Capital market is one of the most crucial indicators to demonstrate an economy’s health as it serves as an imperative constituent of the financial sector. It acts as a medium of transforming surplus capital available with non productive sources to the dynamic channels of the economy. Capital market has an important role in setting off domestic capital and directing it to fruitful investments. A competent capital market can also offer a broad range of stirring opportunities equally for domestic as well as foreign investors. Stock (equity) and Debt markets are jointly called as Capital markets. The capital markets grant a platform for hoisting the long term investment needs of businesses by means of equity and long term debt. It serves as an attraction for investors with a long term investment perspective.
Capital markets are a broad category of markets facilitating the buying and selling of financial instruments. In particular, there are two categories of financial instruments in which markets are involved. These are equity securities, which are often known as stocks, and debt securities, which are often known as bonds. Capital markets involve the issuing of stocks and bonds for medium-term and long-term durations, generally terms of one year or more. Other than the distinction between equity and debt, capital markets are also generally divided into two categories of markets, the first of which being primary markets. In primary markets, stocks and bonds are issued directly from companies to investors, businesses and other institutions, often through underwriting. Primary markets allow companies to raise capital without or before holding an initial public offering so as to make as much direct profit as possible.
Capital markets are overseen by the financial regulators all over the world and in case of Pakistan, Securities Exchange Commission of Pakistan (SECP). Though capital markets are generally concentrated in financial centres around the world, most of the trades occurring within capital markets take place through computerized electronic trading systems. Some of these are accessible by the public and others are more tightly regulated.