Secondary Market

10 Key excerpts on "Secondary Market"

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  eBook - PDF

  Economic Environment NQF3 SB

  TVET FIRST

  • F Serfontein, D Bekker, R Rhebock, S Jory(Authors)
  • 2013(Publication Date)
  • Macmillan

    (Publisher)

  • Both partners spoke clearly and were easy to hear. • Partners supported each other during the presentation. • Partners worked together to ensure effective communication of their ideas. 5.5 Primary and secondary financial markets The financial market can also be divided into a primary and a Secondary Market. In the primary market new securities (such as shares or bonds) are issued. This is, therefore, the market where shares are sold for the first time. It is also sometimes called the New Issue Market. The funding obtained in this manner is for setting up new businesses or for expanding or modernising existing businesses. This market performs a crucial function in providing financial capital to businesses. Broadly speaking, a Secondary Market refers to the market for any kind of used goods. A financial Secondary Market is a market where existing financial assets such as existing shares in a company are bought and sold. One of the benefits of having a secondary financial market is that it offers the buyers of shares a way of acquiring a financial asset that can be sold quickly for cash if the circumstances of the buyer change. On the primary market new securities are issued while on the Secondary Market existing securities are bought and sold Assessment Activity 5.3 1. Working in pairs, collect examples of current news items about deposit and non-deposit intermediaries from the financial press. 2. Use these current news items in your pairs to identify and discuss important events that took place in the financial markets. 3. Create a list of these events and share them with other groups. A secondary financial market is a market in which an investor purchases securities from another investor rather than from the firm that issued the securities. Securities are the general name we use for all types of shares and bonds. Words & Terms

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  Personal Finance and Investments

  A Behavioural Finance Perspective

  • Keith Redhead(Author)
  • 2008(Publication Date)
  • Routledge

    (Publisher)

  When stocks and bonds are initially issued they are said to be sold in the primary market. Subsequent to their initial sale they are traded in the Secondary Markets. Primary trading involves buying and selling newly created securities, whereas secondary trading involves shares and bonds that are already in existence.The fact that financial investments can be sold in a Secondary Market renders them more liquid, and hence more attractive. This enhanced liquidity makes investors more willing to buy in the primary market, and causes them to be less demanding in terms of required rates of return.An active Secondary Market improves the operation of the primary market and allows companies to raise money easily and on favourable terms. Secondary-market trading volume far exceeds the level of primary-market dealing.

  The Secondary Market is the market in which previously issued securities are traded. It is the means by which stocks or bonds bought in the primary market can be converted into cash. The knowledge that assets purchased in the primary market can easily and cheaply be resold in the Secondary Market makes investors more prepared to provide borrowers with funds by buying in the primary market. A successful primary market depends upon an effective Secondary Market.

  If transaction costs are high in the Secondary Market the proceeds from the sale of securities will be reduced, and the incentive to buy in the primary market would be lower. Also high transaction costs in the Secondary Market might tend to reduce the volume of trading and thereby reduce the ease with which Secondary Market sales can be executed. It follows that high transaction costs in the Secondary Market could reduce that market’s effectiveness in rendering primary market assets liquid. In consequence there would be adverse effects on the level of activity in the primary market and hence on the total level of investment in the economy.

  Price volatility in the Secondary Market might also be detrimental to the operation of the primary market. High volatility means that buyers in the primary market stand a considerable risk of losing money by having to sell at a lower price in the Secondary Market. This can reduce the motivation to buy in the primary market. Two factors that affect the price volatility of securities in the Secondary Market are the depth and breadth of that market.

  The depth of the market is based on the likely appearance of new orders stimulated by any movement in price. If a rise in price brings forth numerous sell orders, the price rise will be small. A decline in price that stimulates many buy orders would be a small decline. A deep market would be characterised by the appearance of orders that tend to dampen the extent of any movement in price. Greater depth is thus associated with lower volatility.

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  Investment Theories

  • (Author)
  • 2014(Publication Date)
  • Orange Apple

    (Publisher)

  Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties. Capital markets may be classified as primary markets and Secondary Markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the Secondary Markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere. Stock Market A stock market or equity market is a public (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion at the start of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values , cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together.

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  Financial Economics

  • Frank J. Fabozzi, Edwin H. Neave, Guofu Zhou(Authors)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  Secondary transactions are used both to invest surplus funds and to raise cash, and are usually finalized in the stock markets, the bond markets, or the money markets. Instruments representing individual bank loans are not often resold in the marketplace, but securities issued against portfolios of individual loans are very often resold. 9 Secondary transactions help evaluate new information about firms and other entities (such as municipal governments and sovereign governments) that issue publicly traded securities and also improve the liquidity of both secondary and pri- mary securities issues. Secondary transactions evaluate new publicly distributed information by trading firms’ securities at prices set to recognize the impact of the informational developments. They enhance primary market liquidity by making it easier to trade outstanding securities. Secondary Market agents are concerned mainly with carrying out trades at or near existing market prices. Successful performance of 8 See, for example, King and Levine (1993). 9 Banks securitize a loan portfolio (or a part of one) by selling new securities that normally use the whole portfolio (or the relevant part), and not individual loans in it, as collateral. Financial Market Governance  155 these functions depends largely on the ability of market agents to find counterparties quickly and relatively cheaply, and to keep their trading costs as low as those of their competitors. 8.1.2.3 Dealer versus Broker Markets Traders act as dealers by taking instruments into inventory, and as brokers when they arrange transactions between counterparties without taking a position themselves. The existence of dealers, and consequently the degree to which the market provides liquidity, depends in part on the inventory risk-trading reward ratio for a typical transaction. In other words, economic analysis explains both why and how brokers differ from dealers.

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  Fundamentals of Corporate Finance, 4th Edition

  • Robert Parrino, Hue Hwa Au Yong, Nigel Morkel-Kingsbury, Jennifer James, Paul Mazzola, James Murray, Lee Smales, Xiaoting Wei(Authors)
  • 2020(Publication Date)
  • Wiley

    (Publisher)

  Pdf_Folio:30 30 PART 1 Introduction and foundations When such issues are open to the public for the first time, they are called an initial public offering (IPO). The primary market may also be a wholesale market where sales take place outside of the public view. A Secondary Market is any market where already issued securities may be bought and sold. When securities are bought and sold in the Secondary Market, the original issuers (i.e. the companies that issued these securities in the primary market) do not receive any money. Conceptually, Secondary Markets are like used-car markets in that they allow the original owners of the car (who purchased in the primary market) to sell the car second-hand. Car-manufacturing companies do not receive any money from the transactions in the used car market. Secondary Markets for securities are important because they enable investors to easily buy and sell securities (e.g. shares, bonds). As you might expect, investors are willing to pay higher prices for securities that have active Secondary Markets, compared to similar securities which do not have active Secondary Markets. Secondary Markets are important to companies as well, because investors are willing to pay higher prices for securities in primary markets if the securities have active Secondary Markets. Thus, companies whose securities have active Secondary Markets enjoy lower funding costs (i.e. they can raise funds at lower cost) than similar companies whose securities do not have active Secondary Markets. Marketability is the ease with which a security can be sold and converted into cash, and it is an important characteristic of a security for investors. A security’s marketability depends on whether buyers for the security are readily available and on transaction costs. Transaction costs include the costs of trading and searching for information, and marketability is usually higher when transaction costs are lower.

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  Financial Institutions, Markets, and Money

  • David S. Kidwell, David W. Blackwell, David A. Whidbee, Richard W. Sias(Authors)
  • 2016(Publication Date)
  • Wiley

    (Publisher)

  There is greater potential for fraud in these offerings as they do not go through the SEC vetting process and there will be little information available about these startup firms. Nevertheless, the new process has the potential to change how firms raise money, and it may encourage more investors to participate in the stock market over time. Secondary MarketS Any trade of a security after its primary offering is said to be a Secondary Market transaction. When an investor buys 100 shares of IBM on the New York Stock Exchange (NYSE), the proceeds of the sale do not go to IBM but rather to the investor who sold the shares. In the United States, most Secondary Market equity trading is done either on organized exchanges, such as the NYSE, or in the over‐the‐counter market, such as the NASDAQ. Have you ever heard a reporter exclaim that “investors were selling today . . .” following a decline in the market? If you think about it, does that make sense? In the Secondary Market, 10.2 Equity Markets 285 there’s a buyer for every seller—by definition, the number of shares sold equals the number of shares bought. So while many investors were selling, many (other) investors were buying. Just as in any market, prices fall when, at a given price, there are more sellers than buyers. As prices fall, more invesztors are willing to purchase the security and fewer are willing to sell. Eventually, an equilibrium price is reached where the supply from sellers equals the demand by buyers. Exhibit 10.2 shows the Google finance quote for Apple Inc. on August 21, 2015. Most websites (and newspapers) provide similar information. In the exhibit you can see that Apple’s stock last traded at a price of $105.76, down $6.89 (or 6.12 percent) from its closing price the previous day. This was a large drop for a single day. August 21, 2015 was a very volatile day as investors became increasingly worried about the potential impact of slowing Chinese growth on the global economy.

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  An Introduction to Trading in the Financial Markets: Trading, Markets, Instruments, and Processes

  • R. Tee Williams(Author)
  • 2011(Publication Date)
  • Academic Press

    (Publisher)

  Part 2

  Markets and Marketplaces

  Introduction 1. The Primary Market 2. Secondary Markets Passage contains an image

  Introduction

  We use the term “markets” to refer to the creation and trading of securities and other traded instruments. Marketplaces are the venues where instruments that have been created and issued to the public are exchanged between buyer and seller. We can categorize markets in several different ways, but there are two basic distinctions among markets for traded instruments (see Figure 2 ). The primary market is the place where securities are created. The Secondary Market is the place where investors and traders trade instruments after they are issued.

  Figure 2 Market categories create a means to distinguish the markets where securities are created from where they traded after they are issued.

  We sometimes use the term “marketplace” because, as we saw in the “History” section in Book 1, An Introduction to Trading in the Financial Markets: Market Basics , until relatively recently markets had to be conducted in a physical place. However, beginning in 1976 with the Toronto Stock Exchange, trading has become increasingly automated, and now much—maybe even most—trading occurs in a virtual marketplace.

  Passage contains an image

  1

  The Primary Market

  The primary market is the place where securities are created. Unlike the Secondary Markets described in Chapter 2 , the primary markets raise money on behalf of companies or governments. Figure 2.1 shows the purpose of the primary market.

  Figure 2.1 The primary market provides a mechanism for investors and their intermediaries to funnel disposable income to companies and governments that employ those funds to generate economic growth, resulting in income and market appreciation for the investors.

  There are a number of different processes for raising capital in the primary market. We explore these processes in Part 4

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  The Stock Market

  • Rik W. Hafer, Scott E. Hein(Authors)
  • 2006(Publication Date)
  • Greenwood

    (Publisher)

  This finding suggests that one could make significant returns by buying stocks at their IPO and holding them. Secondary Market TRANSACTIONS Most investors do not buy stock at their IPO but buy stock from another investor at some later date. These transactions are Secondary Market trans- action. The key difference is that in the Secondary Market transaction, the firm for which the stock represents an ownership obligation receives nothing from the transaction. Unlike an IPO, a Secondary Market transaction simply rep- resents an exchange between two investors. One investor is selling the stock that the other investor is buying. The only significance that this exchange has to the firm is that it is now notified that one of its shareholders has changed. The vast majority of transactions involving stocks are Secondary Market transactions and not IPOs. The investor makeup is changing on a day-to-day basis in the U.S. financial system with more and more households owning stocks. It is becoming rarer, however, that a business is getting a new injection of funds. This means that as a source of funds for businesses in the United States, IPOs are relatively less important than, say, business loans from finan- cial institutions, such as banks, or other financial sources like the commercial paper market. When engaged in a Secondary Market transaction, investors use securities brokers and dealers to assist in the buying and selling of existing stock. In other words, an investor who wants to sell stock finds a broker or dealer to aid in finding someone to buy the stock. Similarly, the buyer of a stock uses a broker to help find the selling party. Sometimes a buyer uses a dealer who already owns the stock in their own portfolios. Only IPOs use the services of an investment bank. Buyers and sellers of existing securities use the service of brokers and dealers.

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  Financial Systems

  Principles and Organization

  • Edwin H. Neave(Author)
  • 2002(Publication Date)
  • Routledge

    (Publisher)

  In addition to affecting the rate and kind of economic growth that occurs, the financial system works to value assets, to increase liquidity and to produce information, including information about sources of financing. Securities trading in the primary and Secondary Markets determines the prices of both the securities and the productive assets to which they convey title. Securities valuations are largely based on expectations of the assets’ future earnings, and are based on current information regarding those earnings prospects. As a result, securities valuations can change as new or additional information becomes available. Secondary Market trading increases the liquidity of both financial assets and risk instruments, and increases in the liquidity of outstanding securities can also make new issues easier to sell. Both securities trading and the activities of financial intermediaries produce information, but markets produce information that is publicly disseminated while the information produced by intermediaries is not generally available to other agents. Finally, the presence of financial markets and financial firms means that the cost of searching for an accommodating financier is less than it would otherwise be.

  2.2 WHO USES THE FINANCIAL SYSTEM?

  The principal users of any financial system are consumers, businesses, governments and residents of other countries. Each of these client classes has its own goals, and consequently uses the financial system to achieve particular ends. Understanding the goals of individual client classes is a first step to understanding the kinds of products and services delivered by the firms constituting a typical financial system.

  2.2.1 Consumers

  Individuals or householders borrow or lend as a means of adjusting their expenditures toward their long term income prospects rather than their current incomes. That is, householders enter financial transactions to transfer purchasing power from one point in time. Through using financial transactions, households can arrange their expenditures with greater flexibility than would otherwise be possible, and thus gain greater satisfaction from the ways they spend their incomes. The existence of a well-functioning financial system makes such adjustments possible, and as a result the existence of such a system contributes to enhancing consumer satisfaction. Nearly all householders will enter financial transactions of some type. At any point in time, some householders will be net borrowers (i.e., their borrowing will exceed their lending or investment) while others will be net lenders or investors.

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  The Swedish Financial Revolution

  • A. Ögren(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  6 The Evolution of Secondary Financial Markets, 1820–1920 Håkan Lindgren 95 Introduction Among the features that characterize a reasonably well functioning financial system is the existence of an efficient market for previously issued securities. Financial instruments of various types represent a claim, a contract that gives the owner certain rights in the form of a return and/or repayment on the due date. The return, however, is dependent on future events and the level of risk varies depending on the conditions and the legal precedence rules for payments that apply to various financial instruments. The ability to raise loans by issuing new promissory notes or bills of exchange, as well as the possibility of mobilizing capital through the emission of bonds or corporate shares, is highly dependent on how difficult it is for the holder, when necessary, to sell the instrument, thereby changing his risk profile. An efficient han- dling of risk, and the proper functioning of the market for newly issued securities – the primary market – therefore, requires a well functioning market for existing financial instruments, a secondary financial market. This chapter deals with the emergence of such a market in Sweden. In this chapter, two basic conditions, stability and trust, will be emphasized as essential prerequisites for a market to function as a mech- anism for organized exchange. This is valid for all market exchange, but in particular when you buy and sell financial instruments, represent- ing future claims of return or repayment. To create such stability and trust actors often organize themselves, introducing self-restraint and self-control by establishing informal or formal codes of behaviour to show respectability to the general public. Furthermore, political organi- zations and the enactment of public control and regulations have often played a decisive role in the creation and maintenance of reasonable

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