International Capital Markets Report 2004

Published by: Visiongain

Published: Oct. 1, 2003

Table of Contents

• 2.1 Introduction
  
• Diagram 1: Overview of the financial system
  
• 2.2 What is the financial market?
  
• 2.2.1 Financial markets - primary vs secondary
  
• Diagram 2: Financial markets - primary vs secondary
  
• 2.2.1.1 Primary markets
  
• 2.2.1.2 The secondary market
  
• 2.2.2 Financial markets - debt vs equity
  
• Diagram 3: Financial markets - debt vs equity
  
• 2.2.2.1 What are securities?
  
• 2.2.2.2 Equity securities (i.e. ordinary shares)
  
• 2.2.2.3 Debt securities (i.e. bonds)
  
• 2.2.3 Financial markets - exchanges vs over-the-counter markets
  
• 2.2.3.1 The exchange market system
  
• 2.2.3.1.1 The London Stock Exchange (LSE)
  
• 2.2.3.1.2 Alternative Investment Market (AIM)
  
• 2.2.3.1.3 New York Stock Exchange (NYSE)
  
• 2.2.3.2 Over-the-counter markets (OTC) - unlisted securities
  
• 2.3 Financial intermediaries
  
• 2.3.1 Function of Financial Intermediaries
  
• 2.3.2 Benefits of intermediation
  
• 2.3.2.1 Reduced transaction costs
  
• 2.3.2.1.1 What is it about transacting that makes it so costly?
  
• 2.3.2.2 Intermediaries can check asymmetric information
  
• 2.3.2.2.1 Reduce Adverse Selection
  
• 2.3.2.2.2 Reduce Moral Hazard
  
• Table 1: Primary assets and liabilities of financial intermediaries
  
• 2.3.3 2.3.3 Principal financial intermediaries - value of assets
  
• Table 2: Principal financial intermediaries - value of assets
  
• Chart 1: Principal financial intermediaries - value of assets
  
• 2.3.3.1 Visiongain analysis - size of principal financial intermediaries
  
• Table 3: Principal financial intermediaries value of assets - percentage
  
• increase
  
• Chart 2: Principal financial intermediaries - value of assets for 2001
  
• 2.3.3 Financial intermediaries - Conclusion
  
• 2.4 Chapter conclusion

Chapter 3. Debt markets

• 3.1 Introduction
  
• 3.2 What are debt securities?
  
• 3.2.1 Properties of a debt security
  
• 3.2.1.1 Maturity date
  
• 3.2.1.2 Right to receive a regular return
  
• 3.2.1.3 Securitisation of investment
  
• 3.2.1.4 No equity of rights over the issuer
  
• 3.3 What is the capital market?
  
• 3.3.1 Capital market instruments (long term debt instruments)
  
• 3.4 The bond market
  
• 3.4.1 Background
  
• 3.4.2 What is a bond?
  
• 3.4.3 The main characteristics of a bond
  
• 3.4.4 Bonds vs stock (equity)
  
• 3.4.5 Main types of bond
  
• 3.4.5.1 Fixed rate bonds
  
• 3.4.5.2 Floating rate notes
  
• 3.4.5.2.1 Reverse FRNs
  
• 3.4.5.3 Variable rate bonds
  
• 3.4.5.3.1 'Step-up' or 'step-down' bonds
  
• 3.4.5.3.2 Collars
  
• 3.4.5.4 Zero Coupon bonds
  
• 3.4.5.5 Equity-linked bonds
  
• 3.4.5.5.1 Convertible bonds
  
• 3.4.5.5.2 Bonds with warrants
  
• 3.4.5.5.3 Exchangeable bonds
  
• 3.4.6 The forms and legal characteristics of a bond
  
• 3.4.6.1 The form of a bond
  
• 3.4.6.1.1 Temporary global form
  
• 3.4.6.1.1.1 What is a temporary global bond?
  
• 3.4.6.1.1.2 Why use a temporary global bond?
  
• 3.4.6.1.1.2.1 Time constraints
  
• 3.4.6.1.1.2.2 Selling restrictions
  
• 3.4.6.1.2 Permanent global and definitive forms
  
• 3.4.6.1.2.1 Permanent global bond
  
• 3.4.6.1.2.1.1 Advantages of a permanent global bond
  
• 3.4.6.1.2.1.2 Eurobonds in permanent global form
  
• 3.4.6.1.2.2 Definitive form
  
• 3.4.6.1.2.2.1 Bearer bonds
  
• 3.4.6.1.2.2.1.1 Promise to pay
  
• 3.4.6.1.2.2.1.2 Terms and conditions
  
• 3.4.6.1.2.2.1.3 Coupons
  
• 3.4.6.1.2.2.1.4 Talons
  
• 3.4.6.1.2.2.1.5 Registered bonds
  
• 3.4.6.2 Legal nature of a eurobond
  
• 3.4.6.2.1 Transferability
  
• 3.4.6.2.2 Negotiability
  
• 3.4.6.2.2.1.1 By statute
  
• 3.4.6.2.2.1.2 By mercantile custom
  
• 3.4.6.2.2.2 Consequences of negotiability
  
• 3.4.6.3 Comparing bearer and registered bonds
  
• 3.4.6.3.1 Title
  
• 3.4.6.3.2 Claims and defences of an issuer
  
• 3.4.6.3.3 Priorities
  
• 3.4.6.3.4 Anonymity
  
• 3.4.6.3.5 Interest payments
  
• 3.4.6.3.6 Transfer
  
• 3.4.6.3.7 Forgery
  
• 3.4.6.4 The legal effect on bearer bonds held in clearing systems
  
• 3.4.6.4.1 Investor-Participant-Clearing system-Depositary
  
• 3.4.6.4.1.1 Investor - Participant
  
• 3.4.6.4.1.2 Participant - Clearing System
  
• 3.4.6.4.1.3 Clearing systems - Depositary
  
• 3.4.7 The bond market and the fixed income market - the US
  
• 3.4.7.1 Introduction
  
• 3.4.7.2 Bond market indicators
  
• 3.4.7.2.1 The yield curve
  
• 3.4.7.2.2 Bond Indices
  
• 3.4.7.2.3 US government bonds and spreads
  
• 3.4.7.2.3.1 US government bonds
  
• 3.4.7.2.3.2 Spreads
  
• 3.4.7.2.4 Bond ratings for corporate and municipal bonds
  
• 3.4.7.2.4.1 Bond Rating Codes
  
• 3.4.7.3 Factors affecting the bond market
  
• 3.4.7.3.1 Interest rates
  
• 3.4.7.3.2 Which interest rate?
  
• 3.4.7.3.2.1 The Discount Rate
  
• 3.4.7.3.2.2 Federal Funds Rate
  
• 3.4.7.3.2.3 T-Bill Yields
  
• 3.4.7.3.2.4 LIBOR (London Interbank Offered Rate)
  
• 3.4.7.3.2.5 The Long Bond (30-Year Treasury) Yield
  
• 3.4.7.3.2.6 Municipal Bond Yields
  
• 3.4.7.3.2.7 High Grade Corporate Bond Yield
  
• 3.4.7.3.2.8 Prime Rate
  
• 3.4.7.3.2.9 High Yield Bonds
  
• 3.4.7.3.3 Why do interest rates move?
  
• 3.4.7.4 The Federal Reserve
  
• 3.4.7.5 Principal capital market instruments
  
• Table 4: Principal capital market instruments
  
• Chart 3: Principal capital market instruments - total amount outstanding $
  billions
  
• Chart 4: Principal capital market instruments - amounts outstanding $
  billions per instrument
  
• 3.4.7.5.1 Analysis
  
• Table 5: Principal capital market instruments - percentage increase in
  amounts outstanding, ($ billions, end of year)
  
• 3.5 Capital markets vs loan facilities
  
• 3.6 The money markets (short-term debt)
  
• 3.6.1 Introduction
  
• 3.6.2 Difference between money market and bond market
  
• 3.6.3 Difference between money market and stock market
  
• 3.6.4 Money market instruments
  
• 3.6.4.1 Treasury Bills (T-bills)
  
• 3.6.4.2 Certificate of deposit (CD)
  
• 3.6.4.3 Commercial paper
  
• 3.6.4.4 Bankers' Acceptance (BA)
  
• 3.6.4.5 Eurodollars
  
• 3.6.4.6 Repos
  
• 3.6.4.6.1 Reverse repo
  
• 3.6.4.6.2 Term repo
  
• 3.6.4.7 Principal money market instruments
  
• Table 6: Principal money market instruments
  
• Chart 5: Principal money market instruments - total amount outstanding $
  billions
  
• Chart 6: Principal money market instruments - amounts outstanding $ billions
  per instrument
  
• 3.6.4.7.1 Analysis
  
• Table 7: Principal money market instruments -
  percentage increase in amounts
  outstanding, ($ billions, end of year)
  
• 3.6.5 Money markets - conclusion
  
• 3.7 Chapter conclusion
  
• Chart 7: Principal capital and money market instruments - total amount
  outstanding $ billions
  
• 3.7.1 Analysis

Chapter 4. Recent trends in the capital bonds market

• 4.1 Introduction
  
• 4.2 Corporate spreads
  
• Chart 8: Corporate spreads: Weekly data until 7 March 2003
  
• Chart 9: High-yield spreads: Weekly data until 7 March 2003
  
• 4.3 Issuers trends
  
• 4.3.1 US
  
• Chart 10: Net issuance of US bonds
  
• Chart 11: 30-day commercial paper outstanding -Millions of dollars,
  seasonally adjusted monthly data
  
• 4.3.2 Europe
  
• Chart 12: Euro-denominated bond markets:
  volumes issued by type of issuer - Millions of euros
  
• 4.4 Government bond markets
  
• 4.4.1 US
  
• 4.4.2 Europe
  
• Chart 13: 10-year government benchmark bond yields - weekly data until 7
  Mar-03
  
• Chart 14: Terms spreads: 10 year minus 2-year government bond yields -
  weekly data until 7 March 2003
  
• 4.5 Monetary policy rates
  Chart 15: Yield curves - as of 7 March 2003
  
• 4.5.1 US
  Chart 16: US and euro area - implied forward and futures interest rates - as
  of 7 March 2003
  
• 4.5.2 Europe
  
• 4.5.3 Canada
  
• 4.6 Foreign exchange markets and emerging economies
  
• 4.6.1 Appreciation of the euro against the dollar
  
• Chart 17: Exchange rates relative to the US dollar - weekly data until 7
  Mar-03
  
• 4.6.2 Appreciation of the yen against the dollar
  
• 4.6.3 Decreased foreign investment in US Securities
  
• Chart 18: Net purchases by foreigners from US residents - $US millions
  
• 4.6.4 Growing confidence in emerging markets
  
• Chart 19: Emerging market spreads - weekly data until 7 March 2003
  
• 4.6.4.1 Brazil
  
• 4.6.4.2 Argentina
  
• 4.6.4.3 Middle East
  
• 4.6.4.4 Asia
  
• 4.7 Chapter conclusion

5. International capital markets - regulatory framework

• 5.1 Introduction
  
• 5.1.1 Africa & Middle East
  
• 5.1.2 Asia & Australia
  
• 5.1.3 Caribbean
  
• 5.1.4 Central & South America
  
• 5.1.5 North America
  
• 5.1.6 Europe
  
• 5.2 Regulation - Access to UK capital markets
  
• 5.2.1 Introduction
  
• 5.2.2 The "General Prohibition"
  
• 5.2.3 What is a "regulated activity"?
  
• 5.2.3.1 Section 22 FSMA - "Specified investment and activities"
  
• 5.2.3.2 Regulated Activities Order (RAO)
  
• 5.2.4 Who needs to be authorised ?
  
• 5.2.4.1 Managers in the UK
  
• 5.2.4.2 Managers outside the UK
  
• 5.2.4.2.1 Who is an overseas person?
  
• 5.2.4.2.2 Who is exempt?
  
• 5.2.4.2.2.1 What is a "legitimate approach"?
  
• 5.2.4.3 Bond issuers
  
• 5.2.4.3.1 Deposit-taking
  
• 5.2.4.3.1.1 Is deposit-taking regulated?
  
• 5.2.4.3.1.3 What is deposit-taking?
  
• 5.2.4.3.1.3.1 Money received by way of deposit in the course of business
  
• 5.2.4.3.1.3.2 Business activities financed out of deposit funds
  
• 5.2.4.3.1.4 When is issuance of a bond tantamount to taking a deposit?
  
• 5.2.4.3.1.5 Do issuers need authorisation?
  
• 5.2.4.3.1.6 Deposit-taking - jurisdiction
  
• 5.2.4.3.1.7 Is the regulated activity being conducted in the UK?
  
• 5.2.4.3.1.8 Exempt issuers
  
• 5.2.4.3.2 Do issuers need authorisation to issue?
  
• 5.2.5 Financial promotion - prohibition
  
• 5.2.5.1 What is "engaging in investment activity?"
  
• 5.2.5.1.1 What is a "controlled" activity and investment?
  
• 5.2.5.2 "Cause" to be communicated
  
• 5.2.5.2.1 Definition of "caused"
  
• 5.2.5.2.2 A chain of causation
  
• 5.2.5.2.2.1 Issuer to manager
  
• 5.2.5.2.2.2 Manager to professional investor
  
• 5.2.5.2.2.3 Professional investor to Aunt Agatha
  
• 5.2.5.2.2.4 Authorised persons and the FSA Conduct of Business Rules
  
• 5.2.5.2.3 Jurisdictional scope of section 21
  
• 5.2.5.2.4 Breach of section 21
  
• 5.2.5.2.5 Advertising for deposits - exemptions
  
• 5.2.5.2.5.1 Deposit-taking
  
• 5.2.5.2.5.2 Professional exemption
  
• 5.2.5.2.5.2.1 Article 49 FPO - professional exemption
  
• 5.2.5.2.5.2.1.1 Communications "made" (Article 6(b) FPO)
  
• 5.2.5.2.5.2.1.2 Communications "directed" (Article 6(c) FPO)
  
• 5.2.5.2.5.2.2 Article 19 FPO - Investment professional exemption
  
• 5.2.5.2.5.3 Government and central authority exemption
  
• 5.2.5.2.5.4 Public offering and listing documents
  
• 5.2.5.2.5.5 Article 11 FPO - Mix and Match
  
• 5.2.6 Conclusion on UK regulatory framework
  
• 5.3 Regulation - access to US capital markets
  
• 5.3.1 Introduction
  
• 5.3.2 The SEC.
  
• 5.3.2.1 Foreign private issuer - definition
  
• 5.3.2.2 Foreign private issuer - considerations
  
• 5.3.2.3 Foreign private issuer - institutions to address
  
• 5.3.2.3.1 Investment banks
  
• 5.3.2.3.2 Securities marketing organisation
  
• 5.3.2.3.3 Accounting firm
  
• 5.3.2.3.4 Individual state securities law
  
• 5.3.3 Registration of foreign company public offerings
  
• 5.3.3.1 Introduction
  
• 5.3.3.2 Form F-1
  
• 5.3.3.2.1 Eligibility to register
  
• 5.3.3.2.2 Disclosure requirements
  
• 5.3.3.2.2.1 Disclosure requirements unique to foreign issuers
  
• 5.3.3.2.3 Financial statements
  
• 5.3.3.2.3.1 Material variations
  
• 5.3.3.2.3.2 Age of financial statements
  
• 5.3.3.2.3.2 Rule 3-20 SEC Regulation S-X - Currency issues
  
• 5.3.3.2.4 Signature
  
• 5.3.3.3 Forms F-2, F-3 and F-4
  
• 5.3.3.4 Drafting the registration statement
  
• 5.3.3.5 Due diligence review
  
• 5.3.3.6 Filing registration statement
  
• 5.3.3.6.1 Confidential filing
  
• 5.3.3.7 Assignment of registration statement to appropriate branch in SEC's
  Division of Corporation Finance
  
• 5.3.3.7.1 Review
  
• 5.3.3.7.2 Comment letter
  
• 5.3.3.7.3 Pre-effective amendments
  
• 5.3.3.8 Negotiation of financial terms of securities
  
• 5.3.3.9 Filing Rule 424(b) pre-effective amendment with SEC
  
• 5.3.3.10 Underwriters permitted to sell securities to investors
  
• 5.3.3.11 SEC Rule 421(d) - plain English disclosure
  
• 5.3.3.12 Publicity restrictions before, during and after the offering
  
• 5.3.3.12.1 Rationale for restrictions
  
• 5.3.3.12.2 Violation of restrictions
  
• 5.3.3.12.3 Continue normal business affairs
  
• 5.3.3.12.4 Continue to give factual responses to press or security analysts
  
• 5.3.3.12.5 Publicity outside the US
  
• 5.3.3.12.6 Company web site information prior to public offering
  
• 5.3.4 US - a conclusion
  
• 5.4 Improving the regulatory framework between advanced and developing
  markets
  
• 5.4.1 Introduction
  
• 5.4.2 A proposal for prudential regulation of financial markets
  
• 5.4.3 International capital market regulatory recommendations
  
• 5.4.3.1 Reporting and Registration Requirements
  
• 5.4.3.1.1 All financial institutions should be registered or chartered.
  
• 5.4.3.1.2 Regular reporting of financial condition and their financial
  market activities by registered and chartered financial institutions.
  
• 5.4.3.1.3. Regular reporting by publicly traded corporations and large
  non-traded corporations regarding financial conditions, business activities,
  environmental and social policies.
  
• 5.4.3.1.4 Modernising accounting rules and other financial market
  regulations
  
• 5.4.3.1.4 Special reporting requirements for developing countries.
  
• 5.4.3.2 Capital and Collateral Requirements
  
• 5.4.3.2.1 Require all financial institutions to hold capital in proportion
  to credit exposure and current and potential market risk.
  
• 5.4.3.2.2 Require adequate levels of collateral (margin) to be posted for
  securities and derivatives transactions.
  
• 5.4.3.2.3 Encourage the establishment of clearing houses
  
• 5.4.3.2.4 Special requirements for developing countries - Limit the exposure
  of all financial institutions to fluctuations in foreign exchange rates,
  interest rates, securities prices and other market prices.
  
• 5.4.3.2.5 Special requirements for developing countries - Limit the exposure
  of all financial institutions to liquidity risk
  
• 5.4.3.2.6 Special requirements for developing countries -
  Capital and collateral requirements to equalise those in developed
  countries.
  
• 5.4.3.3 Orderly Market Rules
  
• 5.4.3.3.1 Strictly prohibit fraud and manipulation in financial markets
  
• 5.4.3.3.2 Require banks and insurance companies to hold a minimum percentage
  of liabilities as liquid assets.
  
• 5.4.3.3.3. Employ debt standstills, "circuit breakers" and price limits for
  trading on exchanges and in OTC markets
  
• 5.4.4 Comparison of prudential regulations and capital controls
  
• 5.4.4.1 Definition of capital controls
  
• 5.4.4.2 Administration of capital controls
  
• 5.4.4.3 Objectives of capital controls
  
• 5.4.4.4 Examples of capital controls
  
• 5.4.4.5 Drawbacks of the capital control policy
  
• 5.4.5 Comparison of prudential regulations and transactions taxes
  
• 5.4.5.1 What are transaction taxes?
  
• 5.4.5.2 Objectives of transaction taxes
  
• 5.4.5.3 Problems and limitations of transaction taxes
  
• 5.4.5.3.1 Political problems
  
• 5.4.5.3.2 Administrative and enforcement problems
  
• 5.4.5.3.3 Uncertain policy outcomes
  
• 5.4.6 Conclusion
  
• 5.5 Chapter conclusion

Chapter 6. Conclusion

• 6.1 Report objectives
  
• 6.2 Market forecast
  
• Chart 20: Implied inflation expectations and crude oil price - as of 7 March
  2003
  
• 6.3 Recommended capital market investments
  
• 6.3.1 Introduction
  
• 6.3.2 Money market investments
  
• 6.3.2.1 Six-month CD
  
• 6.3.3 Capital market investments - long time horizon 1 to 3 years
  
• 6.3.3.1 Ultra short-term government bonds
  
• 6.3.3.2 Ultra-short adjustable-rate mortgage funds
  
• 6.3.4 Capital market investments - long time horizon 3 to 5 years
  
• 6.3.4.1 Ultra short-term bond funds
  
• 6.3.4.2 High-yield (junk) bond funds
  
• 6.3.4.3 International bond funds
  
• 6.4 Internationalisation of capital markets and regulation

Abstract

This report considers the innumerable factors that have shaped the contemporary market, such as

• the revolutionary impact of technology on mature and emerging markets
• the blurring distinction between financial activities as new conglomerates emerge
• and the changing face of regulation within the capital arena.

PLUS

• the market is discussed in lieu of more recent events, such as post September 11 2001
• the ongoing threat of subsequent attacks, together with the recent war in Iraq
• the recriminations posed by this incident
• corporate bankruptcies
• the collapse of Enron and HIH in Australia
• the corporate casualties resulting from the dot-com collapse in the late nineties

This report delivers and in-depth:

• Examination of the fundamental role of the capital market place within the financial arena
• Exploration of the vital function played by the capital market within the financial system as a whole
• Comparison of the financial intermediary market, the equity market, and the money market.

This unique report details for you, the various instruments through which the capital market is orchestrated, and the forms and legal characteristics of such instruments. Most importantly, this report provides the most up-to-date statistics and information, regarding the billions invested in the capital and money markets, and the individual instruments that form their composite. Furthermore, visiongain provide detailed analyses as to the development and apportionment of investment within these vehicles.

This in-depth analysis extends to an examination of movements within the US, European, Canadian, Japanese and emerging government and corporate bond markets, comprising of weekly data, charts and graphs as recent as March 2003, pertaining to:

• Corporate spreads;
• High yield spreads;
• Emerging market spreads
• Issuance trends;
• Purchase trends;
• Yield curves;
• Interest rates; and
• Exchange rates.

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