Firms and Financial Market (Part 2): Security Markets

The video introduces the topic of security markets, focusing on the distinction between money markets and capital markets, and discussing different types of securities such as stocks and bonds. The learning objectives include understanding various securities markets and how they enable efficient trading of financial instruments.

The money market deals with short-term debt instruments, typically less than one year maturity, like Bank Negara treasury bills and commercial papers. In contrast, the capital market handles long-term instruments such as bonds and shares, used by companies like Petronas or Tenaga National for long-term financing.

A security is a negotiable financial instrument representing either ownership (equity, like shares in Nestle Malaysia) or debt (debt security, like Malaysian government securities). Securities represent a claim on assets or future income.

The primary market is where new securities are issued for the first time, like Farm Fresh Berhad's IPO. The company receives funds directly. The secondary market is where investors trade previously issued securities among themselves, such as buying or selling Top Glove shares on Bursa Malaysia. In the secondary market, investors trade with each other, not directly with the company.

The process begins with corporations issuing securities in the primary market. Investors buy these securities, providing cash to the corporation. The corporation then uses this cash to invest in income-generating assets, leading to profits. These profits are partly reinvested, partly distributed to investors as dividends or interest, and partly paid as taxes. Finally, investors can trade these securities in the secondary market, facilitating capital flow and economic growth.

Debt securities represent money borrowed by firms or governments. Investors lending money via debt securities receive interest payments. They are classified by maturity: less than one year (money market instruments like treasury bills), 1-10 years (notes, part of the capital market), and more than 10 years (bonds, such as corporate or government bonds like Malaysian Government Islamic Securities (MGIS) and Cagamas bonds).

Equity securities represent ownership in a company. Shareholders receive dividends and benefit from increased share prices (capital gains). The two main types are common stock and preferred stock. Common stock holders have voting rights and receive dividends after preferred shareholders. Preferred stock holders receive dividends first but usually lack voting rights, offering steady income similar to bonds but with some ownership.

The stock market is where company shares are bought and sold. Bursa Malaysia is the main exchange in Malaysia. Over-the-counter (OTC) markets handle smaller or unlisted companies. Stock markets enable easy buying and selling of ownership, promoting capital flow and business growth. Stock quotes provide details like company name, symbol, current price, daily high/low, and trading volume.