Primary and Secondary Markets

Primary markets are the markets in which corporations raise new capital.

The London Stock Exchange performs two vital roles to encourage investors to invest in industry. The first is the operation of a primary market. This is where companies sell shares to investors and then use the proceeds in their businesses. Stock markets also provide a secondary market where shares are traded between investors. An efficient and trustworthy secondary market is needed to encourage investors to buy shares in the primary market. Investors like to know that there is a place they can go to sell shares quickly, cheaply and without having to reduce the price, that is, to sell at the going rate.

An important brokered investment market is the so-called primary market, where new issues of securities are offered to the public. In primary market investment bankers act as brokers; they seek out investors to purchase securities directly from the issuing corporation.

Trading among investors of already-issued securities is said to take place in secondary market. Therefore, the over-the-counter market is one example of a secondary market. Trading in secondary markets does not affect the outstanding amount of securities; ownership is simply transferred from one investors to another. A good secondary market allows the separation of long-term investment in real assets by firms and short-term investment by shareholders in financial assets called ordinary shares.