primary market
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:''"Primary market" may also refer to a market in art valuation.'' The primary market is the part of the
capital market A capital market is a financial market in which long-term debt (over a year) or Equity (finance), equity-backed security (finance), securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital m ...
that deals with the issuance and sale of
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
to purchasers directly by the issuer, with the issuer being paid the proceeds. A primary market means the market for new issues of securities, as distinguished from the
secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial markets, financial market in which previously issued financial instruments such as stock, Bond (finance), bonds, option (finance), options, and Fut ...
, where previously issued securities are bought and sold."Section 7.03.120 - Definitions; Primary Market"
/ref> "A market is primary if the proceeds of sales go to the issuer of the securities sold." Buyers buy securities that were not previously traded.


Concept

In a primary market, companies, governments, or public sector institutions can raise funds through bond issues, and corporations can raise capital through the sale of new
stock In finance, stock (also capital stock) consists of all the Share (finance), shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which owners ...

stock
through an
initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically Underwriting, underwritten by one or mo ...
(IPO). This is often done through an
investment bank Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ...
or
underwriter Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabilit ...
or finance syndicate of securities dealers. The process of selling new shares to buyers is called
underwriting Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabil ...
. Dealers earn a commission that is commonly built into the price of the security offering, though it can be found in the prospectus. IPOs are not the only way new securities are issued. Publicly traded companies can issue new shares in what is called a ''primary issue'' of debt or stock, which involves the issue by a corporation of its own debt or new stock directly to buyers like
pension funds A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides pension, retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed a ...
, or to private investors and shareholders.''Fundamentals of Corporate Finance'', McGraw Hill, 2001 Since the securities are issued directly by the company to its buyers, the company receives the money and issues new security certificates to the buyers. The primary market plays the crucial function of facilitating capital formation within the economy. The securities issued at the primary market can be issued in ''face value'', ''premium value,'' or ''at
par value Par value, in finance and accounting, means stated value or face value. From this come the expressions at par (at the par value), over par (over par value) and under par (under par value). Bonds A Bond_(finance), bond selling at par is priced at 1 ...
.'' Primary markets create long-term instruments through which corporate entities raise funds from the capital market. It is also known as the New Issue Market (NIM). Once issued, the securities typically trade thereafter on a
secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial markets, financial market in which previously issued financial instruments such as stock, Bond (finance), bonds, option (finance), options, and Fut ...
such as a
stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sell security (finance), securities, such as share (finance), shares of stock, Bond (finance) ...
,
bond market The bond market (also debt market or credit market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt security (finance), securities, known as the secondary market. This is usually in th ...
, or derivatives exchange.


Raising funds

Corporate entities raise funds from the primary market in three ways: # Public issue - a stock exchange lists the securities, and the corporation raises funds through initial public offering (IPO). # Rights issue - existing shareholders are offered more shares at a discounted price and on a ''pro rata'' basis. # Preferential allotment - a corporation issues shares at a price which may or may not be related to the current market price of the same security.


See also

*
Secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial markets, financial market in which previously issued financial instruments such as stock, Bond (finance), bonds, option (finance), options, and Fut ...
* Third market * Fourth market


References

Financial markets {{Econ-stub