Primary and Secondary Markets

Initial Public Offering (IPO)

When a company seeks to list its shares, it may:

Become listed or quoted
Float on the stock market
Go public
Make an Initial Public Offering (IPO)

Primary Market

The marketing of new shares in a company to investors for the first time.
Raises capital and matches surplus funds with investment opportunities.

Secondary Market

Where investors trade shares after they've been initially issued.
Allows the primary market to function efficiently by facilitating a two-way trade in issued securities.

Stock Exchange

Organized marketplace for issuing and trading securities.
Has rules and regulations for listed companies.
Provides both a primary and a secondary market.

Advantages of Listing (Going Public)

Capital: Raises capital through the IPO and future share offerings. Provides an exit route for original founders.
Takeovers: Can use shares as payment for acquisitions/mergers.
Status: Improves business marketing to customers, suppliers, and employees.
Employees: Stock options attract and retain key staff.

Disadvantages of Listing (Going Public)

Regulation: Strict governance and disclosure requirements.
Takeovers: Vulnerable to hostile takeovers.
Short-termism: Pressure to achieve short-term goals.
Cost: Listing fees, legal, accounting, and ongoing disclosure expenses.

Secondary Market (In Detail)

A secondary market is where securities of companies are traded among investors. Investors can freely buy and sell securities without the issuing company's involvement. The issuing company does not participate in income generation in these transactions among investors. Additionally, share valuation is based on the share's performance in the market.

Features of Secondary Market

Creating Liquidity:

The secondary market's most important feature is creating liquidity, allowing immediate conversion of securities into cash. Since secondary market securities can be bought and sold multiple times, it aids in liquidity creation.

Follows the Primary Market:

Unlike the primary market, new securities cannot be sold for the first time in the secondary market. All new securities are first issued in the primary market and then bought and sold in the secondary market.

Stock Exchange:

The secondary market has a specific place where securities are traded, called the Stock Exchange. However, trading is not mandatory through a stock exchange only. Even two individuals can trade mutually, and it can still be considered a transaction.

Encourages New Investment:

As securities' rates often fluctuate in the share market, many investors come to trade and earn profits, leading to new investments. This results in increased investment in the industrial sector.

Types of Secondary Market

Stock Exchange:

A stock exchange is a regulated marketplace where stocks, bonds, and other securities are bought and sold. The exchange provides a platform for buyers and sellers to come together and trade securities.

Over-the-Counter (OTC) Market:

The OTC market is a decentralized market where securities are traded directly between buyers and sellers without going through a stock exchange. OTC markets are less regulated than stock exchanges and often trade less liquid securities.

Primary vs. Secondary Market: Key Differences

Feature	Primary Market (NIM)	Secondary Market (AIM)
Meaning	New issues of securities are sold to the public.	Existing securities are traded among investors.
Also known as	New Issue Market (NIM)	After Issue Market (AIM)
Type of purchase	Direct	Indirect
Trading	Between company and investors	Between investors
Parties	Underwriters/Investment Bankers	Brokers