Secondary Market

Secondary Market

Subject: Economy

Context: Ten major lenders, including State Bank of India, ICICI Bank, Canara Bank and Standard Chartered Bank, have for the first time joined hands to set up an online platform for trading of corporate loans in the secondary market.

Concept:

• This is the market wherein the trading of securities is done. Secondary market consists of both equity as well as debt markets.
• Securities issued by a company for the first time are offered to the public in the primary market. Once the IPO is done and the stock is listed, they are traded in the secondary market. The main difference between the two is that in the primary market, an investor gets securities directly from the company through IPOs, while in the secondary market, one purchases securities from other investors willing to sell the same.
  Equity shares, bonds, preference shares, treasury bills, debentures, etc. are some of the key products available in a secondary market.
• In these transactions among investors, the issuing company does not participate in income generation, and share valuation is rather based on its performance in the market. Income in this market is thus generated via the sale of the shares from one investor to another.
• Secondary markets are primarily of two types – Stock exchanges and over-the-counter markets.
• SEBI is the regulator of the same.

Secondary Loan Market Association (SLMA)

• The Secondary Loan Market Association (SLMA), it has been formed on the recommendation of the Reserve Bank of India’s Task Force on the Development of Secondary Market for Corporate Loans
• Currently, the secondary market for corporate loans is mainly inter-bank transactions, undertaken on an ad hoc basis through transfer of loan accounts from one bank to another, and sale of stressed assets by banks to Asset Reconstruction Companies (ARCs).
• Presently the primary and secondary markets are restricted to banks and non-banking finance companies and domestic and foreign investors participate only in distressed debt through ARCs