Treasury Money and Capital Market PDF 16 Jan 2025

TREASURY MONEY AND CAPITAL MARKETS Dynamics Regulations and Funding January 2025  FITC CORPORATE PHILOSOPHY Our New Corporate Philosophy Our Vision...

TREASURY MONEY AND CAPITAL MARKETS Dynamics Regulations and Funding January 2025  FITC CORPORATE PHILOSOPHY Our New Corporate Philosophy Our Vision To be a world-class, innovation-led and technology- Vision driven knowledge organization. Our Mission To go beyond the ordinary; to deliver value by Mission Core Values equipping individuals and organizations with innovative knowledge solutions Our Core Values Service, Excellence, Agility, Teamwork, Innovation (SEATI)  OUTLINE Day Two Market Dynamics and Trading Strategies Banking Regulations and Compliance Understanding Financial Markets Regulatory Framework for Treasury & Global Markets Impact of Macroeconomic Factors on Financial Markets Compliance with Market Regulations & Reporting Trading Strategies, Trading Execution and Order Types Role of Risk Management in Regulatory Compliance Technical and Fundamental Analysis AML & KYC Requirements Role of Market Makers and Brokers Basel III and Its Implications for Treasury Operations Governance, Risk, and Compliance in Treasury Capital Markets and Fund Raising Group Discussions Role of Treasury in Capital Raising Case Studies Initial Public Offerings (IPOs) and Debt Issuances Securitization and Structured Finance Syndicated Loans and Project Finance Private Equity and Venture Capital Crowdfunding and Alternative Financing Method  MARKET DYNAMICS AND TRADING STRATEGIES Introduction to Financial Markets Player Banks Investors Borrowers Financial Markets  Introduction to Financial Markets Player Money Markets Financial markets are places where buyers and sellers Involve the buying and selling of financial assets with a maturity of one year or less, such as government and corporate bonds. Also includes interbank lending transactions. meet to trade financial assets, including money markets, capital markets, and currency markets Capital Markets Concern the buying and selling of assets with a maturity of more than one year. Includes both debt capital (borrowed money that pays interest) and equity capital (ownership in a business with dividends as returns). Financial Markets Debt vs. Equity Capital Debt capital involves borrowing that requires interest payments, while equity capital represents ownership, with returns in the form of dividends instead of interest. Money Market Capital Market Currency Market Capital Markets Asset Examples Long-term government bonds and shares are traded. These markets are divided into primary markets (new issues) and secondary markets (traded after issuance). Primary Secondary Spot Futures Primary and Secondary Capital Markets Primary markets involve the initial issuance of new bonds or shares, while secondary markets allow for buying and selling of these assets. IOUs < 1 Year IOUs > 1 Year Liquidity in Capital Markets Capital market assets are less liquid than money market assets but remain relatively liquid due to active secondary markets. Bonds Shares Currency Markets Includes spot markets (instant transactions) and futures markets (contracts for future delivery), used by importers, exporters, and speculators to manage or profit from exchange rate fluctuations. Debt Equity Futures Markets Futures contracts are used by businesses to hedge against unfavorable exchange rate changes or by speculators to profit from predicted exchange rate shifts. Understanding Financial Markets Financial market explains an arrangement that contract entities to trade financial claims under some established rules of conduct. The structure of a country’s financial markets is dictated by economic and financial development of its economy. As a country experiences growth in its wealth and income, its financial structure also becomes richer in financial assets, institutions and markets. There is therefore need for comprehensive appraisal of financial markets because current effort towards global monetary integration necessitates an examination of its likely impact on the economy. Financial market could be defined as a forum for the exchange of financial products denoted in some cases by a physical location, but in others by a common electronic information system sharing data on prices and volumes transacted and where a number of professionals take an active part in the market processes. Financial markets in general deals in financial assets and liabilities of various maturities and consist of institutions, instruments, rules and regulations which guides the mobilization of funds from the surplus units of the economy to the deficit units. The financial market in any country is one of the major pillars of growth and development. The market serves the function of enabling the efficient allocation of financial resources among the economic agents. It serves as the channel through which the surplus funds are transmitted between surplus units and the deficit units. In addition, the market serves a broad range of clientele, including different levels of government, corporate bodies, and private individual investors. Introduction to the Capital Market. The capital market is a cornerstone of any economy. It provides a platform for businesses to raise long- term funding and investors to find opportunities for wealth creation. It acts as a bridge, connecting those with surplus funds to those who need them for growth and innovation. In Nigeria, institutions like the Securities and Exchange Commission (SEC) and the Nigerian Exchange Group (NGX) oversee and regulate this market to ensure transparency and protect investors. Introduction to the Capital Market. Categories Products in the Capital Market EQUITY DEBT SECURITIES Derivatives derive their value from an Equity securities represent ownership in Debt securities are instruments that allow underlying asset, index, or rate. They are a company. entities to borrow funds from investors for a primarily used for hedging and fixed period at an agreed interest rate. When an investor buys shares, they speculation. become a part-owner of the company and are entitled to dividends and voting rights. Types Types Types ❖ Common Shares: Offer voting rights ❖ Bonds: Fixed-income securities issued by ❖ Futures: Contracts to buy or sell an and dividends but carry the highest corporations or governments. Examples asset at a predetermined price and date. risk. include Federal Government of Nigeria ❖ Options: Provide the right, but not the (FGN) Bonds and corporate bonds. ❖ Preferred Shares: Provide fixed obligation, to buy or sell an asset. dividends and have priority over ❖ Debentures: Unsecured debt instruments ❖ Swaps: Agreements to exchange cash common shares in asset liquidation backed by the issuer’s creditworthiness. flows between two parties. but typically lack voting rights. ❖ Commercial Papers (CPs): Short-term debt instruments used by companies to meet working capital needs.  Introduction to the Capital Market. Players in the Nigerian Capital Market MARKET GOVERNMENT REGULATORS OPERATORS AGENCIES Regulators ensure Market operators List Examples the market include entities of operates that facilitate Government transparently and market Agencies in compliance with transactions. established rules and regulations. QUOTED PROFESSIONAL INVESTORS COMPANIES BODIES ❖ Securities and List Examples Here List Examples of ❖ Stockbrokers Professional Bodes Exchange ❖ List Quoted Commission (SEC) ❖ Issuing Houses Companies ❖ Nigerian Exchange ❖ Registrars Limited (NGX) ❖ Investment Banks ❖ Central Bank of ❖ Fund Managers Nigeria (CBN) ❖ Market Makers ❖ National Pension ❖ Equity Firms Commission (PenCom ❖ Financial Reporting Council of Nigeria (FRCN)  Introduction to the Capital Market. Regulators of The Nigerian Capital Market 1.The apex regulatory body of the market. Provides the platform for the trading of securities like Acts as a depository for all securities and facilitates the Key Components of the Nigerian 2.It ensures transparency, protects investors, and equities and bonds Comprises different boards clearing and settlement of transactions. Capital enforces rules to maintain such as the Main Board, market integrity. Growth Board, and the Alternative Securities Primary Market: This is where new Market. securities (e.g., stocks, bonds) are Securities and Nigerian Central issued for the first time. Companies or Exchange Exchange Securities and governments raise funds directly from Commission Limited Clearing System the public through Initial Public Institutions in The Nigerian Capital Market Offerings (IPOs) or bond issuances. 1.Issuing Houses: Assist 1.Provide advisory services 1.Institutional investors companies in raising capital and assist in raising capital include pension funds, by underwriting and through equity or debt mutual funds, and insurance managing the issuance process. instruments. companies, while retail investors are individuals Secondary Market: This is where Stockbrokers: Facilitate investing in the market. previously issued securities are bought the buying and selling of securities on behalf of and sold among investors. The investors Nigerian Exchange Limited (NGX) Issuing Houses Institutional and Stock Investment and Retail operates as the main platform for Banks Brokers Investors secondary market activities. Evolution of traditional and emerging capital market instruments and their influence on global financial systems. As far back as 60’s in Amsterdam in 1602, the world's first modern stock exchange was born. Merchants gathered in coffee houses, exchanging Dutch East India Company shares. This humble beginning marked the dawn of traditional capital markets, a system that would grow to shape global economies. As centuries passed, the heartbeat Traditional Emerging of commerce moved to the grand halls of Wall Street in New York and the historic buildings of London, where the Instruments Instruments New York Stock Exchange (NYSE) and London Stock Exchange (LSE) flourished. These traditional markets were dominated by stocks and bonds, bought and sold by wealthy merchants and powerful institutions. Transactions were recorded in ledgers, and deals were sealed with a firm handshake. However, change was on the horizon. In the mid-20th century, technology began its quiet revolution. Stockbrokers swapped paper slips for computers, Exchange Traded ushering in an era of electronic trading. The click of a mouse replaced the roar of trading pits, and the pace of global Equity Funds(EFTs) finance accelerated. The world became smaller as globalization invited investors to explore new frontiers, bringing emerging markets into the spotlight. Far from the glitz of Wall Street, countries like Brazil, Russia, India, China, and South Africa began writing their Debt Derivatives own capital market stories. These nations, rich in resources and brimming with ambition, attracted investors seeking higher returns. Technology was their ally. Digital trading platforms enabled a new generation of investors to access markets from their smartphones. Innovations like cryptocurrencies and decentralized finance (DeFi) disrupted traditional systems, creating opportunities for those previously excluded. As sustainability became a Green Bonds global mantra, capital markets saw a surge in green bonds and Environmental, Social, and Governance (ESG) investments, promising a brighter, greener future. On the western coast of Africa, Nigeria’s capital market story began with colonial roots. In the early 1960s, as Nigeria gained independence, its financial system also sought freedom. The Central Bank of Nigeria (CBN) led the charge, Cryptocurrencies laying the foundation for a formal capital market. In 1961, the Nigerian Stock Exchange (NSE) opened its doors. A small room in Lagos served as the stage where a handful of companies listed their shares. Investors, both local and foreign, started to take notice. Over time, the NSE became a symbol of hope, funding industries and creating wealth. However, the road was not always smooth. Political instability, economic challenges, and currency fluctuations tested the resilience of Nigeria's market. Yet, like a phoenix, it continued to rise. By 1999, the NSE embraced technology, launching electronic trading and signaling a new era of efficiency and transparency. Cross-jurisdictional Analysis Of Innovative Capital Market Products And Their Adoption. Key Innovative Capital Market Products Exchange-Traded Funds (ETFs) Digital Assets Exchange-Traded Funds (ETFs)ETFs are investment This includes cryptocurrencies, tokenized securities, funds traded on stock exchanges, combining the and other blockchain-based innovations. One of the key features of mutual funds and stocks. Merits of holding benefits are Fractional ownership, borderless trading, this product are Low cost, liquidity, and diversification. and transparency Derivatives Green Bonds Derivatives include futures, options, swaps, and bonds finance environmentally friendly projects and forwards. They derive value from underlying assets like align with ESG goals. It Attracts socially responsible stocks, bonds, or commodities and it helps investors investments (SRI). Hedging against risks, speculation, and price discovery Real Estate Investment Trusts Real Estate Investment Trusts REITs allow investors to earn returns from real estate REITs allow investors to earn returns from real estate without directly owning properties. It Provides liquidity without directly owning properties. It Provides liquidity to real estate investments and attractive dividends to real estate investments and attractive dividends Impact of Macroeconomic Factors on Financial Markets INTREST RATES INFLATION Impact of Macroeconomic Factors on Financial Markets INTREST RATES INFLATION Interest rates, set by central banks, are among the most critical Inflation represents the rate at determinants of financial market which the general level of prices movements. Changes in interest for goods and services rises rates affect. Bond Markets Equities Higher interest rates typically lead to a decline Moderate inflation can boost corporate in bond prices as the yield on new bonds earnings; however, high inflation often erodes becomes more attractive purchasing power and investor confidence Stock Markets Rising interest rates increase the cost of Fixed Income Securities borrowing, potentially lowering corporate Inflation diminishes the real returns of bonds profits and reducing stock valuation and other fixed-income instruments. Currency Markets Commodities Higher interest rates can attract foreign capital, Precious metals like gold often perform well in leading to currency appreciation. inflationary environments as they are seen as a hedge Impact of Macroeconomic Factors on Financial Markets Economic Growth Exchange Rates Gross Domestic Product (GDP) Exchange rate fluctuations directly growth signals the health of an impact multinational corporations economy. Positive growth generally and commodity prices. A stronger benefits equity markets, reflecting domestic currency may hurt increased corporate earnings. exporters by making their goods Conversely, stagnant or negative more expensive internationally, growth can lead to market while importers benefit from contractions. cheaper foreign goods. Unemployment Rates The labor market serves as a Geopolitical Events barometer of economic health. Political stability, trade wars, and High unemployment can dampen conflicts can create uncertainty in consumer spending, reducing financial markets. Events like corporate revenues and negatively elections, changes in government affecting stock markets. Conversely, policies, and international tensions low unemployment may signal can lead to volatility. economic expansion, boosting investor confidence. Impact of Macroeconomic Factors on Financial Markets Monetary Policy Central banks influence markets through monetary policy tools such as open market operations, interest rate adjustments, and quantitative easing or tightening. These measures alter liquidity and investor sentiment. Fiscal Policy Government spending and taxation impact economic activity and market expectations. Expansionary fiscal policies can stimulate growth but may also lead to higher inflation. Transmission Investor Sentiment Mechanisms Macroeconomic indicators shape investor perceptions and risk appetite. in Financial Positive economic data typically encourage investment in riskier assets, while negative data can drive demand for safe-haven assets like gold and government Markets bonds. TEACH A COURSE 17 Impact of Macroeconomic Factors on Financial Markets Oil Price Shocks Fluctuations in oil prices significantly impact energy-dependent economies and companies. An oil price surge can increase input costs for businesses, affecting profitability and market valuations. Financial Crisis Events such as the 2008 Global Financial Crisis underscore how systemic risks, stemming from credit or liquidity issues, can disrupt markets globally Macroeconomic Pandemics Shocks and The COVID-19 pandemic demonstrated how global health crises could trigger Financial Markets market sell-offs, alter consumer behavior, and lead to unprecedented fiscal and monetary interventions Globalization And Interconnectedness Global Financial Markets Are Interconnected, Meaning Macroeconomic Developments In One Region Can Influence Others. For Example, U.S. Federal Reserve Interest Rate Hikes Can Lead To Capital Outflows From Emerging Markets, Impacting Their Currencies And Equity Markets. 18  Impact of Macroeconomic Factors on Financial Markets Diversification Hedging Monitoring Strategies Indicators Managing Investors can mitigate risks by diversifying Use of derivatives such as Staying informed about Macroeconomic options and futures can key economic indicators portfolios across asset classes, sectors, and protect against adverse like CPI, GDP, and Risks in the price movements. employment data is geographies essential for proactive Financial decision-making Markets 19 Trading Execution and Order Types Trading Execution And The Various Types Of Orders Is Critical For Navigating Financial Markets Effectively. These Concepts Ensure That Traders And Investors Can Implement Their Strategies With Precision And Adapt To Different Market Conditions. Trading execution refers to the process of completing a buy or sell order in the financial markets. It involves matching the order with a counterparty to finalize the transaction. Market Makers Execution Methods Institutions or individuals that provide liquidity by quoting both buy and sell prices. Ensure that trades are executed quickly, often used in forex and equity markets. Direct Market Access (DMA) Allows traders to place orders directly on the exchange’s order book. Preferred by institutional and experienced traders. Broker-Assisted Execution Involves a broker executing trades on behalf of the client. Suitable for large or complex orders. Automated Execution Uses algorithms to execute trades based on pre-set conditions. Common in high-frequency trading (HFT).  Trading Execution and Order Types Order types determine how trades are executed and under what conditions. Selecting the right order type depends on the trader’s goals, risk tolerance, and market conditions. Market Orders Limit Orders Stop Orders Definition Stop Limit Orders Executes the trade Executes the trade only Becomes a market Combines a stop order immediately at the best at a specified price or order once a specified and a limit order. The available price. better. price (stop price) is order becomes a limit reached. order once the stop Ideal for trades where Useful when price price is reached. execution speed is control is more Often used for risk Balances price control more critical than price important than management. with risk management. precision. execution speed. Trader places a stop A trader places a stop- A trader places a order to sell 100 shares limit order to sell 100 market order to buy A trader sets a limit of XYZ stock at N45. If shares of XYZ stock 100 shares of XYZ order to buy 100 the stock price falls to with a stop price of stock. The order is shares of XYZ stock at N45, the order is N45 and a limit price filled instantly at the N50 or lower. The triggered and executed of N44. The order current market price. order executes only if at the next available triggers at N45 but will the price drops to n50 price. execute only at N44 or or below. better.  Trading Strategies Buying and selling financial instruments within the same trading day to capitalize on short-term price movements. Features High-frequency trades. Uses technical analysis, including chart patterns and indicators. DAY Requires constant market monitoring TRADING Common Assets: Stocks, forex, options, and futures Question Profit is calculated by subtracting the cost (purchase price + transaction fees) A trader buys 100 shares of Stan Corp at N50 each and sells from the sale proceeds. them later in the day at N52 each. The broker charges a N1 commission per trade. What is the net profit from this day trade? Answer Buying Cost: 100×50=5,000 Selling Proceeds: 100×52=5,200 Total Commissions: 1×2=2 Net Profit: 5,200−5,000−2=1198 The trader earns a net profit of $198. FITC 2022  Trading Strategies Holding positions for several days or weeks to capture medium-term price movements. Features Focuses on price "swings" using trend analysis. Balances fundamental and technical analysis. SWING Best for: Traders who cannot monitor markets constantly TRADING Question An investor buys 1,000 shares of DEF Corp at N20 each and holds them for three years, during which the share price rises to N50. DEF pays an annual dividend of N2 per share. What is the total return? Answer Calculate capital gain: (50−20)×1,000=30,000 Calculate dividends: 2×1,000×3=6,000 Total return: 30,000+6,000=36,000 FITC 2022  Trading Strategies Long-term trading where positions are held for months or even years. Features Relies heavily on fundamental analysis. Ignores short-term price fluctuations. POSITION Common Use: Investing in undervalued stocks or riding long-term TRADING trends in forex. Question Total Return = An investor buys 1,000 shares of DEF Corp at $20 each and holds Capital Gains + Dividends. them for three years, during which the share price rises to $50. DEF pays an annual dividend of $2 per share. Question: What is the total return? Homework FITC 2022  Trading Strategies Exploiting price differences of the same or related assets in different markets. Features Requires fast execution and low latency. Types include spatial arbitrage, statistical arbitrage, and merger ARBITRAGE arbitrage. TRADING Common Use: Crypto, forex, and stock markets. Question AA stock trades at N100 on Exchange A and N102 on Exchange B. An arbitrageur buys 1,000 shares on Exchange A and sells them on Exchange B. Question: Calculate the arbitrage profit Answer Calculate price difference: 102−100=2 Calculate arbitrage profit: 2×1,000=2,000 Profit is 2000 FITC 2022  Trading Strategies Identifying and riding trends in the market, either upward (bullish) or downward (bearish). TREND Features FOLLOWING Relies on momentum indicators and moving averages. Works best in strongly trending markets. Common Instruments: Stocks, forex, and commodities. Betting against prevailing market trends, expecting a reversal. CONTRARIAN Key Features TRADING Buys undervalued assets during market downturns and sells overvalued ones during bubbles. Requires strong conviction and risk management. Best for: Volatile markets with frequent reversals. FITC 2022  Trading Strategies Identifying price movements beyond a defined level of support or resistance. BREAKOUT TRADING Features Focuses on high volatility phases after price consolidation. Combines volume analysis with technical patterns like triangles and flags. Ideal Markets: Stocks and forex. Trading within price ranges defined by support and resistance RANGE levels. TRADING Key Features Buys near support and sells near resistance. Uses oscillators like RSI and Bollinger Bands. Best for: Stable or sideways markets FITC 2022  Trading Strategies Long-term trading where positions are held for months or even LONG TERM years. TRADING Features Relies heavily on fundamental analysis. Ignores short-term price fluctuations. Common Use Investing in undervalued stocks or riding long-term trends in forex. Identifying and riding trends in the market, either upward (bullish) TREND or downward (bearish). FOLLOWING Relies on momentum indicators and moving averages. Works best in strongly trending markets. Common Instruments: Stocks, forex, and commodities. FITC 2022  Trading Strategies Leveraging economic announcements, earnings reports, or geopolitical events. NEWS BASED Key Features TRADING Requires quick analysis and execution. High volatility, thus higher risk. Examples Non-Farm Payroll (NFP) data in forex, earnings reports for stocks. Algorithmic trading strategy involving rapid execution of a large HIGH-FREQUENCY number of trades. TRADING Uses AI and machine learning models. Suitable for institutional investors due to high technology costs. Common Instruments: Stocks, forex, and derivatives. FITC 2022  TECHNICAL AND FUNDAMENTAL ANALYSIS  FUNDAMENTAL TECHNICAL ANALYSIS ANALYSIS Fundamental analysis is the process of Technical analysis focuses on historical price evaluating the intrinsic value of an asset (such as data, volume, and other market statistics to a stock, currency, or commodity) by analyzing predict future price movements. It relies on economic, financial, and other qualitative and chart patterns, technical indicators, and quantitative factors. statistical analysis The goal is to determine whether an asset is undervalued or overvalued, which helps investors make informed decisions about buying or selling. FITC 2022 Qualitative and Quantitative Techniques Fundamental analysis is the process of evaluating the intrinsic value of an asset (such as a stock, currency, or commodity) by analyzing economic, financial, and other qualitative and quantitative factors. The goal is to determine whether an asset is undervalued or overvalued, which helps investors make informed decisions about buying or selling. Economic Industry Industry Indicators Analysis Analysis Price-to-Earnings (P/E) Ratio A measure of how much Examining the The core of These include fundamental analysis investors are willing to GDP growth performance and for stocks. pay for a company's earnings. Higher P/E rates, outlook of suggests higher growth unemployment specific industries. Income Statement Revenue, expenses, expectations. Fundamental Analysis rates, inflation and profit over a Price-to-Book rates, interest period. (P/B) Ratio Compares the rates, etc. They Balance Sheet market value of a provide insights Assets, liabilities, and company's stock to its book value. A into the overall shareholder equity. ratio below 1 might economic health Cash Flow indicate and can Statement undervaluation. influence market Cash inflows and Return on Equity performance. outflows. (ROE) Measures profitability relative to shareholder equity. 32 Qualitative and Quantitative Techniques TechX Inc. Economic Outlook: The economy is in a growth phase with low unemployment and moderate inflation. Industry: The technology sector is expected to grow due to increasing demand for AI and cloud computing. Company: Income Statement: TechX Inc. shows strong revenue growth of 15% year-over-year. Balance Sheet: TechX has a low debt-to-equity ratio, which Fundamental signals solid financial health. Cash Flow: Strong cash flow with little reliance on debt. Analysis P/E Ratio: TechX has a P/E of 25, which is high compared to the industry average of 18, suggesting investors expect high future growth. Based on this analysis, you may decide that TechX is a strong company with growth potential, but the high P/E ratio might indicate it’s currently overvalued. 33  Qualitative and Quantitative Techniques Technical analysis focuses on historical price data, volume, and other market statistics to predict future price movements. It relies on chart patterns, technical indicators, and statistical analysis Moving Averages: Used to smooth price data to identify trends over a Price Charts Support and Industry specific time period. Resistance Analysis Simple Moving Average (SMA): The average of closing prices over a set Indicators and These represent the Support A Oscillators period (e.g., 50-day, 200-day). price level where a historical price Technical downtrend can be MACD (Moving Exponential Moving Average movement of a expected to pause Average (EMA): More sensitive to recent price security Analysis due to a Convergence concentration of Line Chart: A simple line demand. Divergence) connecting closing prices Relative Strength Index (RSI) over time. Resistance A A momentum Measures the speed and change of price level where an indicator showing price movements, oscillating Bar Chart: Shows open, the relationship between 0-100. high, low, and close prices uptrend can be expected to pause or between two An RSI above 70 indicates for each time period. reverse due to a moving averages of overbought conditions, while below Candlestick Chart: concentration of a security’s price. 30 suggests oversold conditions. Similar to bar charts but selling. Crossovers of the visually more appealing, MACD line above showing open, high, low, and close prices with or below the signal colored bodies to indicate line are used as price movement buy/sell signals. 34 Straight lines that help identify the direction of the market (uptrend, downtrend, or sideways CAPITAL MARKETS AND FUND RAISING Initial Public Offerings (IPOs) An Initial Public Offering (IPO) is the process through which a private company becomes a publicly traded company by offering its shares to the public for the first time. The company hires investment Valuation Marketing banks as underwriters to manage the IPO process. In Nigeria, the Securities Financial statements are audited, Underwriters determine the and Exchange Commission Shares are listed on a stock and disclosures are prepared value of the company and (SEC) reviews the A "roadshow" is conducted exchange (e.g., Nigerian prospectus and ensures Exchange Group - NGX). according to regulatory standards. the price of its shares using to attract institutional and A prospectus is created, detailing methods like discounted compliance with Investors can buy and sell the the company's financials, risks, retail investors shares in the secondary and the use of funds from the IPO cash flow (DCF), regulations market. comparable, or market conditions. Regulatory Preparation IPO Launch Approval Debt Issuances Debt issuance involves raising funds through the sale of debt instruments such as bonds, treasury bills, or sukuk (Islamic bonds) Preparation Issuance Auction and Trading Syndication Governments or Treasury Market Government Debt instruments corporations identify Governments issue securities are often trade in the funding needs and treasury bills and issued via auctions, secondary market, decide on the type bonds to finance where investors bid providing liquidity to of debt instrument. deficits. for them. investors. A prospectus or Corporate Market: Corporates may information Companies issue issue bonds via memorandum is corporate bonds to syndication, with prepared, detailing fund operations or investment banks terms like interest projects acting as arrangers. rate (coupon), maturity, and repayment structure Securitization Understanding Securitization Securitization is the process of pooling various types of financial assets—such as mortgages, Asset Originator The entity (e.g., a bank) that owns the financial assets initiates the process. loans, or receivables—and repackaging them into For Instance, A bank pools together mortgage loans marketable securities that are sold to investors. Special Purpose Vehicle Key Features of Securitization The originator transfers the pooled assets to an SPV, ensuring the assets are off the originator’s balance sheet. The SPV is insulated from bankruptcy risk of the originator Asset Pooling: Combines similar financial assets to create a diversified portfolio. Structuring the Securities The SPV divides the pooled assets into tranches Tranching: Splits the pooled assets into Senior Tranche: Least risky, lower yield. Paid first. different layers (tranches) with varying levels of Mezzanine Tranche: Moderate risk and yield. Equity Tranche: Highest risk, highest yield. Paid last risk and return. Issuance Special Purpose Vehicle (SPV): A separate The SPV issues securities backed by the asset pool (e.g., mortgage-backed legal entity created to hold the pooled assets and securities, MBS).Investors buy these securities. issue securities. Cash Flow: Investors receive returns based on Cash Flow Distribution the cash flows from the underlying assets (e.g., The cash flows from the underlying assets (e.g., loan repayments) are used to pay investors in order of seniority loan repayments). Structured Finance Understanding Securitization Structured finance refers to highly complex financial instruments designed to meet specific risk-return requirements of investors. It includes securitization but also encompasses other products like derivatives and collateralized debt obligations (CDOs). Key Features of Securitization Collaterized Debt Obligations A type of securitization where the asset pool includes various types of debt, such as loans and bonds.Like securitization, CDOs are divided into tranches. Customization Tailored to fit unique financing needs. Complexity Involves multiple layers of risk transfer. Credit Default Swaps Leverage A derivative that acts like insurance against the default of a debt instrument. Often involves significant use of leverage.  Role of Treasury in Capital Raising The treasury function is crucial in managing a company’s financial resources effectively, particularly when raising capital. It ensures that funding strategies align with the company's overall financial goals, liquidity needs, and risk management objectives. Here's a detailed breakdown KEY RESPONSIBILITIES OF TREASURY IN CAPITAL RAISING Capital Planning Structuring the Capital Raise Assessment of Funding Needs: Analyze the Debt Instruments: Develop terms for bonds, loans, or other debt instruments, including maturity, interest rates, and covenants. company’s strategic plans and operational needs to Equity Offerings: Work with advisors to structure IPOs, follow-on offerings, or private determine how much capital is required. placements. Hybrid Instruments: Consider convertible bonds or preferred shares if suitable for the Funding Strategy Development company's financial strategy. Decide on the optimal mix of debt and equity to minimize the cost of capital while maintaining Execution of Transactions Coordination with Stakeholders: Work closely with investment banks, underwriters, financial flexibility. and legal advisors to execute the transaction. Investor Relations: Communicate the company’s financial health and growth potential Market Analysis to attract investors. Economic Conditions: Monitor interest rates, market trends, and investor sentiment to time the capital Post-Issuance Management raise effectively. Debt Service: Ensure timely payment of interest and principal on debt. Compliance: Meet regulatory and reporting requirements. Competitor Analysis: Study industry peers’ capital- Liquidity Management: Use raised funds efficiently to optimize returns and raising activities to benchmark terms and conditions. ensure sufficient liquidity for operations.  Syndicated Loans and Project Finance Definition: Definition A syndicated loan is a large loan provided by a group of lenders (a Project finance involves raising funds specifically for a syndicate) and arranged by one or more lead arrangers. It is used project, where the repayment relies solely on the when the borrowing needs exceed the capacity of a single lender. project's cash flows. The project's assets serve as collateral. How It Works: ❑ Borrower’s Needs: The borrower (corporate or government) How It Works identifies a large funding requirement. ❑ Special Purpose Vehicle (SPV): A separate ❑ Arrangers: One or more banks act as lead arrangers to entity is created to own the project. structure and negotiate the loan terms. ❑ Syndicate Formation: Other banks or financial institutions ❑ Debt and Equity Mix: Funding is secured are invited to participate in the loan, sharing the risk. through a combination of loans and equity ❑ Loan Agreement: The terms, including repayment schedule, investments. interest rates, and covenants, are agreed upon and documented. ❑ Cash Flow-Based Repayment: Lenders are repaid from the project's revenues. Private Equity and Venture Capital Venture Capital (VC) Private Equity (PE) Definition: Investment in early-stage startups with high growth potential but significant risk. Private Equity (PE) refers to investments in Focus: Innovation, disruptive business models, and companies that are not listed on a public scalability. stock exchange. These investments are typically made by private equity firms, How PE and VC Work wealthy individuals, or institutional investors. The goal is to generate high ❑ Fund Raising: PE and VC firms raise capital returns by improving the company's value from institutional investors (e.g., pension funds). and eventually selling it. ❑ Investment: Deploy funds in targeted companies, often taking equity stakes. ❑ Active Management: Work closely with Investment in established companies management to drive growth and improve requiring capital for expansion, performance. restructuring, or buyouts. ❑ Exit Strategy: Sell the stake through IPOs, mergers, or acquisitions to realize returns. Profitability, stable cash flows, and potential for significant growth or turnaround. Crowdfunding Definition Crowdfunding is a method of raising small amounts of capital from a large number of individuals, typically via online platforms. Types ❖ Reward-Based: Backers receive non-monetary rewards (e.g., early access to products). ❖ Equity-Based: Investors receive equity in the company. ❖ Debt-Based (Peer-to-Peer Lending): Backers lend money in exchange for interest payments. ❖ Donation-Based: Contributors support a cause without expecting returns. How It Works ❑ Campaign Launch: A business or individual launches a funding campaign on a platform. ❑ Funding Goal: Sets a target amount and timeframe. ❑ Contributions: Individuals contribute varying amounts based on their interest. Alternative Financing Method Alternative financing encompasses non-traditional ways of raising funds, typically bypassing banks and public markets. Examples: 1. Invoice Financing: Selling outstanding invoices to a financier at a discount for immediate cash. 2. Revenue-Based Financing: Lenders receive a percentage of the company’s revenue until the investment is repaid. 3. Cryptocurrency and Token Sales: Using blockchain technology to raise capital via Initial Coin Offerings (ICOs) or Security Token Offerings (STOs). 4. Factoring: Selling accounts receivable to improve cash flow. 5. Angel Investing: Wealthy individuals (angel investors) provide capital in exchange for equity or convertible debt. 6. Microfinance: Providing small loans to individuals or small businesses, often in developing countries. BANKING REGULATIONS AND COMPLIANCE  Regulatory Framework for Treasury & Global Markets Description The regulatory framework encompasses laws, guidelines, and standards that govern the operations of treasury and global markets, aimed at ensuring systemic stability, consumer protection, and market integrity Market Prudential Conduct Global Regulation Regulation Regulations Standards 1 2 3 3 Rules governing Focus on financial Emphasize fair Global Standards: FRAMEWORKS trading, clearing, and institution stability treatment of Alignment with settlement (e.g., SEC (e.g., Basel III, customers and ethical international best in Nigeria, FCA in the Solvency II). behavior. practices (e.g., IFRS, UK Global Standards: IOSCO principles Alignment with international best practices (e.g., IFRS, IOSCO principles FITC 2022 Compliance with Market Regulations & Reporting Compliance ensures adherence to legal and regulatory standards, while reporting involves disclosing required financial and operational data to regulators and stakeholders. Key Requirements Regulatory Filings: Submission of periodic reports (e.g., balance sheets, stress test results). Trade Reporting: Real-time or near-real-time disclosure of trade details to regulators (MiFID II in Europe, CBN’s FX reporting in Nigeria). Disclosure Standards: Transparent communication about risks, governance, and financial performance. Role of Risk Management in Regulatory Compliance Risk management identifies, measures, and mitigates financial, operational, and compliance risks to align with regulatory requirements. Types of Risks ❖ Market Risk: Exposure to changes in interest rates, currency rates, or asset prices. ❖ Credit Risk: Counterparty default on obligations. ❖ Operational Risk: Failures in systems, processes, or human errors. Regulatory Emphasis Stress Testing: Simulating adverse scenarios to test capital adequacy and liquidity. Limit Monitoring: Ensuring exposures remain within regulatory and internal thresholds. Scenario Analysis: Assessing potential regulatory breaches under various market conditions. AML & KYC Requirements Definition AML aims to detect and prevent money laundering, while KYC ensures customer identity verification to mitigate fraud and terrorism financing. Key Processes Customer Identification: Collecting valid identification documents. Due Diligence: Understanding customers’ financial activities and risk levels. Transaction Monitoring: Detecting unusual patterns indicative of money laundering. Practical Applications Screening Tools: Use software to screen customers against sanction lists (e.g., OFAC, UN). Enhanced Due Diligence (EDD): For high-risk customers, including Politically Exposed Persons (PEPs). Filing SARs: Submitting Suspicious Activity Reports for flagged transactions. Basel III and Its Implications for Treasury Operations Implications for Treasury Overview of Basel III A global regulatory framework to strengthen the resilience Enhanced Reporting of financial institutions by addressing capital adequacy, More granular data requirements for liquidity liquidity, and leverage. and capital metrics. Key Components: 1. Capital Adequacy: Maintaining minimum capital Risk-Adjusted Pricing levels to absorb losses. Factoring capital and liquidity costs into pricing 2. Liquidity Coverage Ratio (LCR): Ensuring strategies. adequate high-quality liquid assets (HQLA) to meet short-term obligations. Stress Testing: 3. Net Stable Funding Ratio (NSFR): Promoting Regular assessments to ensure compliance with stable funding over a one-year horizon. Basel III thresholds. Governance, Risk, and Compliance in Treasury GRC integrates governance, risk management, and compliance efforts to achieve regulatory adherence while driving organizational performance. Key Elements ❑ Governance: Policies, oversight, and accountability for treasury operations. ❑ Risk Management: Identifying and mitigating risks aligned with business goals. ❑ Compliance: Adhering to regulatory standards and ethical practices.  Governance, Risk, and Compliance in Treasury GRC integrates governance, risk management, and compliance efforts to a chieve regulatory adherence while driving organizational performance. Risk Management Identifying and mitigating risks aligned with business goals Compliance Governance Adhering to regulatory Policies, oversight, and standards and ethical practices accountability for treasury operations FITC 2022