Primary market: Difference between revisions
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The '''primary market''' is the part of the [[capital market]] that deals with issuing of new securities. Primary markets create long term instruments through which corporate entities borrow from capital market. |
The '''primary market''' is the part of the [[capital market]] that deals with issuing of new securities. Primary markets create long term instruments through which corporate entities borrow from capital market. |
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In a primary market, companies, governments or public sector institutions can obtain funds through the sale of |
In a primary market, companies, governments or public sector institutions can obtain funds through [[bond issue]]s and corporations can arrange the sale of new [[stock]] through an [[initial public offering]] (IPO). This is typically done through an [[investment bank]] or [[syndicate#Finance syndicates|finance syndicate]] of securities dealers. The process of selling new issues to investors is called [[underwriting]]. Dealers earn a commission that is built into the price of the security offering, though it can be found in the [[prospectus (finance)|prospectus]]. Corporations can make a '''primary issue''', which involves the issue by a corporation of its own new stock directly to institutional investors or the public or it can seek additional capital from existing shareholders. |
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Once issued the securities typically trade on a [[secondary market]] such as a [[stock exchange]], [[bond market]] or [[derivatives exchange]]. |
Once issued the securities typically trade on a [[secondary market]] such as a [[stock exchange]], [[bond market]] or [[derivatives exchange]]. |
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Revision as of 11:55, 8 October 2016
The primary market is the part of the capital market that deals with issuing of new securities. Primary markets create long term instruments through which corporate entities borrow from capital market.
In a primary market, companies, governments or public sector institutions can obtain funds through bond issues and corporations can arrange the sale of new stock through an initial public offering (IPO). This is typically done through an investment bank or finance syndicate of securities dealers. The process of selling new issues to investors is called underwriting. Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Corporations can make a primary issue, which involves the issue by a corporation of its own new stock directly to institutional investors or the public or it can seek additional capital from existing shareholders.
Once issued the securities typically trade on a secondary market such as a stock exchange, bond market or derivatives exchange.
Features
The main 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."
See also
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