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Discuss the evolution of the securities markets, including the impact of the NASDAQ, CME, ECNs, and foreign exchanges.
Explain the role of securities markets in the efficient allocation of capital among issuers and investors based on the efficient market hypothesis.
Evaluate if the presence of dark pools enhances or reduces capital market efficiency.
Finally, find a real-life company that has made raised capital in 2020 and discuss the method used. If possible, try to select a company that a fellow student has not already selected.

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The Evolution of Securities Markets

Securities markets have evolved significantly over time. In the early days, securities were traded over-the-counter (OTC), meaning that buyers and sellers would find each other through a network of brokers. This was a slow and inefficient process, and it was difficult to get accurate information about the prices of securities.

In the 1970s, the first electronic securities exchanges were created. These exchanges allowed buyers and sellers to trade securities electronically, which made the process much faster and more efficient. The NASDAQ was founded in 1971, and it quickly became the leading electronic securities exchange in the world.

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In the 1980s, the Chicago Mercantile Exchange (CME) began trading futures contracts on securities. Futures contracts are a type of derivative that allows buyers and sellers to agree to buy or sell a security at a predetermined price in the future. The CME’s introduction of futures contracts on securities made it possible for investors to hedge their risk and to speculate on the future prices of securities.

In the 1990s, electronic communication networks (ECNs) were created. ECNs are electronic trading platforms that allow buyers and sellers to trade securities directly with each other, without the need for a broker. ECNs have made it possible for investors to trade securities more quickly and efficiently, and they have also helped to increase competition in the securities markets.

In recent years, the growth of foreign exchanges has also had a major impact on the securities markets. Foreign exchanges allow investors to trade securities that are listed on exchanges in other countries. This has made it possible for investors to diversify their portfolios and to take advantage of investment opportunities in other countries.

The Role of Securities Markets in the Efficient Allocation of Capital

Securities markets play a vital role in the efficient allocation of capital. By allowing buyers and sellers to trade securities, securities markets help to ensure that capital is allocated to those companies that are most likely to use it effectively.

The efficient market hypothesis (EMH) states that securities markets are efficient in the sense that prices reflect all available information. This means that it is impossible to consistently outperform the market by simply buying and selling securities.

However, the EMH does not mean that securities markets are perfect. There are still opportunities for investors to make money by taking advantage of inefficiencies in the market. For example, investors may be able to find undervalued securities or to sell securities that are overvalued.

The Impact of Dark Pools on Capital Market Efficiency

Dark pools are electronic trading platforms that allow buyers and sellers to trade securities anonymously. This means that the prices of securities traded on dark pools are not publicly available.

There is some debate about whether the presence of dark pools enhances or reduces capital market efficiency. Some argue that dark pools allow investors to trade securities more quickly and efficiently, which can benefit the market as a whole. Others argue that dark pools allow large investors to trade securities without affecting the market price, which can give them an unfair advantage.

A Real-Life Company That Has Raised Capital in 2020

One real-life company that has raised capital in 2020 is Zoom Video Communications. Zoom is a video conferencing company that saw a huge increase in demand for its services during the COVID-19 pandemic. In 2020, Zoom raised over $10 billion in capital, which helped the company to grow its business and to expand its offerings.

Zoom raised capital through a variety of methods, including:

  • Initial public offering (IPO): Zoom went public in April 2019, and it raised over $3 billion in its IPO.
  • Secondary offerings: Zoom has also conducted several secondary offerings, in which existing shareholders sold their shares to the public.
  • Debt financing: Zoom has also raised debt financing, which is money that is borrowed from investors.

The methods that Zoom used to raise capital are just a few of the many ways that companies can raise money. The best method for a particular company will depend on a variety of factors, including the company’s size, its financial situation, and its growth plans.

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