Primary Stock Market: A Quick Guide
Primary Market is a part of the capital market which deals with current securities. It is also being called as New Issue Market. Both the private and or public sector organizations alike can obtain funds by selling recent bonds or shares. In order to widen the scope of their businesses, small or medium scale sized companies would normally enter into the market of up to date securities. The practice of selling current securities to interested investors is called underwriting. The security merchants earn a percentage which is added to the expenses of the securities. Before a security can be sold, a lot of official paperwork is required to done. A few of the crucial features of Primary Market includes:
It is the market that takes care of new long-term securities and not the existing ones. This means, these are the securities which are sold for the very first time in the Primary Market.
The securities are sold by the companies right away to the interested investors. But, it is not 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.
It expedites the build of capital in the economy. Thereby, It has a great effect on the economic sector.
It does not accommodate for other new long-term external finance sources like financial institution loans.
Only the genuine holder of the securities has the right to retrieve the sold issues or securities.
The initial source of any updates about the incoming shares is the Primary Market. Methods in issuing the securities in the Primary market includes the following:
First public offering: It speaks of the initial sale of securities by a company that is private to the public sector. Normally, young and small companies are a member of Primary Market. But, members of this market also include the large-scale private companies that wish to be publicly traded.
Rights release for existing companies: This pertains to a distinctive shelf registration or shelf offering. With these rights, the current shareholders benefit from the freedom to purchase a given number of new shares from the firm at a specific time and price. It is the complete opposite of primary public offering wherein the shares are supplied to the general public using the stock exchange.
Partial issue: The designated buyers are given issue of shares that are specially saved for them In an instance, the workers of the issuing company.
In the Primary market, the investment banks plays a major role. They give the starting price range for a specific security and provides direction of the sale to the investors.
The securities are disclosed to the public. It is also known as going public or public issue.
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