HOME

TheInfoList




The secondary market, also called the aftermarket and follow on public offering, is the
financial market A financial market is a market (economics), market in which people trade financial Security (finance), securities and derivative (finance), derivatives at low transaction costs. Some of the securities include stocks and Bond (finance), bonds, ra ...
in which previously issued
financial instruments Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money available which could ...
such as
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
, bonds, options, and
futures Futures may mean: Finance *Futures contract, a tradable financial derivatives contract. *Futures exchange, a financial market where futures contracts are traded. *Futures (magazine), ''Futures'' (magazine), an American finance magazine. Music *Fu ...
are bought and sold. Another frequent usage of "secondary market" is to refer to loans which are sold by a
mortgage bank Mortgage bank is a bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or ind ...
to
investors An investor is a person that allocates capital with the expectation of a future financial return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...
such as
Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise A government-sponsored enterprise (GSE) is a type of financial services corporation created by the United St ...
and
Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded A public company, publicly traded company, publicly held company, publicly listed company, or public limited company A public limited comp ...

Freddie Mac
. The term "secondary market" is also used to refer to the market for any
used goods A used good, or second-hand good, is a piece of personal property that is being purchased by or otherwise transferred to a second or later end user In product development, an end user (sometimes end-user) is a person who ultimately uses or is i ...
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 A security is a tradable financial asset A financial asset is a non-physical asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication o ...
or financial instruments, or the
primary market :''"Primary market" may also refer to a market in art valuation.'' The primary market is the part of the capital market 200px, The trading floor of the New York Stock Exchange, one of the largest secondary capital markets in the world. Most of ...
, investors purchase these securities directly from
issuers Issuer is a legal entity that develops, registers, and sells securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument Finance is the study of financial institutions, financial mark ...
such as
corporations A corporation is an organization—usually a group of people or a company A company, abbreviated as co., is a legal entity In law, a legal person is any person A person (plural people or persons) is a being that has certain capa ...

corporations
issuing
shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known ...
in an
IPO An initial public offering (IPO) or stock launch is a public offering A public offering is the offering of securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument Finance is the ...
or
private placement Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering A public offering is the offering of securities of a company or a similar corporation to the public. Generally, the securitie ...
, or directly from the federal government in the case of the government issuing 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 In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avai ...
to stocks, from fragmented to centralized, and from
illiquid In business Business is the activity of making one's living or making money by producing or buying and selling Product (business), products (such as goods and services). Simply put, it is "any activity or enterprise entered into for profit. ...
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 The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an U ...

New York Stock Exchange
,
London Stock Exchange London Stock Exchange (LSE) is a stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community ...
, and
Nasdaq The Nasdaq Stock Market () is an American stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorpora ...
provide a centralized, liquid secondary market for investors who own stocks that trade on those exchanges. Most bonds and structured products trade "
over the counter Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid presc ...
", or by phoning the bond desk of one’s broker-dealer. Loans sometimes trade online using a Loan Exchange.


Function

In the secondary market, securities are sold by and transferred from one
investor An investor is a person that allocates capital with the expectation of a future financial return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...
or speculator to another. It is therefore important that the secondary market be highly
liquid A liquid is a nearly incompressible In fluid mechanics Fluid mechanics is the branch of physics concerned with the mechanics Mechanics (Ancient Greek, Greek: ) is the area of physics concerned with the motions of physical objects, ...
(originally, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly; this is how
stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community in Green Township, Morgan County, Indiana, Green To ...
s originated, see History of the Stock Exchange). As a general rule, the greater the number of investors that participate in a given marketplace, and the greater the centralization of that marketplace, the more liquid the market. Fundamentally, secondary markets mesh the investor's preference for liquidity (''i.e.'', the investor's desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user's preference to be able to use the capital for an extended period of time. Accurate share price allocates scarce capital more efficiently when new projects are financed through a new primary market offering, but accuracy may also matter in the secondary market because: 1) price accuracy can reduce the agency costs of management, and make hostile takeover a less risky proposition and thus move capital into the hands of better managers; and 2) accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing.


Related usage

The term may refer to markets in things of value other than securities. For example, the ability to buy and sell
intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner o ...
such as
patents A patent is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depe ...
, or rights to musical compositions, is considered a secondary market because it allows the owner to freely resell property entitlements issued by the government. Similarly, secondary markets can be said to exist in some
real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more genera ...

real estate
contexts as well (''e.g.'', ownership shares of
time-share A timeshare (sometimes called vacation ownership) is a property with a divided form of ownership or use rights. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each owner o ...
vacation homes are bought and sold outside of the official exchange set up by the timeshare issuers). These have very similar functions as secondary stock and bond markets in allowing for speculation, providing liquidity, and financing through securitization. It facilitates liquidity and marketability of the long-term instrument. It also provides instant valuation of securities caused by changes in the environment.


Private secondary markets

Private equity secondary market In finance, the private-equity secondary market (also often called private-equity secondaries or secondaries) refers to the buying and selling of pre-existing investor commitments to private-equity Private equity (PE) typically refers to inves ...
refers to the buying and selling of pre-existing investor commitments to
private equity fund A private-equity fund is a collective investment scheme used for making investments in various equity (and to a lesser extent debt) securities according to one of the investment strategies associated with private equity. Private equity funds are t ...
s. Sellers of private equity investments sell not only the investments in the fund, but also their remaining unfunded commitments to the funds.https://www.harrismycfo.com/pdf/secondary-funds-benefit.pdf Due to the increased compliance and reporting obligations enacted in the Sarbanes-Oxley Act of 2002, private secondary markets began to emerge, such as SecondMarket and SecondaryLink. These markets are generally only available to
institutional Institutions, according to Samuel P. Huntington, are "stable, valued, recurring patterns of behavior". Institutions can refer to mechanisms which govern the behavior Behavior (American English) or behaviour (British English; American and ...
or
accredited investorAn accredited or sophisticated investor is an investor with a special status under financial regulation laws. The definition of an accredited investor (if any), and the consequences of being classified as such, vary between countries. Generally, accr ...
s, and allow trading of unregistered and private company securities.


See also

*
Aftermarket (automotive) The automotive aftermarket is the secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial market A financial market is a market Market may refer to: *Market (economics) *Market e ...
*
Grey market A grey market or dark market (sometimes confused with the similar term " parallel market") is the trade of a commodity through distribution channels that are not authorized by the original manufacturer or trade mark A trademark (also ...
*
Primary market :''"Primary market" may also refer to a market in art valuation.'' The primary market is the part of the capital market 200px, The trading floor of the New York Stock Exchange, one of the largest secondary capital markets in the world. Most of ...
*
Third marketThird market in finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have mone ...
*
Fourth marketFourth market trading is direct institution-to-institution trading without using the service of broker-dealers, thus avoiding both commissions, and the bid–ask spread The bid–ask spread (also bid–offer or bid/ask and buy/sell in the case of a ...
*
Original equipment manufacturer An original equipment manufacturer (OEM) is generally perceived as a company that produces parts and equipment that may be marketed by another manufacturer. However, the term is also used in several other ways, which causes ambiguity Amb ...
(OEM) *
Private equity secondary market In finance, the private-equity secondary market (also often called private-equity secondaries or secondaries) refers to the buying and selling of pre-existing investor commitments to private-equity Private equity (PE) typically refers to inves ...
*
Reseller A reseller is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company ...


References

{{DEFAULTSORT:Secondary Market Financial markets