Thursday 20 December 2018

Capital market – Types and functions

Capital market

Understanding The Capital Market

It is the market for various long-term financial instruments that can be trade, reproduce in the form of debt or private equity, both publish by the Government, public authorities, and private companies. Generally, securities that are trade in the capital market can be differentiate into securities are debt securities and ownership interests.

Debt securities are commonly known names of bonds and securities are known as stock ownership. Further can be also define that the bond is evidence of the recognition of the debt of the companies, while the stocks is proof of equity from the company.

Understanding the capital markets in General is a financial system that is organize, including commercial banks and all financial intermediaries in institutions, as well as the overall securities in circulation. In a narrow sense, the capital market is a market (place, building) are prepare to trade stocks, bonds-bonds, and other securities types using the brokerage services. Seen from an understanding of the capital markets, then it is obvious that the capital market is also one of the ways for the company in the search for funds by selling rights to the ownership company to the community.

Investment and Capital market participants

today have develop a model in decision making about the proposal of investing in a portfolio, where the propose new project It is associate with other projects that exist in a company.  Projects that investment has risks that are not independent. Expectations of a profit of a portfolio is the weight average profit expectation from the securities in its portfolio to be compare.

The main players involve in capital market supporting institutions and who was directly involve in the transaction process between the major players in the following:


The company will undertake the sale of securities or conduct emission in bursa (call the issuer). In performing the emissions, the issuers have different goals and this is usually already contain in the general meeting of shareholders (GMS), among other things:

  • The expansion effort, obtain from capital investors will be use to expand the field of business, expansion of markets or production capacity.

  • Improve capital structure, balancing between private equity with foreign capital.

  • Organizing the transfer of shareholders. Redirects from the old shareholders to the new shareholders.


The financier will buy or infuse capital in companies that perform emission (call investors). Before purchasing the securities offer, investors typically undertake specific research and analysis. This research includes the reliability company, business prospects and analysis of other issuers.
The main purpose of the investors in the capital market, among others:

    1. Earn dividends. Address to the advantages that will be acquire in the form of interest paid by the issuer in the form of dividends.

    2. Ownership of the company. The more shares own then the bigger concession (master) of the company.

  • Shares sold back at a time when prices are high, they are at the stocks that really can increase its profits from the sale of its shares.

Ancillary Institutions.

The function of these supporting institutions, among others, participate in support of operation of the capital markets, so that makes it easy to both issuers and investors in conducting various activities related to the capital market. Supporting institutions that play an important role in the capital market mechanism is as follows:

  • Institutions that guarantee the sold it shares/bonds up to a certain age and can obtain the desire Fund issuers.

  • Effect of trade Intermediary (brokers/broker). Mediation in buying and selling securities, i.e. the mediator between the seller (issuer) and the buyer (investor).

Activities conducted by brokers, among others, include:

  • Provide information about issuers

  • Do sales effect to investor - securities trading (dealers), serves as: Traders in selling effect as intermediaries in selling effects.

  • Insurer (guarantor). The institution of the mediator between the giver trust with the recipients of trust. Institution that is trust by investors before implanting the Fund.

  • Trustee (trustee). Trustee services need as the guardian of the giver mandate (investors). The trustee's activities include: Assessing wealth issue, analyzes the ability of issuers, do supervision and development issuers.

  • Give advice to investors in terms of the with regard to issuers

  • Monitors the payment of interest and principal on Treasury bonds, acting as an agent of payments

  • Company Securities (securities company). Specializes in the trade of securities list on the stock exchange. Corporate securities activities include: as a dealer, underwriter, securities trading Intermediaries, fund Manager.

  • Investment fund management company company). Managing securities that will benefit in accordance with the wishes of investors, made up of two units of the Fund Manager and as the keeper of the Fund.

  • Administrative Office effect. The Office helps the issuers and investors in order to streamline his administration. helps issuers in order of emissions, carry out storing and transfer of rights to the shares investors, help compiling a list of shareholders, prepare correspondent issuers to shareholders, create the necessary reports.

The type and function of the capital market

Capital market is distinguish into 2 IE primary market and secondary market:

Primary market (Primary Market)

primary market is first-time stock offerings from issuers to the investors during the time appoint by the issuer (issuer) before shares are not trade on a secondary market. Usually for a period of at least 6 working days. The price of shares in the primary market determine by the underwriters and the companies that go public base on fundamental analysis of the company concern.

In the primary market, the company will obtain the necessary funds. Companies can use the funds to develop emissions results and expand capital goods to produce goods and services. Moreover, it can also be use to pay off debts and improve the structure of the capital effort. Stock prices remain the primary market, the authorities are the underwriter and broker, is not subject to Commission with reservations made through sales agents.

Secondary markets (Secondary Market)

is the site of secondary market transaction of shares among investors
after the share offer through in the primary market, within 90 days after permit emissions given then the effect should be list on the Exchange.

The existence of a secondary market investors can buy and sell the effect at any time. While the benefits to the company, the secondary market is useful as a place to gather investors institutions and individuals.

Secondary market stock prices fluctuate in accordance with expectations of the market, the authorities are the brokers, the presence of a load of commissions for sales and purchases, order made through members of the Exchange, the duration is not limit. The site of the secondary market in two places, namely:


Exchange of regular Exchanges is the official stock exchange such as the Jakarta Stock Exchange (BEJ) and Surabaya stock exchange (BES)


Exchange parallel or over the counter is a system of trade effects are organize outside. The official stock exchange, with a secondary market. Which is regulate and organize by the Trade Union money and effects (PPUE) supervise and coach. Over the counter since the meeting between. The buyer and seller are not perform on a specific place but scatter among the Office of the broker or dealer.

The function of capital market

place of the merging parties has more funds (lenders) and parties that require such long-term funds (borrower's). The capital markets have a dual function, namely the economy and finance. In economics, capital markets provide a facility to move funds from lenders to the borrower's.  By investing the Fund expects lenders in Exchange for a return of the delivery of those funds.

As for the borrower's, the existence of funds from outside can be use for. Its business development efforts without waiting for funds from the operating results of the company. In finance, by way of providing the funds require by the borrower's. The lenders without having to be directly involve in ownership of real assets.

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