The primary market is the part of the

capital market A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers ...

that deals with the issuance and sale of

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

to purchasers directly by the issuer, with the issuer being paid the proceeds. A primary market means the market for new issues of securities, as distinguished from the

secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. The initial sale of ...

, where previously issued securities are bought and sold. A market is primary if the proceeds of sales go to the issuer of the securities sold."Section 7.03.120 - Definitions; Primary Market"
/ref> Buyers buy securities that were not previously traded.

Concept

In a primary market, companies, governments, or public sector institutions can raise funds through bond issues, and corporations can raise capital through the sale of new

stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

through an

initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investm ...

(IPO). This is often done through an

investment bank Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

or underwriter or finance syndicate of securities dealers. The process of selling new shares to buyers is called underwriting. Dealers earn a commission that is commonly built into the price of the security offering, though it can be found in the prospectus. IPOs are not the only way new securities are issued. Publicly traded companies can issue new shares in what is called a ''primary issue'' of debt or stock, which involves the issue by a corporation of its own debt or new stock directly to buyers like

pension funds A pension fund, also known as a superannuation fund in some countries, is any program, fund, or scheme which provides retirement income. The U.S. Government's Social Security Trust Fund, which oversees $2.57 trillion in assets, is the world' ...

, or to private investors and shareholders.''Fundamentals of Corporate Finance'', McGraw Hill, 2001 Since the securities are issued directly by the company to its buyers, the company receives the money and issues new security certificates to the buyers. The primary market plays the crucial function of facilitating capital formation within the economy. The securities issued at the primary market can be issued in ''face value'', ''premium value,'' or ''at

par value In finance and accounting, par value means stated value or face value of a financial instrument. Expressions derived from this term include at par (at the par value), over par (over par value) and under par (under par value). Bonds A bond selli ...

.'' Primary markets create long-term instruments through which corporate entities raise funds from the capital market. It is also known as the New Issue Market (NIM). Once issued, the securities typically trade thereafter on a secondary market such as a

stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for ...

, bond market, or derivatives exchange.

Raising funds

Corporate entities raise funds from the primary market in three ways: # Public issue: a stock exchange lists the securities, and the corporation raises funds through initial public offering (IPO). # Rights issue: existing shareholders are offered more shares at a discounted price and on a ''pro rata'' basis. # Preferential allotment: a corporation issues shares at a price which may or may not be related to the current market price of the same security.

References

Financial markets Stock market terminology {{Econ-stub

Concept

Raising funds

See also

References