Money markets: The market for securities of less than one year includes government and central bank bills, repurchase agreements of government paper (repos), commercial bank certificates of deposit, corporate commercial paper and trade finance instruments such as bankers’ acceptances. These markets, in their inter-bank or over-the-counter (OTC) form, have been in existence for a long time in many countries. A newer phenomenon, however, has been for these instruments to be listed on organized stock exchanges and for central banks to increasingly conduct monetary policy through open market operations in these instruments. Ladies and Gentlemen, in developing economies debt markets which include public entities (ministries of finance, central banks and specialized government agencies for housing, agriculture, export and industry), are the most creditworthy borrowers and generally dominate the issue of local currency debt. However, we are seeing an increasing ability to issue corporate obligations beyond one year in local bond markets. The maturity structure (yield curve), however, generally does not extend beyond two or three years, and the central problem for both government and corporate borrowers is to push out maturities as far as is possible. Equity Markets which are organized stock exchanges in emerging economies have been slow to develop because of the traditional reluctance of closely-held firms to divulge information to the public or an unwillingness to dilute voting power and control of the firm. For these reasons, closely-held private placements have historically been more important. Another important group of investors in capital markets are Institutional Money Managers.

Thus, the main mechanisms of growth stem from the improvements in the functioning of financial markets, and the effect this has on transforming risks and maturity of assets and liabilities of which capital markets development plays an important role. Ladies and Gentlemen, even as the private sector takes centre stage in this process, the government also has an important role to play. The absence of government means that financial markets operate without proper regulatory structures. Without a formally regulated financial system, informal financial markets tend to fill in the gap but at sub-optimal levels with high transactions and other related costs. As a result, there is less efficient allocation of capital which in turn translates into low levels of economic growth as investment funding is limited by the cost of transactions. Therefore, efficient capital allocation relies chiefly on a properly functioning financial system, which enables firms and households to share risks and also facilitates the transformation of more liquid liabilities into illiquid but productive investments. 2  BIS Review 149/2010  Instruments and the structure of capital markets Distinguished ladies and gentlemen: Looking at the objective of every economy, it is clear that all countries develop the depth and breadth of their financial markets to meet the needs of the real economy. This includes making a wide range of choices available to investors and issuers of securities in fixed-income and equity markets. Bond issuers, for example, would ideally be able to issue a variety of maturities with both variable and fixed rates.