PRIMARY MARKET VS SECONDARY MARKET

• PRIMARY MARKET AND SECONDARY MARKET

FINANCIAL SERVICES AND MARKETS

DR SHASHI AGGARWAL

•   PRIMARY MARKET

1.       A MARKET WHERE NEW SECURITIES ARE BOUGHT AND SOLD FOR THE FIRST TIME IS CALLED THE NEW ISSUE MARKET OR THE IPO MARKET

2.       THE PRIMARY MARKET ALSO INCLUDES ISSUE OF FURTHER CAPITAL BY COMPANIES WHOSE SHARES ARE LISTED ON THE STOCK EXCHANGE.

3.       FUNDS ARE COLLECTED AND SECURITIES ARE ISSUED DIRECTLY BY THE COMPANY TO THE INVESTORS

4.       PRIMARY ISSUES ARE CARRIED OUT BY THE COMPANIES FOR THE PURPOSE OF INCEPTION AND FUNCTIONING OF BUSINESS.

5.       PRIMARY MARKET

6.       DIFFERENT TYPES OF INTERMEDIARIES OPERATING IN THIS SEGMENTS

7.       PLAY A CRUCIAL ROLE IN THE DEVELOPMENT OF CAPITAL MARKET

•    INTERMEDIARIES :

1.       MERCHANT BANKERS

2.       BROKERS

3.       BANKERS TO ISSUE

4.       DEBENTURE TRUSTEE

5.       PORTFOLIO MANAGERS

6.       REGISTRARS TO ISSUE

7.       SHARE TRANSFER AGENTS

•    SECONDARY MARKET

•    STOCK MARKET HAS TWO COMPONENTS

1.       PRIMARY MARKET :- CHANNEL FOR THE SALE OF NEW SECURITIES

2.       SECONDARY MARKET : PROVIDES A PLATFORM FOR THE SALE OF ALREADY ISSUED AND LISTED SECURITIES

DEFINITION OF SECONDARY MARKET : A BODY OF INDIVIDUALS,WHETHER INCORPORATED OR NOT CONSTITUTED FOR THE PURPOSE OF ASSISTING ,REGULATING AND CONTROLLING THE BUSINESS OF BUYING AND SELLING AND DEALING IN SECURITIES

IT HELPS THE MARKET PARTICIPANTS TO ADJUST THEIR HOLDING IN RESPONSE TO THEIR RISK AND RETURN PERSPECTIVE

BOTH THE MARKETS ARE INTERDEPENDENT AND INSEPARABLE

•    FEATURES OF SECONDARY MARKET

1.       TRADING OF SECURITIES IN THE SECONDARY MARKET DOES NOT PROVIDE ANY FUNDS TO THE COMPANY

2.       THE INVESTORS AS WELL AS THE SPECULATORS TRADES IN SECURITIES

3.       SECURITIES OF LISTED PUBLIC LIMITED COMPANIES ARE TRADED ON A RECOGNIZED STOCK EXCHANGE

4.       IT PROVIDES LIQUIDITY TO THE INVESTORS

5.       THE MARKET PRICES IN THE SECONDARY MARKET REFLECT THE INVESTOR’S PERCEPTIONS OF A COMPANY’S PERFORMANCES

•   PRIMARY MARKET VS SECONDARY MARKET

•    BOTH ARE THE PLATFORM IN WHICH CORPORATIONS FUND THEIR REQUIREMENTS

•    WHILE THE FUNCTIONS IN THE PRIMARY STOCK EXCHANGE ARE LIMITED TO FIRST ISSUANCE

•    THE MAIN DIFFERENCE :

•                IN THE PRIMARY MARKET THE COMPANY IS DIRECTLY INVOLVED IN THE TRANSACTIONS

•                IN THE SECONDARY MARKET : THE COMPANY HAS NO INVOLVEMENT SINCE THE TRANSACTIONS OCCUR BETWEEN THE INVESTORS

•    PRIMARY MARKET AND SECONDARY MARKET

•    SIMILARITIES :

•    THE SECURITIES ISSUED IN THE PRIMARY MARKETS ARE INVARIABLY LISTED ON RECOGNIZED STOCK EXCHANGE PLATFORM FOR DEALING IN THEM. TRADING IN SECONDARY MARKET BE CARRIED THROUGH STOCK EXCHANGE PLATFORM

•    LISTING PROVIDES LIQUIDITY AND MARKETABILITY TO SECURITIES

•    STOCK EXCHANGE ENSURES THAT THERE IS CONTINUOUS COMPLIANCE BY THE ISSUER COMPANY OF THE CLAUSES PROVIDED IN THE LISTING AGREEMENT

•    DIFFERENCE

•    PRIMARY MARKET

1.       THE PRIMARY MARKET IS THAT PART OF THE CAPITAL MARKETS THAT DEALS WITH THE ISSUANCE OF NEW SECURITIES. COMPANIES,GOVERNMENTS OR PUBLIC SECTOR OBTAIN FUNDS THROUGH THE SALE OF NEW SHARES OR BONDS

2.       THE PRIMARY MARKET IS THE PLACE WHERE SECURITIES ARE ISSUED FOR THE FIRST TIME

3.       WHERE NEW SECURITIES ARE ISSUED BY THE FIRM

4.       SOLD DIRECTLY TO THE PUBLIC

5.       COMPANY IS DIRECTLY INVOLVED IN THE TRANSACTION

6.       NEW SECURITIES

7.       ADDITIONAL FUNDS TO ISSUING COMPANY

8.       IMPORTANT INTERMEDIARIES ARE LEAD MANAGERS,BANKERS,MERCHANT BANKERS,UNDERWRITERS,ISSUE HOUSE ETC

9.       ISSUE THROUGH PRIMARY MARKET COMES UNDER COMPANIES UNDER COMPANIES ACT 2013 AND SEBI ISSUE OF CAPITAL & DISCLOSURE) REGULATIONS,2009

•    SECONDARY MARKET

1.       THE SECONDARY MARKET ALSO KNOWN AS AFTER MARKET IS THE FINANCIAL MARKET WHERE PREVIOUSLY ISSUED SECURITIES AND FINANCIAL INSTRUMENTS SUCH AS STOCK,BONDS,OPTIONS AND FUTURES ARE TRADED.

2.       MARKET WHERE STOCKS ALREADY ISSUED ARE TRADED

3.       MARKET WHERE STOCKS ALREADY ISSUED ARE TRADED

4.       NO INVOLVEMENT AS THE TRANSACTIONS OCCUR BETWEEN INVESTORS

5.       MARKET FOR ALREADY ISSUED SECURITIES

6.       NO AS THE COMPANY IS NOT INVOLVED IN THE TRANSACTIONS

7.       IMPORTANT INTERMEDIARIES ARE DEPOSITORY PARTICIPANTS,BROKERS,SUB BROKERS AND REGISTRARS AND SHARE TRANSFER AGENTS

8.       SECONDARY MARKET IS REGULATED THROUGH COMPANIES ACT 2013. SECURITIES AND CONTRACT REGULATIONS ACT 1956 AND OTHER REGULATIONS

•    INTERRELATIONSHIP BETWEEN PRIMARY MARKET AND SECONDARY MARKETS

•    BOTH ARE INTEGRAL PART OF CAPITAL MARKET

•    THEIR MUTUAL INTERDEPENDENCE FROM THE ECONOMIC POINT OF VIEW HAS TWO DIMENSIONS :

1.       ONE THE QUANTUM OF TRADING AND THE PARTICIPATION OF THE INVESTORS ON THE STOCK EXCHANGE HAS A SIGNIFICANCE BEARING ON THE LEVEL OF ACTIVITY IN THE PRIMARY MARKET AND THEREFORE,ITS RESPONSE TO CAPITAL ISSUES

2.       THE LEVEL OF THE ACTIVITY IN THE PRIMARY MARKET HAS DIRECT IMPACT ON THE LEVEL OF ACTIVITY IN THE SECONDARY MARKET.