[MUSIC]
So, welcome to this video on the role of financial markets.
I think we will try to explain together were these a financial market?
What makes it special?
What are the main players in these markets?
What are the characteristics?
How they have evolved over time, and then in a second stage we'll turn to
a more theoretical function of these markets.
Namely what functions do they fulfill in the economy and
to some challenges faced by their future developments.
So let's look at the first picture you see a financial market on
the left side that's the traditional definition,
it's a physical place where you can trade instruments.
Basically you can buy and sell stocks, bonds, convertible bonds,
and, this is the way the New York Stock Exchange used to function,
the London Stock Exchange, the Swiss Markets.
However, this picture doesn't correspond to the current reality where most
of the trading is done, virtually and is computerized but
still fulfills the role of exchanging securities between buyers and sellers.
So precisely let us look at who are the main market participants.
We have four main participants.
First of all, firms, think about Alibaba Group who wants to levy some funds to
develop some new online payment facility.
It will need to raise a lot of capital and will proceed with an initial public
offering where investors would bring their savings to the Alibaba Group.
The second type of participants are of course the investors, so it can be Mr.
or Mrs. Smith, it can be a pension fund, it can be a government, these
are the people who allocate their savings to productive investment opportunities.
But who can also sell their shares between themselves, and
that's what's going to occur, as we will see, on the secondary market.
The third actor or participant is perhaps less obvious,
it's the government, why does the government have a place?
The government has a place to ensure Market integrity,
to protect the investors, and to make sure that prices correctly reflect
the fair value of securities and protect investors against abuse.
And finally we have on the right lower corner of the picture the financial
intermediaries that means, all the chain of brokers,
market makers, banks, and institutions that make
the interface between investors or between the investors and the firms.
So this structure has not very much changed over the centuries,
we still have these four actors being active to different degrees.
Now one important characteristic of these markets is that
we have a primary market and secondary market.
So the primary market is really where the transfer of
resources to productive investment opportunities occur.
Now think about the APO that Facebook launched in 2012, it's the first
time it went to the market and collected a large pool of money from investors.
Of course, once it has launched,
the IPO, securities of Facebook were traded and they can trade any day.
It could be in March 2015, it could be in December 2015 or in January 2016.
The idea of the secondary market it is to allow investors
to trade among themselves to buy and sell securities mainly for
liquidity reasons and for portfolio reallocations.