The term capital market describes the worldwide markets on which capital investments such as securities, loans, foreign currencies, etc. are offered and requested. It comprises all transactions through which medium- or long-term finance is obtained or provided in order to enable the formation of real capital.
The generic term capital market or financial market can be further subdivided. In geographical terms, a distinction is made between national and international financial markets (e.g. the Eurodollar market). Depending on whether long- or short-term finance is being offered or requested, the raising of finance is either associated with the term capital market or, when dealing with the short-term raising of finance, money market.
Depending on the date of maturity of the financing transactions, the capital market is broken down into the cash market and the futures market. The money market can be split into the market for securities and the interbank market. In the latter, banks trade overnight and term deposits. Furthermore, there is a primary market, where newly issued securities are traded, and a secondary market, for the trading of already issued securities.
In this context, business is done on classic stock exchanges as well as in other trading centres which can’t be classified as stock exchanges, although capital investments are traded on them.
In Germany, approximately 80% of all legislation governing the regulation of capital investments is based on decisions made by the European legislative body.
A law which is of key importance for German capital market law is the German Securities Trading Act (WPHG). Other important laws are the German Stock Exchange Act (BörsG), the German Investment Act (InvG), the German Securities Prospectus Act (WpPG) and the German Securities Acquisition and Takeover Act (WpÜG).
All capital market regulations are intended to secure a functioning capital market. However, they also protect individual private or institutional investors. These aims are mutually dependent as trust can be built by effective investor protection, thus enabling the functioning capital markets which are vitally important to any economy.
In recent years, the subprime and banking crises have made evident how important capital market law is for the development of society as a whole. In terms of legal policy, a possible restructurisation of the financial markets is being discussed. The financial crisis has made it clear that there is a lack of substantial equity capital present in the global banking system.
Regulations such as Basel III and the implementation of the Markets in Financial Instruments Directive (MiFID) or EMIR (European Market Infrastructure Regulation) are intended to sustainably improve the financial market and compensate for systemic weaknesses. As with banking law, capital market law is subject to a significantly above-average level of dynamic development.