Primary Market and Secondary Market
Primary
Market (New Issue Market):. A primary market refers to any market where new
shares of stock are sold. The primary market is the entry market for companies
and investors, where a company or institution that requires initial or
additional capital sells its shares or financial instrument to the investors.
For example, Initial Public Offering (IPO), public offer, rights issue and bond
issue are done on the primary market. The primary market is also unique that
the initial buyer is the only person who can exchange the securities for funds.
When companies are willing to go for publicly listed on the stock exchange and
wants to collect funds from general investors, they first sell their financial
instrument in the primary market. Primary market is the first place for trading
financial instruments including stocks and bonds.
Mode of raising capital in the Primary market
1. Public
issue/Prospectus : Securities are issued to the general public. This is
the most popular method of raising long term fund. In this method securities
are offered to the public by issuing prospectus.
2. Right
issue : The equity shares of a company are issued to the existing equity
shareholders in the form of right issue. In this issue additional securities
are offered to the existing shareholders.
3. Private
placement : Under private placement the shares of a company are sold among
the selected group of persons.
Secondary Market or Stock Exchange:
Secondary market plays the complementary role of opening a window of
opportunity for investors in primary issues to trade on their primary
investments while giving other investors opportunity to buy shares of that
company. Secondary markets are used for trading stocks between persons and
other entities that may purchase them. It is considered as place of liquidation
of financial assets providing no transactions barriers of them. Secondary
market is also influenced by demand and supply theory and heavily affected by
market forces. The Securities and Exchange Commission (SEC) oversees primary
market issues and monitors investors’ interest by making investment friendly
rules and regulations. Companies have to abide by regulatory frame work to
keep consistent with the Securities and Exchange Commission’s regulatory
guidelines.
Form the above
discussion, we got the following differences between primary and secondary
market:
Primary
Market
|
Secondary
Market
|
It deals in new securities which are issue for
the first time.
|
It deals in already issued securities.
|
For Primary market, no organizational set up
required.
|
But for a secondary market, a proper
organizational set up is required.
|
Life of primary market is limited to point of
issue of securities.
|
But Secondary Market has perpetual life.
|
It provides funds to the issuers for a particular
purpose.
|
Funds from sell of shares can be utilised in any
manner.
|
Individual issues are managed individually.
|
Manage and controlled by a central authority.
|
No fixed place for market.
|
Located at known fixed places.
|
Post a Comment
Kindly give your valuable feedback to improve this website.