The security market is the place where securities are issued in raising the funds and traded further between buyers and sellers. There are various operations which are performed in security markets. This post discusses the structure of the security market with its segments.
What is the Security Market?
Security market provides a platform where a party in the need of capital issues the securities and the other party who has access capital acquires these securities by paying the capital.
Segments of the Security Market
There are two segments of the security market:-
- Primary Market, and
- Secondary Market
Primary Market
Primary Market is also called the new issue market because it deals with the issue of new and fresh securities. In this market, the issuer raises the capital by issuing new securities to the investors. These securities are issued by the companies, corporates or governments by selling the new stocks. The following operations are performed in the primary market:-
- Public Issue: Securities are issued to the public as a retail issue. Public issues may be Initial Public Offering (IPO) and Debt Offer (NCD, Bond Issue)
- Follow on Public Offer (FPO): An already listed company makes and public issue.
- Private Placement: Securities are issued to a specific group of persons.
- Qualified Institutional Placement (QIP): Securities are issued by already listed companies to Qualified Institutional Buyers (QIBs).
- Preferential Issue: Specified securities are issued to a selected group of persons on a private placement basis by already listed companies.
- Onshore and Offshore Offering: The securities can be issued either for domestic or international investors.
- Offer for Sale (OFS): Selling of already allotted shares by shareholders.
Secondary Market
The secondary market provides a platform for trading of already issued securities. It allows the investors to exit from their investment and new investors to buy already allotted securities. In this market, the previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. The secondary market has the following segments:-
- Over-The-Counter-Market (OTC Market): In this Market, trades are directly negotiated between two or more counterparties. In this type of market, the securities are traded and settled over the counter among the counterparties directly.
- Exchange Traded Market: In this segment, trading and settlement are done through the stock exchanges.
The following operations are performed in the secondary market:-
- Trading: This is a formal contract to buy or sell securities.
- Clearing and Settlement: These are the post-trading operations. Clearing means ascertaining the net obligations of buyers and sellers for a specific time period. The settlement is the next step of settling obligations by buyers and settlers such that paying the money in case of buy or delivery of securities in case of sell.
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Disclaimer: This post is meant for educational purpose only and it does not give any advice or recommendation. Investments in securities are subject to market risk.
Tags: #Securities #Security Market #investments #Primary Market #Secondary Market
