Capital Market Concept and Classifications
Capital is considered as an economic value. It is everything that is effective in the emergence of economic enterprise. The scope of Capital consists of labor, real estate, commercial rights and so on. In terms of the capital market, capital is bonds, which are considered medium and long-term funds, and stocks, which are considered infinite-term funds.
Within the scope of this definition, capital markets; are well-organized and specialized markets in which medium, long, and infinite-term fund supply and demand are traded through subsidiaries.
Consequently, it is not surprising that a concept with a wide scope such as the Capital Market is divided into varieties. Capital markets consist of the primary market, where the securities are issued and offered to the market by the fund demanders, and the secondary market, where the said securities are bought and sold. It is understood from this point that, according to the way in which the instruments are exchanged in the capital markets, the capital market; divided into primary and secondary capital markets. For this reason, it is useful to make an examination of the Primary and Secondary Markets.
Primary Capital Markets
The primary capital market is the market in which firms and the public are first issued their securities in order to raise funds. In primary capital markets, businesses can issue the funds they need by choosing either direct or indirect extraction.
Direct inference can be defined as follows; businesses are to establish direct relations with those who supply funds in case of need for funds. In this method, inference costs are low as there are no financial intermediaries. However, in this conclusion, financial assets are unsuccessful in reaching a large number of investors. Where as indirect inference is considered as follows If fund suppliers and fund demanders establish relations through intermediary institutions, this situation is considered as indirect inference. There are two methods of indirect inference. In the first case, the brokerage house acts as an intermediary in the sale of securities without any liability. If the security is not sold, it returns the security to the issuing institution. In the second case, intermediary institutions take responsibility for the sale of securities and provide a sales guarantee. In case the securities are not sold within the sales period, the brokerage houses pay the price of these securities to the issuing institution.
Secondary Capital Markets
Secondary capital markets refer to the markets where previously issued securities are traded. In these markets, the exchange of securities is not a new issue of securities. Examples of secondary capital markets are securities that are bought and sold on the stock exchange and in unorganized capital markets.
There are two important reasons why securities are traded in secondary capital markets. One is information and the other is liquidity. In secondary capital markets, more accurate information about securities can be obtained. By increasing the liquidity of securities in these markets, it also creates demand for primary capital markets and ensures the development of the primary market. In this context, it should not be forgotten that secondary capital markets are at least as important as primary capital markets.
Differences between Primary and Secondary Capital Markets
In primary capital markets, investors have the opportunity to buy shares directly from the company, while in secondary capital markets, they do not have the opportunity to do so because the shares are traded among investors. In addition, the prices in the primary capital markets tend to stabilize during the new issuance, and fluctuations are observed in the secondary capital markets depending on the supply and demand of the relevant security. In addition, the income from the sale of shares in the primary capital markets remains with the company, but in the secondary capital markets, the income from the sale of shares becomes a type of income for the investors.
The differences between primary and secondary capital markets are not limited to those listed above. Generally, investment banks act as an insurance company in the market, so to speak, and therefore exist as intermediaries in the issuance process in primary capital markets, while individuals and institutions that act as intermediaries or intermediaries between investors in secondary capital markets stand out as brokers. Another difference is that in primary capital markets, securities can only be sold once at the time of issue. The point where the secondary capital markets differ from this situation is the possibility that the stock can be sold among investors an infinite number of times, which is considered an advantage for the secondary capital markets. While primary capital markets generally do not have any physical assets, secondary capital markets are usually set up as an exchange in a specific geographical location. Finally; If a company that wants to raise capital wishes to issue its shares to the primary capital markets, it has to make determinations regarding a large number of regulatory transactions and many situations.
Conclusion
As a result, since the capital markets consist of the primary market where the securities are issued and offered to the market by the fund demanders, and the secondary market where the said securities are bought and sold, knowing what the concepts of primary and secondary capital markets mean and what their advantages and disadvantages are is of great importance. It can help both investors and issuers. Since all aspects of the details of primary and secondary markets require technical knowledge, it is necessary to proceed by receiving services from institutions providing professional consultancy services or law offices in this field, and in the consultancy service to be received; It is essential to make preliminary preparations for the process, to provide necessary information on both the situation and the situation of the markets, to determine which market will be in favor of the person and / or institution, and to make a process analysis accordingly and to prepare the necessary reports. Progress with a staff will minimize the risks and provide an advantage to obtain the closest result to the truth.
