What is an Equity Capital Market - ECM

The equity capital market (ECM) is where financial institutions help companies raise equity capital and where stocks are traded. It consists of the primary market for private placements, initial public offerings (IPOs) and warrants; and the secondary market, where existing shares are sold, and futures, options and swaps are traded.

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Equity Capital Market

BREAKING DOWN Equity Capital Market - ECM

The equity capital market (ECM) is broader than the stock market, because it covers a wider range of financial instruments and activities. These include the marketing and distribution and allocation of issues, IPOs, private placements, derivatives trading and book building. The main participants in the ECM are investment banks, broker-dealers, retail investors, venture capitalists, private equity firms, angel investors and securities firms.

Together with the bond market, the ECM channels money provided by savers and depository institutions to investors. As part of the capital markets, the ECM, leads, in theory, to the efficient allocation of resources within a market economy.

Primary Equity Market

The primary equity market, where companies issue new securities, is divided into a private placement market, and a primary public market. In the private placement market, companies raise private equity through unquoted shares that are sold to investors directly. In the primary public market, private companies can go public through IPOs, and listed companies can issue new equity through seasoned issues.

Secondary Equity Market

The secondary market, where no new capital is created, is what most people typically think of as the "stock market”. It is where existing shares are bought and sold, and consists of stock exchanges and over-the-counter (OTC) markets, where a network of dealers trade stocks without an exchange acting as an intermediary.