How Securities are Issued?, Primary & Secondary Markets

How Securities are Issued?

Section: 1 Primary & Secondary Markets

When businesses need to raise capital, they may choose to sell or float securities. The market for new issues of stocks, bonds, or other types of securities that are marketed to the public by investment bankers, is called the Primary Market. Hence, a primary market is where securities are sold for the first time. Purchase or sale (trading) of already-issued securities among investors occurs in the Secondary Market.

There are two types of primary market issues of common stock:

Initial Public Offerings, or IPOs, are stocks issued by a new business or a formerly privately owned company that is now going public i.e. offering stock to the public for the first time.

Seasoned new issues, or Seasoned Offerings, are offered by corporations that are already publicly listed. For example, a sale of new shares by SABIC would constitute a seasoned offering.

In case of bonds, we distinguish between the two types of primary market issues, a Public Offering and a Private Placement. The former refers to an issue of bonds sold to the general investing public that can then be traded in the secondary market. The latter refers to an issue that is usually sold to one or a few institutional investors and is generally held to maturity.

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