FINANCIAL MARKETS

 

Financial Markets: Places where buyers and sellers of financial assets converge. Financial institutions participating in them include banks, exchanges, custodians, brokers, dealers, and market makers. They all interact with the end buyers and sellers of financial assets. Each country’s financial markets have their own legal, licensing and regulatory requirements.

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Issuers: Legal entities originating securities sold to the public, and contractually responsible for the repayment of any obligation generated by those securities. Debt and equity securities are usually created in the context of a financing transaction, of which issuers are the recipients of funds raised.

 

Broker Dealers: Intermediaries that buy and sell financial assets on behalf of others, usually earning a commission. Brokers open accounts for their customers, to which they transfer customer assets, and from which assets are purchased and sold.

 

Market Makers: Market participants or brokers placing two-way asset prices (for purchase or sale).

 

Custodians: Financial institutions holding assets on behalf of customers and third parties. Many of them are also broker dealers, which are then said to be self clearing.

 

Banks: Financial institutions that may take deposits from the public. They can lend the same resources to third parties. Many of them are also brokers and/or custodians.

 

Exchanges: Marketplaces where buyers and sellers converge to trade generic financial assets. Exchanges are public in nature, in particular pertaining to price, time, type, and quantity of assets traded. They have evolved from loud voice outcry marketplaces, into electronic ones. Most trade during a specific set of hours, or electronically afterhours.

 

Most exchange participants are broker dealers registered with the exchange, and their customers (their account holders) trade indirectly through them. Brokerage accounts at the exchange have a common clearing and depository institution (the clearing house).

 

Exchanges list the assets that can be bought or sold by their participants. Listing means the creation of a public generic and standardized contract, for the purchase and sale of a specific asset. If an exchange stops trading an asset, the asset is said to be de-listed.

 

Other Markets: Assets also trade in direct private markets, and between financial institutions and their customers (“over the counter”). Non-listed markets, including bond ones, may be organized around clearing institutions where assets are registered and traded.