The Secondary Market is also known as the Aftermarket, is the financial market. where the previously issued securities and financial instruments such as stock, Bond, option and futures are bought and sold. the term "secondary market" is also used to refer the market for any used good or assets or an alternative used for an existing product or assessed 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)
With primary issuances of securities for financial instruments, or the primary market, investor purchase these security directly from the issuers such as Corporation issuing share in an IPO or private placement or directly from Federal government in the case of treasuries. After the initial in issuance, investor can purchase from other investor in the secondary market the secondary market.
The Secondary market for a variety of assets can vary from loan to stock, from fragmented to centralised, and from illiquid to very liquid. the major stock exchange has the most visible example or liquid secondary market in this case for stock of publicly traded companies. exchange such as Bombay Stock Exchange, National Stock Exchange provide a centralised liquid secondary market for the investor who owns talk their trade on those exchange. most Bond and structured product trade "over-the-counter" or buy phoning The Bond desk of one's broker dealer. Loans sometime trade online using a loan exchange. secondary market is vital to an efficient and modern capital market. in the secondary market, securities are sold by and transferred from one investor and speculator to another. it is therefore important that the secondary market be highly liquid (originally the only way to create this liquid it was for investor and speculator to meet a fixed price regularly this is how stock exchange originated.) As a general rule, the greater the number of investor that participate in the given Marketplace, and the greater the Centralisation of that marketplace, the more liquid the market. Fundamentally, secondary market measure the investor preference for liquidity (i. e ., the investor desired not to tie up his or her money for a long period of time in case the investor needed to deal with unforeseen circumstances) with the capital user preference to be able to use capital for an extended period of time.
Accurate share price allocate scares capital from more efficiently when new project as financial through a new primary market offering but accuracy me also matter in the secondary market because;
- price accuracy can reduce the agency cost of Management and make hostile takeover a less risky proposition and thus move capital into hand of bank managers, and
- Accurate share price aids the efficient allowance of debt finance where Dept offering or institutional borrowings.
