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Forms of secondary market

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Function

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Related usage

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Private secondary markets
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See also

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References

Secondary market
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From Wikipedia, the free encyclopedia

This article is about the financial term. For the merchandising concept, see Aftermarket
(merchandise).

Financial markets
  Public market
 Exchange · Securities

Bond market

 Bond valuation
 Corporate bond
 Fixed income
 Government bond
 High-yield debt
 Municipal bond

Securitization

Stock market

 Common stock
 Preferred stock
 Registered share
 Stock

Stock certificate
 Stock exchange

Other markets

Derivatives

 (Credit derivative
 Futures exchange
 Hybrid security)
 

Foreign exchange

 (Currency
 Exchange rate)
 Commodity
 Money
 Real estate
 Reinsurance

Over-the-counter (off-exchange)
  Forwards
 Options
 Spot market
 Swaps

Trading

 Participants
 Regulation
 Clearing

Related areas

 Banks and banking

 Finance 
o corporate
o personal
o public

 v
 t
 e

The secondary market, also called the aftermarket and follow on public offering, is

the financial market in which previously issued financial instruments such
as stock, bonds, options, and futures are bought and sold. The initial sale of
the security by the issuer to a purchaser, who pays proceeds to the issuer, is
the primary market.[1] All sales after the initial sale of the security are sales in the
secondary market.[2] Whereas the term primary market refers to the market for new
issues of securities, and "[a] market is primary if the proceeds of sales go to
the issuer of the securities sold," the secondary market in contrast is the market created
by the later trading of such securities.[3]
With primary issuances of securities or financial instruments (the primary market), often
an underwriter purchases these securities directly from issuers, such
as corporations issuing shares in an IPO or private placement. Then the underwriter re-
sells the securities to other buyers, in what is referred to as a secondary market or
aftermarket (or a buyer in contrast may buy directly from the federal government, in the
case of a government issuing treasuries).[4]

Forms of secondary market[edit]

The New York Stock Exchange

The secondary market can be for a variety of assets, that can vary from stocks to loans,
from fragmented to centralized, and from illiquid to very liquid.
The major stock exchanges are the most visible example of liquid secondary markets—
in this case, for stocks of publicly traded companies. Exchanges such as the New York
Stock Exchange, London Stock Exchange, and Nasdaq Stock Market provide
centralized, liquid secondary markets for investors who wish to buy or sell stocks that
trade on those exchanges. Most bonds and structured products trade "over the
counter", or by phoning the bond desk of one’s broker-dealer. Loans sometimes trade
online, using a loan exchange.[5]
Another usage of "secondary market" is to refer to loans which are sold by a mortgage
bank to investors such as Fannie Mae and Freddie Mac. The term "secondary market"
is also used to refer to the market for any used goods or assets, or an alternative use
for an existing product or asset where the customer base is the second market (for
example, corn has been traditionally used primarily for food production and feedstock,
but a "second" or "third" market has developed for use in ethanol production). [6]

Function[edit]
Courtyard of the Amsterdam Stock Exchange (Beurs van Hendrick de Keyser in Dutch) by Emanuel de Witte,
1653.

In the secondary market, securities are sold by and transferred from one buyer to
another. It is therefore important that the secondary market be highly liquid (originally,
the only way to create this liquidity was for investors and speculators to meet at a fixed
place regularly; this is how stock exchanges originated (see History of the Stock
Exchange). As a general rule, the greater the number of investors that participate in a
given marketplace, and the greater the centralization of that marketplace, the more
liquid the market.[citation needed]
Accurate share price allocates scarce capital more efficiently when new projects are
financed through a new primary market offering, but accuracy may also matter in the
secondary market because: 1) price accuracy can reduce the agency costs of
management, and make hostile takeover a less risky proposition and thus
move capital into the hands of better managers; and 2) accurate share price aids the
efficient allocation of debt finance whether debt offerings or institutional borrowing. [7]

Related usage[edit]
The term may refer to markets in things of value other than securities. For example, the
ability to buy and sell intellectual property such as patents, or rights to musical
compositions, is considered a secondary market because it allows the owner to freely
resell property entitlements issued by the government. [8] Similarly, secondary markets
can be said to exist in some real estate contexts as well (e.g., ownership shares of time-
share vacation homes are bought and sold outside of the official exchange set up by the
timeshare issuers). These have very similar functions as secondary stock and bond
markets in allowing for speculation, providing liquidity, and financing
through securitization. This facilitates liquidity and marketability of the long-term
instrument. It also provides instant valuation of securities caused by changes in the
environment.[9]

Private secondary markets[edit]

 Private-equity secondary market refers to the buying and selling of pre-existing investor
commitments to private-equity funds. Sellers of private-equity investments sell not only
the investments in the fund, but also their remaining unfunded commitments to the
funds.[10]
Due to the increased compliance and reporting obligations on U.S. public
company boards of directors and management and public accounting firms enacted in
the Sarbanes–Oxley Act of 2002, private secondary markets began to emerge, such
as SecondMarket and SecondaryLink. These markets are generally only available
to institutional or accredited investors, and allow trading of unregistered and private
company securities.[citation needed]

See also[edit]
 Aftermarket (automotive)
 Grey market
 Primary market
 Third market
 Fourth market
 Original equipment manufacturer (OEM)
 Reseller

References[edit]
1. ^ "Primary Market". U.S. Securities and Exchange Commission.
2. ^ "What is secondary market? definition and meaning". Business Dictionary. Archived from  the
original on 2012-11-25. Retrieved 2008-12-19.
3. ^ "Section 7.03.120 - Definitions; Primary Market"  (PDF).
4. ^ "Secondary Market".  Investopedia. March 30, 2022.
5. ^ Manjula A. Soudatti (2021). Investment Management
6. ^ Raghu Korrapati (2014). Validated Management Practices
7. ^ Artyom Durnev et al. (2003). "Law, Share Price Accuracy and Economic Performance: The New
Evidence", 102 MICH. L. REV. 331.
8. ^ Robert P. Merges (May 17, 2012). "Secondary Patent Markets: A Possible Role for Startups". The
Media Institute.
9. ^ Bharati V. Pathak (2011). The Indian Financial System; Markets, Institutions and Services.
10. ^ Ryan Cotton (2012). [1] "The Benefits of Secondary Funds in a Private Equity Portfolio."

hide

Financial markets

Types Primary market

rkets Secondary market

 Third market

Fourth market

Common stock

Golden share
Types
Preferred stock
tocks
Restricted stock

Tracking stock

Authorised capital

Issued shares
apital
Shares outstanding

Treasury stock

Broker-dealer

Floor broker

Floor trader

Investor
pants Market maker

Proprietary trader

Quantitative analyst

Regulator

Stock trader

Electronic communication network

List of stock exchanges 

Trading hours
anges
Multilateral trading facility

Over-the-counter

Dark pool (private exchange)

Stock Alpha

ation Arbitrage pricing theory (APT)

Beta

Buffett indicator (Cap-to-GDP)

Book value (BV)

Capital asset pricing model (CAPM)

Capital market line (CML)

 Dividend discount model (DDM)

Dividend yield

Earnings yield

EV/EBITDA

Fed model

Net asset value (NAV)

Security characteristic line

Security market line (SML)

T-model

Algorithmic trading

Buy and hold

Contrarian investing

Dollar cost averaging

Efficient-market hypothesis (EMH)

Fundamental analysis

Growth stock

Market timing

Modern portfolio theory (MPT)

ading Momentum investing
ories Mosaic theory
egies Pairs trade

Post-modern portfolio theory (PMPT)

Random walk hypothesis (RMH)

Sector rotation

Style investing

Swing trading

Technical analysis

Trend following

Value averaging

Value investing

erms Bid–ask spread

Block trade

Cross listing

Dividend
Dual-listed company

DuPont analysis

Efficient frontier

Financial law

Flight-to-quality

Government bond

Greenspan put

Haircut

Initial public offering (IPO)

Long

Margin

Market anomaly

Market capitalization

Market depth

Market manipulation

Market trend

Mean reversion

Momentum

Open outcry

Order book

Position

Public float

Public offering

Rally
Returns-based style analysis

Reverse stock split

Share repurchase

Short selling

Slippage

Speculation

Stock dilution

Stock exchange

Stock market index

Stock split

Trade
 Uptick rule

Volatility

Voting interest

Yield

Authority control:
Germany
National 

Category: 

 Financial markets
 This page was last edited on 16 March 2023, at 06:06 (UTC).
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Financial instruments are monetary contracts between parties. They can be created, traded,
modified and settled. They can be cash (currency), evidence of an ownership interest in an
entity or a contractual right to receive or deliver in the form of currency (forex); debt ; equity
(shares); or derivatives.