Primary 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 raise funds from the capital market.

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 through an initial public offering (IPO). This is often done through an investment bank or finance syndicate of securities dealers. The process of selling new shares 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.

Instead of going through underwriters, corporations can make a primary issue of its debt or stock, which involves the issue by a corporation of its own debt or 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."

Financial markets

Types of markets	Primary market Secondary market Third market Fourth market

Types of stocks	Common stock Golden share Preferred stock Restricted stock Tracking stock

Share capital	Authorised capital Issued shares Shares outstanding Treasury stock

Participants	Broker-dealer Day trader Floor broker Floor trader Investor Market maker Proprietary trader Quantitative analyst Regulator Stock trader

Exchanges	Electronic communication network List of stock exchanges Opening times Multilateral trading facility Over-the-counter

Stock valuation	Alpha Arbitrage pricing theory Beta Bid–ask spread Book value Capital asset pricing model Dividend discount model Dividend yield Earnings per share Earnings yield Net asset value Security characteristic line Security market line T-model

Trading theories and strategies	Algorithmic trading Buy and hold Concentrated stock Contrarian investing Day trading Dollar cost averaging Efficient-market hypothesis Fundamental analysis Growth stock Market timing Modern portfolio theory Momentum investing Mosaic theory Pairs trade Post-modern portfolio theory Random walk hypothesis Sector rotation Style investing Swing trading Technical analysis Trend following Value investing

Related terms	Block trade Cross listing Dark liquidity Dividend Dual-listed company DuPont analysis Efficient frontier Flight-to-quality Haircut Initial public offering Margin Market anomaly Market capitalization Market depth Market manipulation Market trend Mean reversion Momentum Open outcry Public float Public offering Rally Returns-based style analysis Reverse stock split Share repurchase Short selling Slippage Speculation Stock dilution Stock market index Stock split Trade Uptick rule Volatility Voting interest Yield

This article is issued from Wikipedia - version of the 10/17/2016. The text is available under the Creative Commons Attribution/Share Alike but additional terms may apply for the media files.

Primary market

Features

See also