the global economy remains intact. Corporations and governments still need to raise capital for investments, investors still need to find adequate returns, and risk still needs to be assessed, intermediated, and transformed. Organizations will continue to need the strategic and financial advice that CMIB players, given their knowledge of clients and markets, are best positioned to offer. Providing such services may have become more expensive for the CMIB industry, but the structural need for these services will not abate. We also believe that some CMIB players, provided they make the necessary tough choices, can raise their ROE to a sustainable level of 12 percent, the minimum that investors will require.
Yet numerous pressures exist. Some issuers and investors, for example, are global capital markets to create a marketplace without intermediation. Certain less-regulated entities such as hedge funds and physical-commodity traders are venturing into the traditional CMIB space. On the resource side, the industry is experiencing cost pressures as well as capital constraints. As a result of these and other dynamics, although the market for CMIB services will remain vital, the value that banks capture will continue to shrink. Some players may be forced to exit the industry entirely, and many more will leave certain asset classes or gradually reduce their exposure and investments in unprofitable areas. In brief, only the fittest will survive.
In this, our second annual report on the global CMIB industry, we explore key market developments and their impact on CMIB players, global capital markets the different choices that banks face today as seen through both a “client” and a “product” lens, and propose six business models that we perceive as the most advantageous. In their purest form, these models have the potential to generate ROE well above the 12 percent level that many players will struggle to achieve. But we emphasize that significantly higher ROE levels, those that are closer to the performance of other sectors of the financial services industry, will be attainable only by relatively few institutions within each of the six business models.
Partner & Director, Wholesale Banking & Capital Markets
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What you need to know about the Global Capital Market
Global Capital Market
Simply put, Global Capital Markets are a place where savings meet investment. In many cases, the form of capital is savings by private individuals. Similarly, capital can come from pension funds, hedge funds and other interest seeking entities. The investment opportunities come in two forms; Equity Capital and Debt Capital. Capital markets consist of the primary market, where new securities are issued and sold, and the secondary market, where already-issued securities are traded between investors. The most common capital markets are the stock market and the bond market. When a company wants to raise equity, we talk about ECM – Equity Capital Markets. When a company wants to raise debt, we talk about DCM – Debt Capital Markets.
Going Public in the Equity Capital Markets?
Going public is a critical moment in the life of any company this means it has grown from a small business to a large entity – ready to get public investors onboard in the ECM. The company shares will global capital markets sold to public investors and they can determine who will run the business and who will sit on board of directors. This is a very complex processes that must be carried out at the right time. The founders of global capital markets company want it to be sold at the right price and monetise their hard work. At the same time public investors are interested in making an investment in a company with great management and a great growth potential.
The Company going public must increase its administrative and finance staff significantly. It will have to prepare several documents and financial reports not required for private firms this is a cost it will have to bear. Timing plays a critical role in the initial public offering (IPO) must be carried out at the right moment. The company must be ready in size, profitability administrative capacity, growth potential and investors must be convinced that their money is in good hands.
Debt capital markets (DCM) are a second important function of global capital markets. A company may want to issue debt securities called bonds. Bond offerings is not different from an equity offering. The players involved are the same. The main difference is that bonds can be issued by sovereign countries.
Debt in its simple form is borrowing from a commercial bank. But a company or a government can borrow money from public investors too. Pubic debt markets work efficiently. Especially when the money value is high. Investors buy a security and expect to earn an interest rate on the bond. Investment bankers’ advise loan terms, prepare company presentations find investors and price the bond.
What is the Investment banker’s role in this process?
Historically investment banker has been the trusted advisors of companies that ensure that the whole process goes smoothly it is their job to provide guidance as to when it is the right time to go public. How the company can position themselves to attract investors interest. To organise meeting between companies’ management and investors. To present to investors the investment opportunities. In addition, the investment banker builds a lists of investors intentions and determine what will be the price that a company wills sell its shares. Ultimately after the IPO the investment bankers will exercise certain instruments at their disposal to stabilise the price of the stock for the first few days of trading on the market.
SAP or Oracle?
Global Capital Markets is part of the Global Corporate and Investment Banking Division (GCIB) at Bank of America.
DCM professionals originate, structure, risk manage and execute debt products, including bonds global capital markets public and private markets), loans and acquisition finance. Our clients include corporates, sovereigns, supranationals, agencies and financial institutions. Post-origination, we continue to assist our clients with their ongoing debt portfolio management through liability management and derivative transactions.
ECM professionals originate, structure and execute equity capital raising products, including IPOs, rights offerings, accelerated placements, convertible bonds, hedging structures, margin loans and structured purchases/disposals.
Both Capital Markets groups work closely with Corporate Banking and Investment Banking (client coverage) and Global Markets (trading and distribution). Therefore, candidates who have a natural interest in both markets and corporate finance will find it a particularly rewarding environment.
As a summer analyst within GCM, your key tasks and responsibilities may include but are not limited to:
Investment Banking and Capital Markets
Mergers & Acquisitions
Morgan Stanley's Mergers and Acquisitions (M&A) department devises and executes innovative, customized solutions to our clients' most challenging issues. The M&A team excels in domestic and international transactions including acquisitions, divestitures, mergers, joint ventures, corporate restructurings, recapitalizations, spin-offs, exchange offers, leveraged buyouts and takeover defenses as well as shareholder relations. Morgan Stanley applies its extensive experience with global industries, regions and banking products to meet our clients' short- and long-term strategic objectives.
Global Capital Markets
Morgan Stanley's Global Capital Markets (GCM) division responds with market judgments and ingenuity to clients' needs for capital. Whether executing an IPO, a debt offering or a leveraged buyout, GCM integrates our expertise in Sales and Trading and in Investment Banking to offer clients seamless advice and sophisticated solutions. We originate, structure and execute telephone number for massachusetts rmv and private placement of a variety of securities: equities, investment-grade and non-investment-grade debt and related products.