Securities market
Securities market is
an economic institute within which takes place the sale and purchase
transactions of securities between subjects of the economy,
on the basis of demand and supply. Also we can say that securities market is a
system of interconnection between all participants (professional and
nonprofessional) that provides effective conditions: to buy and sell
securities, and also
·
to attract new capital by means of
issuance new security (securitization of debt),
·
to transfer real asset into financial
asset,
·
to invest money for short or long term
periods with the aim of deriving profitability.
·
commercial function (to derive profit
from operation on this market)
·
price determination (demand and supply
balancing, the continuous process of prices movements guarantees to state
correct price for each security so the market corrects mispriced securities)
·
informative function (market provides
all participants with market information about participants and traded
instruments)
·
regulation function (securities market
creates the rules of trade, contention regulation, priorities determination)
There are
two types of securities market
Primary market
The primary market is
that part of the capital markets that deals with the issue of new securities.
Companies, governments or public sector institutions can obtain funding through
the sale of a new stock or bond issue. This is typically done through a
syndicate of securities dealers. The process of selling new issues to investors
is called underwriting. In the case of a new stock issue, this sale is a public offering.
Dealers earn a commission that is built into the price of the security
offering, though it can be found in the prospectus. Primary markets create long
term instruments through which corporate entities borrow from capital market.
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."
Secondary market
The secondary market,
also known as the aftermarket, is the financial market where previously issued
securities and financial instruments such as stock, bonds, options, and futures
are bought and sold. The term "secondary market" is also used to
refer to the market for any used goods or assets, or an alternative use for an
existing product or asset where the customer base is the second market (for
example, corn has been traditionally used primarily for food production and
feedstock, but a "second" or "third" market has developed
for use in ethanol production). Stock exchange and over the counter markets.
With primary
issuances of securities or financial instruments, or the primary market,
investors purchase these securities directly from issuers such as corporations
issuing shares in an IPO or private placement, or directly from the federal
government in the case of treasuries. After the initial
issuance, investors can purchase from other investors in the secondary market.
The
secondary market for a variety of assets can vary from loans to stocks, from
fragmented to centralized, and from illiquid to very liquid. The major stock
exchanges are the most visible example of liquid secondary markets - in this
case, for stocks of publicly traded companies. Exchanges such as the New York
Stock Exchange, Nasdaq and the American Stock Exchange provide a centralized,
liquid secondary market for the investors who own stocks that trade on those
exchanges. Most bonds and structured products trade “over the counter,” or by
phoning the bond desk of one’s broker-dealer. Loans sometimes trade online using
a Loan Exchange.
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