The Capital Markets

Written by the former President of BNY Mellon Capital Markets, LLC for both financial professionals and novices, The Capital Markets provides a comprehensive macro view of the marketplace and how its products operate.

The subject matter offers an authoritative discussion of the fundamentals of both, the fixed income and equity markets, underwriting, securitizations, derivatives, currency among other products through the lens of leading industry practitioners. Key Learning Concepts

• Understand the impact of both global and domestic regulatory changes
• Learn about the products that holistically make up the capital markets
• Explore the components of the infrastructure that underpins these markets
• Examine the tools used for trading and managing risk
• Review new product innovations

Preface xi

Acknowledgments xiii

About the Author & Executive Editor xv

About the Contributors xvii

Part One Introduction and Tools

Chapter 1 The Early 21st-Century Evolution of Global Capital Markets 3
Jack Malvey

Chapter 2 The Role of Global Capital Markets 20
Christian A. Edelmann and Shasheen Jayaweera

Chapter 3 How the Global Financial Crisis Transformed the Industry 52
Christian A. Edelmann and Pete Clarke

Chapter 4 Cash Bonds and Futures 64
Amir Sadr

Chapter 5 Risk in Capital Markets 89
Peter Reynolds and Mike Hepinstall

Chapter 6 Enablers for Robust Risk Management in Capital Markets 110
Swati Sawjiany

Chapter 7 Making Markets Work 120
Eric Czervionke

Part Two Capital Markets Products

Chapter 8 Money Markets 157
Randy Harrison and Paul Mandel

Chapter 9 Repurchase Agreements 184
Karl Schultz and Jeffrey Bockian

Chapter 10 U.S. Treasury and Government Agency Securities 205
Lee Griffin and David Isaac

Chapter 11 Government-Sponsored Enterprises and Federal Agencies 210
David Isaac and Francis C. Reed, Jr.

Chapter 12 Inflation-Linked Bonds 232
Henry Willmore

Chapter 13 Mortgage-Backed Securities 239
Patrick Byrne

Chapter 14 Corporate Bonds 254
Marvin Loh

Chapter 15 Preferred Stock 286
Sarah Swammy

Chapter 16 Distressed Debt Securities 296
Michael McMaster

Chapter 17 Securitization 304
Daniel I. Castro, Jr.

Chapter 18 Asset-Backed Securities 312
Daniel I. Castro, Jr.

Chapter 19 Non-Agency Residential Mortgage-Backed Securities (RMBSs) 329
Daniel I. Castro, Jr.

Chapter 20 Commercial Mortgage-Backed Securities (CMBSs) 348
Daniel I. Castro, Jr.

Chapter 21 Collateralized Debt Obligations (CDOs) 361
Daniel I. Castro, Jr.

Chapter 22 Structured Investment Vehicles (SIVs) 381
Daniel I. Castro, Jr.

Chapter 23 Collateralized Loan Obligations (CLOs) 389
Mendel Starkman

Chapter 24 Municipal Bonds 419
Fred Yosca

Chapter 25 Equities 435
David Weisberger

Chapter 26 Cash Equities in the Secondary Market 458
Eric Blackman and Robert Grohskopf

Chapter 27 Exchange-Traded Funds (ETFs) 469
Reginald M. Browne

Chapter 28 Equity Capital Markets 481
Daniel C. de Menocal, Jr.

Chapter 29 Interest Rate Swaps 503
Amir Sadr

Chapter 30 Interest Rate Options 523
Amir Sadr

Chapter 31 Commodities 548
Bob Swarup

Chapter 32 Currency 571
Simon Derrick

Chapter 33 Conclusion 578
Gary Strumeyer and Christian Edelmann

Index 591

GARY M. STRUMEYER is the former president of BNY Mellon Capital Markets, LLC. He is the author of Investing in Fixed Income Securities and Keys to Investing in Municipal Bonds. Gary is a former adjunct professor at NYU’s School of Professional Studies.

SARAH SWAMMY is a managing director, business manager, and head of supervision for BNY Mellon Capital Markets. She is a member of BNY Mellon Capital Markets Board of Managers and serves as a member of New York Institute of Technology School of Management’s executive council. Sarah is an adjunct instructor at NYU’s School of Professional Studies.

Economies and financial systems are constantly changing in small increments that lead to large transitions. Just as vast farmlands transformed into shopping malls by the 1950s, altering the way we buy products, online retailers once again changed that paradigm in the twenty-first century. The Great Recession only lasted two years, but the global economies are still dealing with the effects. The Capital Markets examines the deep and wide-reaching transition global capital markets are undergoing right now and looks at the possibilities of what’s to come over the next several decades.

This first-of-its-kind guide to the global capital markets takes a macro view of the entire marketplace to analyze how financial products operated in the past and how they operate today. Under the editorial leadership of thought leaders from BNY Mellon Capital Markets, including capital markets expert and former president Gary Strumeyer, a diverse and highly knowledgeable collection of contributors share their expertise in such areas as fixed income and equity markets, underwriting, securitizations, derivatives, currencies, and much more. Professionals with decades of practice under their belts as well as individual investors can gain and reaffirm their understanding of market fundamentals and follow through to grasp the complex dynamics shaping the way those supplying capital are matched with those in need of capital. This authoritative book is a hands-on reference and includes:

• Discussion of how regulations will change both domestically and around the world
• Detailed examinations of the multitude of products in the capital markets and the underlying infrastructure
• Up-to-date reviews of the tools used for trading and managing risk, including the latest new product innovations

Prepare yourself for the unprecedented change taking place with the extraordinary perspectives in The Capital Markets.