Primary market
- July 22, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Primary market
Subject: Economy
Context: The floodgates for primary market issuances are now open in GIFT City with the International Financial Services Centres Authority (IFSCA) coming out with a comprehensive listing framework that will enable Indian and foreign issuers to issue and list securities on GIFT IFSC platform.
Concept:
A primary market is a source of new securities. Often on an exchange, it’s where companies, governments, and other groups go to obtain financing through debt-based or equity-based securities.
- Primary markets are facilitated by underwriting groups consisting of investment banks that set a beginning price range for a given security and oversee its sale to investors.
- Once the initial sale is complete, further trading is conducted on the secondary market, where the bulk of exchange trading occurs each day.
- In the primary market, new stocks and bonds are sold to the public for the first time.
- In a primary market, investors are able to purchase securities directly from the issuer.
- Types of primary market issues include an initial public offering (IPO), a private placement, a rights issue, and a preferred allotment.
- Stock exchanges instead represent secondary markets, where investors buy and sell from one another.
- After they’ve been issued on the primary market, securities are traded between investors on what is called the secondary market—essentially, the familiar stock exchanges.
Initial Public Offering
- IPO is the selling of securities to the public in the primary market.
- Primary market deals with new securities being issued for the first time. It is also known as the new issues market.
- It is different from secondary market where existing securities are bought and sold. It is also known as the stock market or stock exchange.
- It is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public.
- Unlisted companies are companies that are not listed on the stock exchange.
- It is generally used by new and medium-sized firms that are looking for funds to grow and expand their business.