The Facets of the Primary Stock Market
The section of the capital market dealing with up to date securities is widely known as Primary Market. Some refer to it as Issue Market. Both the private and or public sector organizations alike can obtain funds by selling recent bonds or shares. Normally, small or medium scale companies involves themselves in the market of current securities in order to broaden the scope of their businesses. 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 some of the main aspects of Primary Markets:
It is the market that handles with fresh long-term securities, and not the existing ones. Which is, the securities that are released in the Primary Market for the first time.
The investors buy the securities directly from the company selling it. But, it is not like in the Second Market.
New security certificates are provided to the investors once they have given money to the company.
The money from selling the securities are utilized by companies for building new businesses or expanding the existing ones.
It aids the building of capital in the economy. For that reason, it greatly affects the economic sector.
It does not cover other new long-term outside finance sources such as loans from financial institutions.
Only the genuine holder of the securities has the right to retrieve the sold issues or securities.
The primary source of any updates regarding the incoming shares is the Primary Market. In the Primary Market, the securities can be provided using any of the following methods:
Primary public offering: It speaks of the initial sale of securities by a company that is private to the public sector. Generally, the Primary Market includes the small and young companies. Although, large-scale private companies that seek to be publicly dealt also become a member of this trading area.
Rights release for existing companies: This refers to a particular shelf registration or shelf offering. With these rights, the current shareholders benefit from the freedom to purchase a given number of new shares from the firm at a specific time and price. It is the reverse of Initial public offering where the shares are provided to the general public through the use of stock exchange.
Special issue: Issuance of shares are saved for the designated buyers. For illustration, the wage earners of the issuing company.
In the Primary market, the investment banks plays a major role. They give the starting price range for a specific security and provides direction of the sale to the investors.
The securities are revealed to the public. It is widely known as public issue or going public.