The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market.
Features of primary markets are:
- This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).
- In a primary issue, the securities are issued by the company directly to investors.
- The company receives the money and issues new security certificates to the investors.
- Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
- The primary market performs the crucial function of facilitating capital formation in the economy.
- The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."
- The financial assets sold can only be redeemed by the original holder.
Methods of issuing securities in the primary market are:
- Public issuance, including initial public offering;
- Rights issue (for existing companies);
- Preferential issue.
Famous quotes containing the words primary and/or market:
“Parental attitudes have greater correlation with pupil achievement than material home circumstances or variations in school and classroom organization, instructional materials, and particular teaching practices.”
—Children and Their Primary Schools, vol. 1, ch. 3, Central Advisory Council for Education, London (1967)
“To throw obstacles in the way of a complete education is like putting out the eyes; to deny the rights of property is like cutting off the hands. To refuse political equality is like robbing the ostracized of all self-respect, of credit in the market place, of recompense in the world of work, of a voice in choosing those who make and administer the law, a choice in the jury before whom they are tried, and in the judge who decides their punishment.”
—Elizabeth Cady Stanton (1815–1902)