Capital markets describes a financial marketplace.
It’s where investors buy and sell long-term investments to raise money.
Capital markets bring together buyers and sellers to help businesses grow.
Did you know Jersey holds £222 billion* in companies listed on global exchanges?
Here you can find out about the different types of exchanges, including The International Stock Exchange (TISE).
*as at March 2019
What are exchanges?
A stock exchange, also known as a securities exchange’, is the market place where investors trade – buy and sell products – to generate wealth for an organisation or a specific purpose. This is also known as raising capital.
The market place is where organisations (known as the ‘issuers’) can raise funding from investors by buying and selling financial assets (known as ‘securities’ – often these are shares in a company).
Jersey helps the successful circulation of money (‘capital’) globally by providing a base from which organisations can list on a variety of stock exchanges around the world.
Why list on a stock exchange?
To promote stock
Listing on a stock exchange increases visibility of financial assets for sale. For equities of trading companies, listing can enhance prestige and profile.
To provide a platform for investors
Stock exchanges are regulated in different ways and some are not regulated at all. As a platform for buying and trading, stock exchanges give confidence to investors, and encourage high standards of transparency and control.
To help make better, more informed decisions
Stock exchanges provide useful information – such as transaction data and prices – to current and future holders of securities. This helps with making decisions on buying or selling.
To clearly show who owns stock
To generate more wealth
A listing is also a way to raise more capital, often by issuing further securities at a later date. This capital might be a way to help fund the ongoing needs of the business or to fund future growth and expansion, including acquisitions (the purchase of a company or division of a company).
Real life example
Real growth for a Channel Islands financial services business
Channel Islands headquartered PraxisIFM Group Ltd, a global financial services business, was admitted to TISE’s Official List on 12 April 2017. At the same time, it also entered TISE’s market segment for trading companies operating from the Channel Islands.
The company listed to provide clarity over its ownership, to enable it to attract and reward staff through equity-linked schemes, to give shareholders a visible price and market for their holdings, to widen the Group’s visibility internationally and to provide access to the capital markets as a way to help finance acquisitions.
Simon Thornton, CEO of PraxisIFM, has said that TISE was chosen because it was a market which suited a business of its scale and ambition, and it was highly cost effective.
Since listing, the Group has successfully raised more than £40 million of capital which has been used to acquire businesses and develop its footprint in the BVI, Geneva, the Isle of Man, the Netherlands and the UK.
Treasury and Money Market Services
Many capital market transactions will result in either one or a series of financial transactions.
When large sums of money are moved around, there are financial risks that need controls.
Treasury and money market services work behind-the-scenes to manage these risks for clients.
Who are treasury and what are money market services?
When large sums of money are moved around, this can result in financial risks, such as currency or interest rate risks. Treasury is responsible for identifying and mitigating these risks.
Treasury is an important part of making sure that capital market transactions, which often involve the flow of large sums of money, are processed correctly and on time.
Both treasury and money market services work behind the scenes to manage risks that exist within these capital market products.
How does the treasury function work?
The treasury function operates under a series of rules and procedures, set out in a treasury policy. This policy sets out:
- the client’s risk appetite (the amount and type of risk that a client is willing to take to meet their goals, and before action needs to be taken to reduce the risk)
- how treasury will manage the financial risks, and
- how treasury will interact with the client, and anyone working with the client.
The treasury policy also outlines the credit risks (the possibility of a loss because a borrower cannot repay a loan or meet the terms of a contract) the client is willing to take when placing money with banks. This practise is often defined by using independent credit ratings agencies, such as Fitch, Moody’s or Standard & Poor’s.
Why do people use these services?
People working in a treasury and money market services function help clients to:
- open bank accounts for clients
- select banking products
- manage money – ensuring cash is always available when the client needs it
- convert currencies and foreign exchange
- identify and manage financial risks
Capital Markets Products
When we talk about capital markets, we can think of a financial marketplace.
If stock exchanges are where investors buy and sell; capital markets products are what investors buy and sell.
Investors can be businesses or individuals. They can access capital markets using different types of products to invest in other businesses. Investment activity takes many forms – it can be selling shares in a company, setting up structures to grow money or pooling money from different investors over a long period of time.
Why do investors need to invest? At a minimum, investors want to maintain their ‘spending power’ over the long term.
What are the different types of capital markets products?
The most common investment is the cash deposit.
Put simply, these are loans to a government or a company.
Equities means part ownership in a company. They are also referred to as stocks or shares.
Property as a capital market product includes direct investment into buildings, typically commercial property, but can be residential, and land.
The alternatives asset class describes the smaller or less mainstream asset classes that do not fit into the core asset classes of cash, bonds and equities.
How do these products work?
As investments, and depending on the rate of inflation, these different capital markets products can help to maintain an investor’s spending power over the long term.
Cash deposits gain interest. The level of interest received will vary depending on a number of factors including:
- the cash deposit amount,
- the length of time an investor wants to leave their cash on deposit,
- the level of competition between deposit takers , such as banks and building societies, and
- the current level of interest rate set by the central bank
To fund their operations, companies and governments often need to borrow money. They do this by issuing bonds in the market which are sold to investors.
Bonds are typically for a set period (3 to 30 years is not unusual) where the issuer (borrower) agrees to make regular interest payments (coupons) to the holder of the bond (investor or lender) and to repay the original investment (principal) back at the end of the agreed term (at redemption/maturity).
Equity, also known as stocks and shares, is when an investor has part ownership in a company. The financial return on equities comes from growth in the value of the shares in a company, plus any income from dividends. Dividends are a portion of a company’s profits (if there are any) which are paid to company shareholders, often twice a year. These payments are at the discretion of the company’s management.
The broad areas of property investment include:
- industrial property
- retail property, for example warehouses, high street shops and shopping centres
- other property such as care homes or student accommodation
The size of these property lots can average in the millions, so typically investors will use a collective investment vehicle or fund product – to pool money from lots of different investors – to invest into property.
The advantages of investing in property generally include a high and regular level of income from rent.
Investing in alternatives can include investing money in:
- infrastructure (for example, hospitals, toll roads and schools)
- renewable energy (such as solar fields and wind farms)
- aeroplane leasing
They all have their own characteristics, but often investors into alternatives want returns that are not on the same rate or level as equities and bonds. Alternatives investments tend to pay out an attractive level of income.
When and why do investors choose different products?
Investors choose when to invest in different products after considering some key things:
- Long-term historical data: With the advantage of very long-term historical data, investors can get a good guide as to how each capital market product might behave over the long term.
- Risks associated with each product: It is vital for investors to consider the very broad range of risks associated with each product. The graph only provides a potential and general view. Within each asset class, investors can be exposed to a very broad range of risk. Also, the risk-reward characteristics of each asset class can overlap asset classes.
- How long to invest and what may happen during that time: This is also known as ‘investment time horizon’. Normally, with a long-term horizon, investors feel more comfortable to take riskier investment decisions.
- Impact on the wider environment: Investors are increasingly concerned with the impact their investment decisions might have on society as a whole, such as the wider environment. This is also known as socially responsible investing (SRI)
Capital market transactions involve listing an investment on a stock exchange.
A listing refers to the company’s shares being on the list (or board) of stock officially traded on a stock exchange.
What is The International Stock Exchange (TISE)?
TISE is licensed to operate as an investment exchange under Guernsey Law and is regulated and supervised by the Guernsey Financial Services Commission.
Put simply, TISE enables international companies to raise capital from investors around the globe. Netflix and Sainsburys have a listing with TISE.