Financial Market - Money Market - Securities Market - Primary Market & Secondary Market

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The primary market is used by issuers for raising capital from the investors by making Initial
Public Offers or rights issues or Further Public Offer (FPO) or private placement. On the other
hand, the secondary market provides liquidity to these instruments, through trading and
settlement on the stock Exchanges. An active secondary market promotes the growth of the
primary market and capital formation, since the investors in the primary market are assured
of a continuous market where they have an option to liquidate their investments. Thus, in
the primary market, the issuer has direct contact with the investor, while in the secondary
market, the dealings are between two investors and the issuer does not come into the
picture.
Primary market is the market that ensures availability of adequate capital at reasonable
rates to finance expansion, diversification or consolidation of companies. A secondary
market on the other hand is the market where the buyer of securities in the primary market
can transfer /sell these securities to another buyer.
The resources in the primary market can be raised either through the private placement
route or through the public issue route by way of Initial Public Offer (IPO) or Follow on Public
Offer (FPO). It is a public issue, if anybody and everybody can subscribe for it, whereas, if
the issue is made to select group of people then it is termed as private placement. In cases,
where fresh shares are issued to existing shareholders at a particular price, it is referred as Rights Issue, whereas if such issues are without involvement of any cost, it is referred as
Bonus issue/stock split.
The secondary market on the other hand operates through two mediums, namely, the Over-
The-Counter (OTC) market and the Exchange Traded Market/Screen Based Trading System
(SBTS).
OTC markets are the informal type of markets where trades are negotiated. In this type of
market, the securities are traded over the counter and settled bilaterally



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