Primary securities market: basic concepts

Stock trading on the stock exchange always involves operations on two types of markets - primary and secondary. This article is devoted to an analysis of what is meant by the concept of "primary market" and the answer to the main questions arising from beginners in matters of exchange speculation.

So, before entering the market, any securities must be issued, or, in other words, issued and admitted for free sale. Only after the issuer (this term is understood to mean the person or organization that issued shares) decides to sell its own securities, they have the opportunity to get on the stock exchange.

Initially, any shares go to the primary securities market, that is, to the market where the deal between the issuer and the investor is concluded. After that, all subsequent transactions, regardless of their number, are considered perfect already on the secondary market. In order to better understand the characteristics inherent in the primary market, its main functions in stock trading should be highlighted.

So, the primary securities market is intended for:

• Issue of those or other shares or securities by issuing companies;
• Initial share placement;
• Maintaining a certain balance between supply and demand in the market;
• Detailed accounting of shares.

In other words, without it, any trade in securities will be impossible, as well as the search for investors by firms. Obviously, only two types of organizations automatically become the main players in this market: investors who acquire shares, and issuers that sell them. But often, in addition to these two subjects of economic activity, intermediary firms that purchase securities for subsequent resale, as well as all kinds of investment funds, enter the game on the primary market.

In this case, trading in the stock market can be conducted in several ways, depending on the desire of the issuer. So, it can occur in the form of commercial or investment competitions, conversion, auction or in the form of a closed or open subscription. As for the last type of trading operations on the stock exchange, an open subscription is understood as the absence in the decision on the commencement of the implementation of any securities of any advantages of some potential buyers over others. Accordingly, with a closed subscription, such advantages can be stipulated.

The primary market of securities also implies a complete lack of control of the issuer over the future fate of the shares it has sold. The buyer can both leave them at home for the purpose of accumulating profits, and realize with the aim of extracting quick speculative income.

It should be noted that the issuer may not necessarily be any commercial firm. Often, shares issued by the state fall on the primary securities market. Most of them are put up for sale by large structures (commercial banks, investment funds and so on), which, in order to find the most convenient and safe profit, some of the securities purchased from the state are sold, and some are left in their own assets.

In turn, it is much more profitable for the government to sell its securities through large funds, since those who are well versed in the market can draw up an attractive emission project that guarantees maximum profit.

Thus, it becomes obvious that the primary market for securities today is the place of direct interaction between the issuer and the buyer, which is most often played by large fund players with a broad brokerage network for further sale of shares.