Primary and Secondary Market

The Primary market deals in newly issued securities where the price is fixed by the underwriter. Secondary markets deal with already issued stocks / bonds. The Primary market deals in newly issued securities where the price is fixed by the underwriter. Primary markets act as a source of new funds for the company issuing the stocks or bonds. Underwriters often reserve for themselves and their important clients a portion of the primary shares as part of their commission.

Secondary markets deal with already issued stocks and bonds and are the securities markets that we are most familiar with, including the New York Stock Exchange and the NASDAQ market. Security prices are determined in secondary markets by supply and demand. When securities are sold on the primary market, the main recipient of funds is the company issuing the securities. When a transaction is made on the secondary market, the party (usually an individual or mutual fund) that owns and sells a security receives the money. In 1995, Netscape’s initial public offering (IPO) took place with great anticipation.

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Issued by a syndicate of underwriters lead by Morgan Stanley the IPO share price was first stated as $18. This is the price that shares would be sold in the primary market to preferred customers of the underwriting firms and the underwriters themselves. Due to heavy demand, the IPO price was raised to $25 by the day shares went public. When Netscape went public on the NASDAQ market, there was a delay of several hours after the opening bell as traders matched the volume of buyers and sellers who acquired shares in the primary market.

Due to enormous demand, Netscape opened for trading at $54 a share, well above its stated IPO price. This is the price that average investors and many mutual funds would be able to buy their first shares of Netscape, yielding a good profit for primary shareholders who were selling. Primary and Secondary Markets – The Primary market deals in newly issued securities where the price is fixed by the underwriter. Secondary markets deal with already issued stocks / bonds. Best Answer – Chosen by Asker PRIMARY MARKET The primary market is that part of the capital markets that deals with the ssuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Features of primary markets are: This is the market for new long term equity capital.

The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the economy.

The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as “going public. ” The financial assets sold can only be redeemed by the original holder. Methods of issuing securities in the primary market are: Initial public offering; Rights issue (for existing companies);

Preferential issue. The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold. [1]. The term “secondary market” is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a “second” or “third” market has developed for use in ethanol production).

Another commonly referred to usage of secondary market term is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac. With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market.

The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets – in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges.

Most bonds and structured products trade “over the counter,” or by phoning the bond desk of one’s broker-dealer. Loans sometimes trade online using a Loan Exchange. Source(s): http://en. wikipedia. org The secondary market, also called aftermarket, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. [1] Another frequent usage of “secondary market” is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac.

The term “secondary market” is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a “second” or “third” market has developed for use in ethanol production). With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries.

After the initial issuance, investors can purchase from other investors in the secondary market. The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets – in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, London Stock Exchange and Nasdaq provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges.

Most bonds and structured products trade “over the counter,” or by phoning the bond desk of one’s broker-dealer. Loans sometimes trade online using a Loan Exchange The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain bonds through the sale of a new stock or bond issue. This is typically done through a syndicate[disambiguation needed] of securities dealers. The process of selling new issues to investors is called underwriting.

In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market. Features of primary markets are: * This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time.

Therefore it is also called the new issue market (NIM). * In a primary issue, the securities are issued by the company directly to investors. * The company receives the money and issues new security certificates to the investors. * Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. * The primary market performs the crucial function of facilitating capital formation in the economy. * The new issue market does not include certain ther sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as “going public. ” * The financial assets sold can only be redeemed by the original holder. Methods of issuing securities in the primary market are: * Public issuance, including initial public offering; * Rights issue (for existing companies); * Preferential issue.

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