The share or securities market has two inseparable and interdependent segments known as the primary and secondary market. While the primary market is where the securities are created, it is in the secondary market where there are traded. Let’s learn more about these markets and the key differences.

What is a primary market?

As said, it’s the primary market where securities are created and it’s in this market that companies float new stocks and bonds for the public. Securities in the primary market are issued by public limited companies or government agencies and the resources are mobilised either through public issue or private placement route.

Anybody can subscribe in case of a public issue. On the other hand, if an issue is made to only a few selected groups of people, it’s called a private placement. An Initial Public Offering or IPO, when a company offers stocks for the first time takes place in the primary market.

The company bringing the IPO is known as the issuer and the process involves many merchant bankers and underwriters who sell the stocks, bonds and debentures to investors. These bankers and underwriters need to be registered with capital regulator SEBI.

What is a secondary market?

Secondary market, another important segment of the share market, is where existing shares, commercial bonds, treasury bills, etc., are traded among investors. This market operates in two mediums:

  • Over the counter (OTC) market: Trading is done directly between two parties, without the involvement of an exchange.
  • Exchange-traded market: Here, trading is done on the infrastructure provided by the stock exchange, which follow a systematic settlement period.
The securities offered in the primary market are listed in the stock exchange for the purpose of trading. The two of the most popular stock exchanges in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSC). As an investor, you can trade in securities in the stock exchange with the help of brokers, who need to be registered with SEBI and the respective stock exchanges.

Capturing the difference

The table given below captures the differences between primary and secondary market on various aspects:

Aspects Primary Market Secondary Market
Meaning Place for issuing new securities Places where new securities are traded
Another name New issue market (NIM) After market
Purchase type Direct Indirect
Financing Helps supplying funds to new enterprises and existing companies to raise capital Doesn’t provide funding to companies
Number of times a security can be sold Only once Multiple times
Buying and selling Takes place between companies and investors Takes place only between investors
Who gains from selling of securities? Company Investors
Intermediary Underwriters Brokers
Price of securities Fixed Fluctuates, depending on market forces

Both primary and secondary markets play a crucial role in mobilising money in the country’s economy. While the primary market promotes direct interaction between company and its investor, in the secondary market broker helps investors to buy and sell stocks.

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product.  Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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