The capital market is a sub-sector of the financial sector. It is like any other market that buys and sells commodities. The only difference is that instead of trading, say, in tomatoes or vegetables, or clothes etc, one would be trading in securities like listed shares, bonds, unit trusts etc.  Capital markets provide an avenue where companies can raise funds to finance their operations or expand their businesses through selling or issuing their securities to the public.

The Public (Investors) approaches the capital markets to create wealth through investment in instruments traded on the market. (When stocks or other financial assets rise in value, investors become wealthier)

Capital markets generally:

  • Mobilize savings and channel them through securities to entrepreneurs.
  • Link those with savings and are looking for investment alternatives to those that are in dire need of money to finance their business operations.
  • It is an alternative way of investing.

Capital markets are divided into two segments i.e. the primary market and the secondary market.

  1. Primary market

This is where the company offers its securities e.g. shares to the public for the first time through an Initial Public Offering (IPO.) In this case, the company’s promoters invite the public to subscribe to its shares through an offer document called Prospectus.

The Prospectus gives full details of the company, nature of the project, business model, expected profitability, financial statements, Basis and Object of Issue etc. When you as an investor, are comfortable in such an investment, you may apply for the shares and upon allocation of shares become a shareholder.

  1. Secondary market

This is where the securities that have been issued on the Primary market are now traded. Investors who may have subscribed to shares in the primary market may no longer want to hold these shares. The secondary market facilitates the trading of these securities among investors. The Zimbabwe Stock Exchange is one such secondary market and it offers trading facilities for the market.

To invest in the capital markets, one needs to go through intermediaries that facilitate the smooth functioning of the industry. These include the securities dealers (stockbrokers), transfer secretaries, custodians, investment managers & advisors. These intermediaries are licensed by SECZ in terms of section 38 of the Securities & Exchange Act (Cap 24:25).