Market Organisation and Structure

Market Organisation and Structure for the CFA Level 1 Exam

Fasten your seatbelt and get ready to explore the world of market organisation and structure! In this article, we’ll dive into the various components that make financial markets tick. Are you ready to become a market maestro? Let’s begin!

Functions of the Financial System

Ever wondered how the financial system keeps the economic wheels turning? We’ll unpack that, exploring how it aids in savings, borrowing, issuing equity, managing risks, and using information effectively. Plus, we’ll see how it balances supply and demand to set interest rates and directs capital to where it’s most productive.

► Learn more about the financial system’s functions here.

Assets, Contracts and Markets

Crack open the treasure chest of investment assets and financial markets! Dive deep into the world of securities, commodities, real assets, currencies, and financial contracts. Learn the nitty-gritty of equity and fixed-income securities, and take a tour of pooled investment vehicles like mutual funds, ETFs, and hedge funds.

► Unravel the mysteries of the financial market here.

Financial Intermediaries

Get ready to meet the backbone of the finance world – financial intermediaries. From the hustling brokers and dealers to the diligent securitizers, from the classic banks and insurance companies to the sharp-eyed arbitrageurs and meticulous clearinghouses, you’ll get to know them all.

► Discover the movers and shakers of finance here.

Positions and Leverage

Unpack the intricacies of financial positions – long, short, and leveraged – and how they’re used in securities, contracts, and hedging. Plus, learn about short selling and the balancing act of margin purchases. Understand how to navigate margin calls, and compute returns on leveraged positions like a pro.

► Get the lowdown on financial positions here.

Order Instruction

Let’s talk trading! We’ll take a deep dive into the instructions a trader can give when placing a market order – execution, validity, and clearing instructions. We’ll unravel the nuances of market and limit orders, get to grips with all-or-nothing and iceberg orders, and understand the use of stop orders. Plus, we’ll shed light on the often-overlooked clearing instructions for both long and short sales.

► Ready to decode trading instructions? Start here.

Primary Markets

Let’s untangle the intricacies of primary markets. From distinguishing between primary and secondary markets to decoding the dynamics of public offerings and private placements, we’ll cover it all. You’ll also learn about underwritten versus best-efforts offerings and get a sneak peek into other primary market activities like shelf registrations, dividend reinvestment plans, and rights offerings. And yes, we won’t forget about government-issued securities!

► Eager to master primary markets? Start here.

Secondary Markets

Embark on an exploration of secondary markets. Uncover how they provide liquidity and price information and dive into the structures of these markets like call markets and continuous trading markets. Also, learn about different pricing rules and the role of market transparency, along with how it affects buy-side traders and dealers.

► Eager to delve into secondary markets? Start here.

Well-Functioning Financial Systems

Uncover the intriguing characteristics of a well-functioning financial system. Dive into the roles of various participants like individuals, firms, and governments, and how complete markets cater to their needs. We’ll also introduce you to the concept of operational and informational efficiency, and shed light on the pivotal roles of key players like exchanges, brokerages, and banks.

► Ready to dive deep into the world of well-functioning financial systems? Click here.

Market Regulation

Uncover the key challenges in financial markets, including fraud, insider trading, high information costs, and default risks. We’ll also explore how effective regulation plays a crucial role in maintaining market functionality, introducing regulatory measures such as competency standards, insider trading laws, common financial reporting, and minimum capital requirements.

► Keen to understand the challenges and solutions in financial markets? Start here.