Syndicate
Primary Market and Secondary Market
Another way to classify financial markets that that mentioned earlier in this section is by distinguishing the time in which the bonds are issued. In this case, markets are divided into primary and secondary markets.
The primary market, also called issuing market, appears when entities allowed to quote in this market issued stocks or debentures that are bought by investors. In this primary market companies demanding funds meet the fund suppliers or investors. In this market we could distinguish two markets very well differed from one another: that of stocks issuance and that of debentures issuance.
The mechanism used to quote on the market needs the following steps:
- be allowed to quote
- make a public offer to sell stocks
- allocate or sell stocks. In this phase it is very important to fix a stock price that is attractive. In case there is an excess in the demand of stocks we must proceed to share to ensure the maximum fragmentation of stockholders.
Once stocks are allocated, quoting in the market starts. This way investors that have bought stocks can now sell them when they deem convenient.
Stocks meant to be sold can be old stocks (stocks previously issued) or new stocks (stocks to be issued):
Old stocks: one chooses old stocks when the company has its own portfolio. That is, when it has their own stocks, or when stockholders wish to partially withdraw their investment in stocks. This last case occurs when founder stockholders wish to profit the whole or part of their initial investment.
New stocks: new stocks are issued when the company wants to get additional funds. This in case of the companies that have to undertake important plans of expansion.
In the secondary market already issued commerce bonds are bought and sold. It is in this market where one can trade bonds from entities that quote in the market, and the price of transactions (or quote) fixed through supply and demand. The secondary market is also called stock market.
In Spanish markets, around 600 companies belonging to sectors such as banking, feeding, construction, investing, portfolio, metal-mechanic, petrochemical, communications and others quote.
The primary and secondary market are totally related and so as to make the market work in an optimum way both markets have to be developed.
The secondary market provides the investor the possibility to recover his savings when wished. In this way, we make the investment in the market have good liquidity.