PRIMARY MARKET

The primary market is the part of the capital market that deals with issuing of new securities.
Companies, governments or public sector institutions can obtain funds through the sale of a new
stock or bond issues through primary market. This is typically done through an investment bank or
finance syndicate of securities dealers.

1. Market for New Long Term Equity Capital:

Primary market serves as a market for new long term equity capital. Securities are issued in the
primary market first before any other security exchange. Hence, primary market is also called the
‘New Issue Market.

2. Direct Issue of Securities :

Companies issue securities to investors directly. It eliminates the need to intermediaries and
middlemen.

3. Issue of New Security Certificates :

In a Primary Market, the issuing company is responsible for issuing new security certificates to the
investors.

4. Initiation and Expansion of Business :

Companies issue their securities in Primary Market for initiating new business and Expansion of
Business.

5. Promotion of Capital Formation :

Promotion of Capital Formation helps in accumulation of capital in the economy. It leads to growth
in the economy of the country.
 SECONDARY MARKET
• The secondary market refers to all transactions of a security that happen after the initial offering.

• The secondary market is commonly referred to as the “stock market”.

• In a secondary market, investors trade among themselves. No involvement of issuing companies.

1. Liquidity Creation:

It creates liquidity in the securities issued. Liquidity refers to instant conversion of securities into
money. Any investor can readily sell his securities in the Secondary Market. It provides high liquidity
due to the presence of several buyers.

2. Security :

The government imposes heavy regulations on the Secondary Market as it attracts more issuers and
investors. The entire process of stock exchange faces heavy regulations. It enables security to the
money invested.

3. Stock Exchange :

Securities are exchanged through a medium called Stock Exchange in the Secondary Market. Most
transactions occur through stock exchanges. But Stock Exchange serves as a safe medium for buying
and selling securities.

4. Saving Alternative :

It serves as an alternative to saving. Investors can bid their money and obtain high returns by
exploiting the fluctuations in prices of securities. It provides a long term saving option to the
investors.

5. Price Discovery :

The supply and demand economics of Secondary Market helps in the discovery of the price of
securities. Increase in the demand for security leads to an increase in its price and vice-versa.
Increase in the supply of security results in lower price of security and vice-versa.