What are capital markets?

A capital market is an organized market in which both individuals and business entities (such as pension funds and corporations) sell and exchange debt and equity securities. A capital market is a key source of funds for an entity whose securities are permitted by a regulatory authority to be traded, since it can readily sell its debt obligations and equity to investors. Governments also use capital markets to raise funds, typically through the issuance of long-term bonds.

A capital market is intended to be for the issuance and trading of long-term securities. Short-term securities are traded elsewhere, such as in the money market.

Examples of highly organized capital markets are the New York Stock Exchange, American Stock Exchange, and NASDAQ. Securities can also be traded "over the counter," rather than on an organized exchange. These securities are usually issued by entities whose business fundamentals (such as revenue, capitalization, and profitability) do not meet the minimum standards of a formal exchange, which forces investors to use other avenues to trade the securities.

The Securities and Exchange Commission (SEC) is an example of a federal-level agency that regulates the reporting of information by any entity that wishes to issue securities in a capital market, or have its securities traded in a capital market.

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