Structure of Securities Market

Securities markets are platforms facilitating the flow of savings and investments between those with capital and those in need of capital. The suppliers of capital comprise retail and institutional investors, while businesses, governments, and individuals are among those seeking capital.

The Securities markets are categorized into:

• Primary Market: This market deals with the issuance of new securities and is commonly referred to as the new issue market.

• Secondary Market: This market facilitates the buying and selling of existing securities and is commonly known as the stock market or stock exchange.

Mortgage-backed securities (MBS)

Mortgage-backed securities (MBS) are investment products akin to bonds, composed of bundles of home loans and real estate debt purchased from issuing banks. Investors receive regular returns, mirroring bond coupon disbursements, through periodic payments.

There are two primary types of MBS:

• pass-throughs -Pass-throughs operate as trusts, collecting mortgage payments and passing them on to investors with stated maturities of 5, 15, or 30 years. The life of a pass-through may be less than the stated maturity based on mortgage principal payments. 

• collateralized mortgage obligations (CMO)-CMOs involve multiple pools of securities, known as tranches, each with credit ratings determining the rates returned to investors.

Asset-Backed Securities (ABS)?

Asset-backed security (ABS) is a financial investment collateralized by a pool of assets, often deriving cash flow from debts like loans, leases, credit card balances, or receivables. It takes the form of a fixed-rate bond or notes with a specified maturity period. ABS provides an alternative for income-focused investors compared to corporate bonds or bond funds. This financial instrument allows issuers to raise cash by securitizing illiquid assets, making them marketable to investors and mitigating credit risk. These underlying assets can range from home equity loans to more unconventional sources like movie revenues, royalty payments, and even solar photovoltaics, providing a diverse investment landscape for ABS buyers.

Key Takeaways

• The Securities markets are categorized into primary market and secondary market.

• Mortgage-backed securities (MBS) and asset-backed securities (ABS) are debt instruments issued by institutions, backed by cash flows from financial assets like home loans (MBS), rent receivables, auto loans, and credit card receivables (ABS).

• Securitization allows the issuer to add liquidity to otherwise illiquid assets. These instruments undergo credit ratings and might be listed on stock exchanges.

• Financial markets continually evolve, introducing new products to support ongoing financial development.

Frequently Asked Questions

1. What Are the Segments of the Securities Market?

The securities market comprises various segments, including the primary market, secondary market, and derivatives market. Each segment plays a distinct role in the buying and selling of financial instruments.

2. What Is the Securities Market in India?

The securities market in India is the realm where a diverse range of financial instruments, from stocks to bonds and derivatives, undergo trading.Comprising both primary and secondary markets, it facilitates capital raising and trading activities.

3. Who Can Raise Capital in the Securities Market?

Various entities, including corporations, governments, and financial institutions, can raise capital in the securities market. They achieve this by issuing stocks or bonds, providing investors an opportunity to invest in these instruments.

4. What is the Structure of the Share Market:

The share market, or stock market, has a hierarchical structure. It includes stock exchanges, brokers, and investors. Stock exchanges act as platforms for buying and selling, brokers facilitate trades, and investors engage in the buying and selling of shares.

5. Define Securities Market:

The securities market is a financial marketplace where various financial instruments, such as stocks, bonds, and derivatives, are traded. It provides a platform for investors to buy and sell these securities, contributing to capital formation and investment activities.