Theprimary market is the part of thecapital market that deals with the issuance and sale ofsecurities to purchasers directly by theissuer, with the issuer being paid the proceeds.[1] A primary market means the market for new issues of securities, as distinguished from thesecondary market, 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.[2] Buyers buy securities that were not previously traded.
In a primary market, companies, governments, or public sector institutions can raise funds throughbond issues, and corporations can raise capital through the sale of newstock through aninitial public offering (IPO). This is often done through aninvestment bank orunderwriter orfinance syndicate of securities dealers. The process of selling new shares to buyers is calledunderwriting. Dealers earn a commission that is commonly built into the price of the security offering, though it can be found in theprospectus.[3]
IPOs are not the only way new securities are issued. Publicly traded companies can issue new shares in what is called aprimary issue of debt or stock, which involves the issue by a corporation of its own debt or new stock directly to buyers likepension funds, or to private investors and shareholders.[4][5]
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 inface value,premium value, oratpar value.
Primary markets create long-term instruments through which corporate entities raise funds from the capital market.[3] It is also known as the New Issue Market (NIM).[6]
Once issued, the securities typically trade thereafter on a secondary market such as astock exchange,bond market, orderivatives exchange.[3]
Corporate entities raise funds from the primary market in three ways:[6]
