Securities Markets

Learning outcomes:

After this lecture you will be able to

• Identify the reasons for the existence of securities markets

• Explore the types of securities
 What is a securities market?

• It’s where trades of securities such as stocks and bonds take

place based on demand and supply. Securities markets
determine price and participants can be both professional and
non-professional.
• Securities markets are divided into two levels. Primary
markets are where new securities are issued,
while secondary markets are where existing securities are
bought and sold.
 What is a securities market?
• Securities are financial instruments issued to raise funds.
• The primary function of the securities markets is to enable to flow of
capital from those that have it to those that need it. 
• Securities market help in transfer of resources from those with idle
resources to others who have a productive need for them.
• Securities markets provide channels for allocation of savings to
investments and thereby decouple these two activities.
• As a result, the savers and investors are not constrained by their
individual abilities, but by the economy’s abilities to invest and save
respectively, which inevitably enhances savings and investment in the
economy.
 Primary markets
• The primary market is a segment of the capital market where entities
such as companies, governments and other institutions obtain funds
through the sale of debt and equity-based securities.
• When a company decides to go public for the first time by raising an
Initial Public Offering (IPO), it is done in the primary market.
• Since the securities are sold for the first time here, a primary market
is also known as the New Issue Market (NIM).
 Primary markets

• During an IPO, the company sells its shares directly to the investors
in the primary market.
• The entire process of raising investment capital by selling new stock
to investors through an IPO is known as underwriting.
• Once the shares are sold, they are bought and sold by traders in the
secondary market.
 ????

Robert bought some shares during an IPO of a company and after 6 months the
stock price has moved up by 25% and he decided to sell all his shares. Who will
return his money back?

a) Stock market
b) Stock broker
c) Buyer
d) Company who sold those shares
 Secondary Markets

• A secondary market is a market where existing securities or

other assets are bought and sold.
• They differ from primary markets, which are where the
assets originated. Generally, most investors will only trade on
secondary markets. 
 Secondary Markets
• Secondary markets are where assets are traded after they
are issued.
• In a secondary market, transactions are made with other
investors, not the issuer of the security.
• You can compare the process to buying items from the
classifieds, or buying a used car from a dealership, rather
than from the manufacturer itself.
• For example, stocks and bonds purchased in a retirement
plan or through a brokerage account are transacted on
secondary markets. 
 ????

If Tata steel is raising the capital for the first time by selling its shares to the
public, it will happen in..

a) Primary market
b) Secondary market
 Securities fall into three main categories
• Equity securities. This is just a posh name for stocks. When you buy shares,
you own part of a company.
• Debt securities. Also known as fixed-income securities, these are better known
as bonds. When you buy them you're lending money to a company.
• Derivative securities. With these, you're granted the right to trade financial
securities at pre-agreed terms instead of owning shares outright. Options
contracts are a type of derivative security.
 ???
If you are receiving a part of profit because you own some securities of a listed
company you own..

a) Shares of that company

b) Bonds of that company