Capital market refers to the market where the financial products are created before they are available for trading.
Every investment bank has a capital markets division. Within this, there are bankers who deal with Equity Capital Markets (ECM) and Debt Capital Markets (DCM).
Capital Markets Division originates, structures and executes new issues of capital, provides clients with a range of related services and manages their existing liabilities. These services include secondary trading assistance, real-time market insight, hedging strategies, investor relations advice, regulatory assistance and equity-specific M&A guidance.
The Equity Capital Markets bankers help companies issue IPOs (raise money by issuing shares). This division is sometimes labeled Structuring & Origination, and involves more than just IPOs. It also includes underwriting equity derivatives, convertible debt, and hybrid instruments.
The Debt Capital Market bankers, on the other hand, deal with issues of various types of debt securities (Bond). This includes, Government bonds, investment grade corporate bonds, high-yield bonds, etc. This is also referred to as fixed-income market.
All the financial products are created in the “Primary market”, and then are traded (bought/sold) by bank sales people and traders in the secondary market.
Some examples of Financial Institutions providing investment-banking services are Barclays Capital, Citi Group, and JP Morgan Chase. These are just examples.
Since all the banks are offering essentially the same services to the clients, it becomes very important to grab the business rather then just execute it.
So, before the capital markets division can create the financial products, there are deal originators who will bring the business for the bank. Deal originators will generally be at a senior level who will be regularly traveling, meeting the clients and understanding their financing requirements.
Other key roles are:
- Deal Structuring: This involves assembling complex derivatives products.
- Deal Syndication: This involves preparing for the sale of finished products to investors
In the earlier days, you could be an equity specialist or a debt specialist. However, it is no longer so, and you are required to have an understanding of both sides. Many banks such as UBS and JP Morgan Chase have combined their equity and debt origination units. The idea is that you assess the client’s overall needs and provide complete solution by taping resources in the entire investment bank.
The job in capital markets requires extensive financial modeling, valuation, as well as analysis of accounting and taxation aspects. So, you must be good with numbers, and have attention to details.
You should also have strong communication skills because you will be directly dealing with clients right from the start in your career. Apart from being good individually, the job also demands being a good team player.
Finally you must be very business oriented, and know what it takes to close a deal.