Abstract:
In this paper we will define and explain primary market. It is basically the market for issuing new issues, that is why sometimes it is addressed as new issue market. Many companies, normally small and medium scale, enter into the primary market to raise money from the public to expand their businesses. They sell their securities to the public through an initial public offer.
Primary Market, also called new issue market, is basically the market for issuing new securities. The securities can be directly bought from the shareholders which is not the case for the secondary market. The primary market is a market for such new capitals which will be traded over a longer period.
In the primary market, the securities are issued on an exchange basis. The underwriters, that is, the investment banks, plays an important role in the primary market. They are used to set the initial price range for a particular share and then supervise the selling of that share.
The investors can obtain the idea of upcoming shares in the primary market only. The issuing firm collects money, which is then used for financing its operations or expanding business, by selling its shares. Before selling the security through the primary market the firm has to fulfill all the requirements regarding the exchange.
After trading in the primary market the security will then enter into the secondary market, where numerous exchange trading happens every day. The primary market accelerates the process of capital formation in a country's economy.
However, the primary market categorically excludes several other new long term finance sources like, loans from any financial institutions. Many companies have entered into the primary market to earn profit by converting its capital, which is basically a private capital, into a public one, that is they release securities for the public. This phenomena is termed as "public issue" or "going public".
There are three methods though which securities can be issued in the primary market. These are, rights issue, Initial Public Offer (IPO) and preferential issue. The new offerings given by a company is placed in the primary market through the initial public offer.
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