Primary Market Transactions
The primary market is also called the New Issue Market as the securities are sold here for the first time. The sale and purchase of the new stocks and new bonds define the primary market transactions. A syndicate of security dealers handles the entire transactions in the primary market.
The dealers in return can earn a commission built in the price of the securities. The selling of new stocks and new bonds to the investors is also called underwriting in the typical terminology of capital market. When the sale of new stock is considered, the transaction is called the initial public offering (IPO).
Issuing of new securities in the capital market in order to raise funds is a common technique adopted by the corporations. As the primary market deals with the transactions of all new securities, the companies issue their securities in the primary market only.
The investors can purchase the securities like stocks and bonds from the issuer companies in the primary market. The major feature of the primary market transaction is to raise long-term capital for the corporations and companies. In case of the primary market transactions, the companies receive the money and they issue new stock and bond certificates to the investors. In order to set up new business or to expand the existing one, the primary issues are used by the companies. Another major feature of the primary market is to perform the services to facilitate the capital formation in economy.
The methods by which the primary market transactions carried out are -
- Purchasing Initial Public Offer
- Purchasing Preferential Issue
- Purchasing Rights Issue