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The secondary market, also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments such as share capital, bonds, options, and Futures contract are bought and sold. The initial sale of the security by the issuer to a purchaser, who pays proceeds to the issuer, is the primary market. All sales after the initial sale of the security are sales in the secondary market. Whereas the term primary market refers to the market for new issues of securities, and "a market is primary if the proceeds of sales go to the issuer of the securities sold," the secondary market in contrast is the market created by the later trading of such securities.
With primary issuances of securities or financial instruments (the primary market), often an underwriter purchases these securities directly from , such as issuing shares in an initial public offering (IPO) or private placement. Then the underwriter re-sells the securities to other buyers, in what is referred to as a secondary market or aftermarket (or a buyer in contrast may buy directly from the federal government, in the case of a government issuing treasuries).
The major are the most visible example of liquid secondary markets—in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, London Stock Exchange, and Nasdaq Stock Market provide centralized, liquid secondary markets for investors who wish to buy or sell stocks that trade on those exchanges. Most bonds and structured products trade "over the counter", or by phoning the bond desk of one's broker-dealer. Loans sometimes trade online, using a loan exchange.Manjula A. Soudatti (2021). Investment Management
Another usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac. The term "secondary market" is also used to refer to the market for any used goods or , or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production).Raghu Korrapati (2014). Validated Management Practices
Accurate share price allocates scarce capital more efficiently when new projects are financed through a new primary market offering, but accuracy may also matter in the secondary market because: 1) price accuracy can reduce the agency costs of management, and make hostile takeover a less risky proposition and thus move capital into the hands of better managers; and 2) accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing.Artyom Durnev et al. (2003). "Law, Share Price Accuracy and Economic Performance: The New Evidence", 102 MICH. L. REV. 331.
Due to the increased compliance and reporting obligations on U.S. public company boards of directors and management and public enacted in the Sarbanes–Oxley Act of 2002, private secondary markets began to emerge, such as SecondMarket and SecondaryLink. These markets are generally only available to institutional or accredited investors, and allow trading of unregistered and private company securities.
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