Difference between primary market and secondary market

Primary market 

The primary market is a market where funds are raised by companies from investors, who are not associated with the promoters through an offer of securities. In the primary market, investors purchase the securities directly from the issuer. It is also called the ‘new issue market’ since these securities are issued for the first time by the company. The issuance of securities in the primary markets expands the reach of an issuer and makes long-term capital available to the issuer from a larger number of investors. 

To know more about the various ways in which capital can be raised in the primary market, refer to: https://www.dsij.in/DSIJArticleDetail/ArtMID/10163/ArticleID/19665/Types-of-issues-in-primary-market

In the primary market, securities are issued for public subscription at a price that is determined by the demand and supply conditions in the market. Fair pricing of securities prevails in the primary market. As new subscribers of equity capital participate, the stakes of existing shareholders (like promoters) reduces, and the ownership of the business becomes more diversified. 

Any company, which is raising capital from the primary market, has to meet higher standards of disclosure and transparency. Each and every process involved in the issue like intermediaries involved or the disclosure norms etc. is subject to regulatory provisions and supervision. The objective is to protect the interest of investors who contribute capital to a business.

Issue of securities in the primary market may be made by central, state & local governments, public sector units, private sector companies, banks, financial institutions, and non-banking finance companies, mutual funds, real estate investment trusts as well as infrastructure investment trusts and alternative investment funds. 

Secondary market 

The secondary market is where securities once issued either in the primary market or other than the primary market, such as privately-placed debt or equity securities and derivatives of primary securities created as well as traded by financial intermediaries, are bought and sold between investors. Transactions in the secondary market do not result in additional capital to the issuer as funds are only exchanged between investors. 

Secondary markets provide liquidity and marketability to existing securities and also, enable price discovery of traded securities. Market prices provide instant information about issuing companies to all market participants. Secondary market trading data is used to generate benchmark indices that are widely tracked in the country.  

The secondary market consists of participants like market infrastructure institutions i.e. stock exchanges, clearing corporations and depositories, investors, issuers, financial intermediaries, and regulators.