Secondary market

Secondary market

The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. [http://www.intracen.org/tfs/docs/glossary/se.htm#Secondary market] Alternatively, "secondary market" can refer to the market for any kind of used goods. The market that exists in a new security just after the new issue, is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange, as market makers provide bids and offers in the new stock.

Function

In the secondary market, securities are sold by and transferred from one investor or speculator 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).

Secondary marketing is vital to an efficient and modern capital market.Fact|date=July 2008 Fundamentally, secondary markets mesh the investor's preference for liquidity (i.e., the investor's desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user's preference to be able to use the capital for an extended period of time. For example, a traditional loan allows the borrower to pay back the loan, with interest, over a certain period. For the length of that period of time, the bulk of the lender's investment is inaccessible to the lender, even in cases of emergencies. Likewise, in an emergency, a partner in a traditional partnership is only able to access his or her original investment if he or she finds another investor willing to buy out his or her interest in the partnership. With a securitized loan or equity interest (such as bonds) or tradable stocks, the investor can sell, relatively easily, his or her interest in the investment, particularly if the loan or ownership equity has been broken into relatively small parts. This selling and buying of small parts of a larger loan or ownership interest in a venture is called secondary market trading.

Under traditional lending and partnership arrangements, investors may be less likely to put their money into long-term investments, and more likely to charge a higher interest rate (or demand a greater share of the profits) if they do. With secondary markets, however, investors know that they can recoup some of their investment quickly, if their own circumstances change.

Related usage

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. 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 time-share issuers). These have very similar functions as secondary stock and bond markets in allowing for speculation, providing liquidity, and financing through securitization.

Private Secondary Markets

Partially as a result of the increased compliance and reporting obligations hoisted on U.S.-listed public companies by the Sarbanes-Oxley Act of 2002, private secondary markets began to emerge. These markets are generally only available to institutional or accredited investors and allow trading of unregistered and private company securities. Goldman Sachs' GS TRuE, Nasdaq's [http://www.nasdaqportalmarket.com/ PORTAL] , and [http://www.secondmarket.com SecondMarket] are all examples of these private secondary markets.

References

ee also

* Primary market
* Private equity secondary market
* Grey market


Wikimedia Foundation. 2010.

Игры ⚽ Поможем написать реферат

Look at other dictionaries:

  • secondary market — Market where previously issued securities are bought and sold. Chicago Board of Trade glossary Markets for the purchase and sale of any previously issued financial instrument. The first sale of a financial instrument by the original issuer is… …   Financial and business terms

  • secondary market — n 1: the market in which previously issued securities are sold compare primary market 2: the market in which existing mortgages are bought and sold Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • Secondary market — The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market. The New York stock Exchange, as well as all other stock exchanges, the bond markets, etc., are secondary… …   Financial and business terms

  • Secondary Market — A market where investors purchase securities or assets from other investors, rather than from issuing companies themselves. The national exchanges such as the New York Stock Exchange and the NASDAQ are secondary markets. Secondary markets exist… …   Investment dictionary

  • secondary market — after market A market in which existing securities are traded, as opposed to a primary market, in which securities are sold for the first time. In most cases a stock exchange largely fulfils the role of a secondary market, with the flotation of… …   Big dictionary of business and management

  • secondary market — A market in which existing securities are traded, as opposed to a primary market, in which securities are sold for the first time. In most cases a stock exchange largely fulfils the role of a secondary market, with the flotation of new issues… …   Accounting dictionary

  • secondary market — noun The financial market for trading of securities that have already been issued in an initial private or public offering. See Also: primary market …   Wiktionary

  • Secondary market —   A market for securities which have already been issued (i.e. sold). Also called the resale market …   International financial encyclopaedia

  • secondary market — / sekənd(ə)ri ˌmɑ:kɪt/ noun a market where existing securities are bought and sold again and again, as opposed to a primary market, where new issues are launched …   Dictionary of banking and finance

  • secondary market — Stock Exchange. the market that exists for an issue after large blocks of shares have been publicly distributed. Also called aftermarket. * * * …   Universalium

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”