Primary Stock Market: An Introduction
Primary Market is a part of the capital market which deals with current securities. It is also called as New Issue Market. By selling fresh bonds or shares, both the public sector and or private sector organizations can accumulate funds. Normally, small or medium scale companies involves themselves in the market of current securities in order to broaden the scope of their businesses. The selling procedure of up to date securities to investors is also known as underwriting. Expenses of the securities are added with the commission earned by security dealers. A lot of procedure is needed in order for a security deal to be closed. These are some of the main aspects of Primary Markets:
It is not the market that takes on deals with the existing securities, but the new long-term securities. Which is, the securities that are released in the Primary Market for the first time.
The securities are sold by the companies right away to the interested investors. Even so, it is not exactly like in the Second Market.
Once the company has received money from the investors, new security certificates are given to them.
The money from selling the securities are utilized by companies for building new businesses or expanding the existing ones.
In the economy, it helps assist the building of capital. For that reason, it greatly affects the economic sector.
It does not cover other new long-term outside finance sources such as loans from financial institutions.
Only the genuine bearer of the securities is eligible to possess the sold issues or securities.
The primary source of any updates regarding the incoming shares is the Primary Market. The following methods can be used to issue the securities in the Primary Market:
Primary public offering: It speaks of the initial sale of securities by a company that is private to the public sector. Generally, the Primary Market includes the small and young companies. They are not the only ones included, large-scale private companies that aspires to be publicly traded also are a member of this market.
Rights release for existing companies: This refers to a particular shelf registration or shelf offering. Under a particular time and price, the shareholders possess the benefit of freedom to purchase a specified number of new shares from the firm under these rights. It is the reverse of Initial public offering where the shares are provided to the general public through the use of stock exchange.
Partial issue: The designated buyers are given issue of shares that are specially saved for them For example, the laborers of the issuing company.
In the Primary Market, the investment banks are huge players. They decide the initial price range for a specific security and then direct its sale to investors.
The securities are revealed to the public. It is also known as going public or public issue.