The Facets of the Primary Stock Market
Primary Market is a part of the capital market which deals with current securities. It is also called as New Issue Market. In order to get funds, both the public and private sector organizations sell new bonds or shares. In order to widen the scope of their businesses, small or medium scale sized companies would normally enter into the market of up to date securities. The selling procedure of up to date securities to investors is also known as underwriting. The security merchants earn a percentage which is added to the expenses of the securities. A lot of procedure is needed in order for a security deal to be closed. These are a few numbers of essential facets of Primary Markets:
It is the market that handles with fresh long-term securities, and not the existing ones. Which means, these are the securities sold in the Primary Market for the first time.
At this point, the securities are purchased directly by the investors from the company. But, it is not like in the Second Market.
Once the company has received money from the investors, new security certificates are given to them.
The money from selling the securities are utilized by companies for building new businesses or expanding the existing ones.
It expedites the build of capital in the economy. For that reason, it greatly affects the economic sector.
New long-term extermal finance sources such as loans from financial institutions is not included.
Only the genuine holder of the securities has the right to retrieve the sold issues or securities.
The Primary Market is the main source of any updates regarding upcoming shares. Methods in issuing the securities in the Primary market includes the following:
First public offering: It speaks of the initial sale of securities by a company that is private to the public sector. The Primary Market usually has the small and young companies as its members. They are not the only ones included, large-scale private companies that aspires to be publicly traded also are a member of this market.
For existing companies, Rights issue: This refers to a particular shelf registration or shelf offering. The existing shareholders are favored to purchase specific number of new shares from the firm under these rights at a particular time and price. It is the complete reverse of primary public offering where you issue shares to the general public through the use of stock exchange.
Special issue: The designated buyers are given issue of shares that are specially saved for them In an instance, the workers of the issuing company.
In the Primary Market, the investment banks are huge players. They decide the initial price range for a specific security and then direct its sale to investors.
The securities are disclosed to the public. It is called as going public or public issue.
Source: finance