In the last of 1990's there raise a huge need for the awareness of the importance of developing local markets for fixed income securities mainly for the developing countries. Many raising countries enlarge their local markets for the government bond on one hand and on other hand they bring the transformation to promote their local corporate bond markets as a substitute source of financing for domestic corporations. Due to their effort only a small group of raising markets became successful in development of substantial corporate bond markets. And rest of them has inadequate contact to bond market. Energetic bond markets assist corporations and financial institutions in harmonizing the currency and maturity structure of assets and liabilities in order to encourage the financial consistency. As well as demand side is concerned the investors hit the local corporate bond markets for investing in fixed income securities having longer maturities and better yields .The bond markets offer the opportunities for financial intermediaries like pension funds and life insurance companies to do investment in those projects having longer maturities which match with their liabilities maturity time period with the ultimate focus of strengthening of balance sheet. A good liquid bond market can do;
Absorbs the increasing demand of the long term securities.
Discourages the movement of investor towards the real estate and stock market.
Avoid the inflation with subsequent potential volatility
It is very much important to know about the security laws which may assist or restrict the expansion and deepening of corporate bond markets. In addition to this, corporate governance factors and security laws characteristics can contribute and encourage the valuable corporate bond market.
Recent trends in local corporate bond market:
In last ten years domestic bond market s have extended both in mature markets as well as in emerging markets. With the help of fixed income securities issued by government and financial institutions is still the main characteristic of the market. From the GFSR (Global Financial Stability Report), released in end of
2004 it is found that in mature markets outstanding securities issued by the government , financial institutions and corporate entities accounted for 66,57 percent of GDP . Whereas in emerging markets mature markets outstanding securities and corporate entities amounted for 258 and 5 percent of GDP. In order to meet the financing needs for growth and for increasing the capital structure corporations are now more interested in bond market as compare to bank loans. In mature markets the domestic corporate bond market achieve the growth up to 5 percent of the GDP in the start of the 1980's which grew to 16 percent of GDP in 2003-2004. The driving force behind the development of bond market was the trend of diversification and the need of alternative source of financing by ignoring the bank loans and to minimize the chance of currency and maturity mismatch. In 1990's the major growth in the bond market is seen and the size of the corporate market remained small except in few countries like Malaysian and Korean bond markets have got tremendous growth of 48 and 30 percent of their GDP correspondingly. Whereas Tiland bond market also showed the double growth from its previous performance. Presently, Malaysian and Korean corporate bond markets are the leading bond markets of the world with about 38 and 21 percent of their GDP respectively. In the emerging markets the growth of the corporate bond markets is helpful by the regulatory transformations and institutional developments. In the emerging economies there is a tendency for the growth of corporate bond markets because of structural and regulatory changes and repeated movements of the interest rates.
Role of Regulatory and Legal Environment in Financial Corporate Market Development
According to some researchers point of view the development in the financial sector leads to the development in the economy.
How financial system helps in economic development?
The financial system helps in the economic development by;
Minimizing the cost related to the acquiring of information.
Enforcing contracts
Conducting transactions
Financial system also helps in the competent distribution of resources by lessening the problems of;
Free provisions
Moral vulnerability
Undesirable collection by producing information on investment returns
Through the diversification and risk sharing opportunities the financial system helps in promoting the saving habit as well as efficient distribution of resources.
In addition to this financial markets breath and depth is related to the high quality institutions which provide superior property rights and regulations of laws.
Conclusion
The security laws play an important role in the development of the bond market as they play their role in case of bond market. It is also found that supervisors power to impose the criminal sanctions may contribute to healthy bond development.
