Module IV
The Secondary Market
( Stock Exchanges )
The secondary market, also called the aftermarket, is the financial market in which
previously issued financial instruments such as stock, bonds, options, and futures are bought and
sold.It is also the market where investors buy securities from other investors, and not from the
issuing organization. The sale proceeds from the secondary market go to the investor, and not the
issuing company.
Secondary markets include all stock exchanges where investors buy or sell their securities
with other investors. Because investors who deal with securities needed a place to exchange their
offerings for money, the stock exchange emerged. Today, it is highly sophisticated and uses advanced
technologies to provide real-time prices of any share.
Secondary markets provide the liquidity for investors and even for the economy as a whole.
In general, the higher the number of investors, the greater the liquidity for that market. It is also in
tune with the investors' preference for liquidity because most investors would not prefer to lock up
their funds for long periods of time and the secondary market gives them the platform to have
liquidity when they want it.
Key Differences Between Primary Market and Secondary Market
There are some important difference between primary market and secondary market , they are -
1. The securities are formerly issued in a market known as Primary Market, which is then listed on a
recognised stock exchange for trading, which is known as a secondary market.
2. The prices in the primary market are fixed while the prices vary in the secondary market
depending upon the demand and supply of the securities traded.
3. Primary market provides financing to new companies and also to old companies for their
expansion and diversification. On the contrary, secondary market does not provide financing to
companies, as they are not involved in the transaction.
4. At the primary market, the investor can purchase shares directly from the company. But in the
Secondary Market investors buy and sell the stocks and bonds among themselves.
5. Investment bankers do the selling of securities in case of Primary Market. Conversely, brokers act
as intermediaries while trading is done in the secondary market.
6. In the primary market, security can be sold only once, whereas it can be done an infinite number
of times in case of a secondary market.
7. The amount received from the securities are income of the company, but same is the income of
investors when it is the case of a secondary market.
8. The primary market is rooted in a particular place and has no geographical presence, as it has no
organisational setup. Conversely, Secondary market is present physically, as stock exchange, which is
situated in a particular geographical area.
Listing of Securities
Listing means the permission to quote shares and debentures officially on the trading floor of stock
exchange. Only listed securities are allowed in the recognised stock exchanges . Listing is not
compulsory under the Companies Act but it is compulsory in the case of companies which intend to
,offer securities for public issue through the issue of prospectus or when a public limited company
desires to issue shares or debentures to the public.
Listing requirements
A company which desires to list its shares in a stock exchange has to comply with the following
requirements:
1. Permission for listing should have been provided for in the Memorandum of
Association and Articles of Association.
2. The company should have issued for public subscription at least the minimum prescribed
percentage of its share capital (49 percent).
3. The prospectus should contain necessary information with regard to the opening of subscription
list, receipt of share application etc.
4. Allotment of shares should be done in a fair and reasonable manner. In case of over subscription,
the basis of allotment should be decided by the company in consultation with the recognized stock
exchange where the shares are proposed to be listed.
5. The company must enter into a listing agreement with the stock exchange. The listing agreement
contains the terms and conditions of listing. It also contains the disclosures that have to be made by
the company on a continuous basis.
Listing Procedure
The following are the steps to be followed in listing of a company’s securities in a stock exchange:
1. The promoters should first decide on the stock exchange or exchanges where they want the shares
to be listed.
2. They should contact the authorities to the respective stock exchange/ exchanges where they
propose to list.
3. They should discuss with the stock exchange authorities the requirements and eligibility for listing.
4. The proposed Memorandum of Association, Articles of Association and Prospectus should be
submitted for necessary examination to the stock exchange authorities
5. The company then finalizes the Memorandum, Articles and Prospectus
6. Securities are issued and allotted.
7. The company enters into a listing agreement by paying the prescribed fees and submitting the
necessary documents and particulars.
8. Shares are then and are available for trading.
Objectives of Listing
The major objectives of listing are
1. To provide ready marketability and liquidity of a company’s securities.
2. To provide free negotiability to stocks.
, 3. To protect shareholders and investors interests.
4.To provide a mechanism for effective control and supervision of trading.
Advantages of Listing Securities
Listing offers advantages to both the investors as well as the companies.
Advantages of listing to Investors
:1. It provides liquidity to investments. Security holders can convert their securities into cash by
selling them as and when they require.
2. Shares are traded in an open auction market where buyers and sellers meet. It enables an investor
to get the best possible price for his securities.
3. Ease of entering into either buy or sell transactions.
4. Transactions are conducted in an open and transparent manner subject to a well defined code of
conduct. Therefore investors are assured of fair dealings.
5. Listing safeguards investors interests. It is because listed companies have to provide clear and
timely information to the stock exchanges regarding dividends, bonus shares, new issues of capital,
plans for mergers, acquisitions, expansion or diversification of business. This enables investors to
take informed decisions.
6. Listed securities enable investors to apply for loans by providing them as collateral security.
7. Investors are able to know the price changes through the price quotations provided by the stock
exchanges in case of listed securities.
8. Listing of shares in stock exchanges provides investors facilities for transfer, registration of rights,
fair and equitable allotment.
9. Share holders are provided due notice with regard to book closure dates, and they can take
investment decisions accordingly.
Advantages of listing to Companies
1. Listed securities are preferred by the investors as they have better liquidity.
2. Listing provides wide publicity to the companies since their name is mentioned in stock market
reports, analysis in newspapers, magazines, TV news channels. This increases the market for the
securities.
3. Listing provides a company better visibility and improves its image and reputation.
4. It makes future financing easier and cheaper in case of expansion or diversification of the business.
5. Growth and stability in the market through broadening and diversification of its shareholding.
6. Listing attracts interest of institutional investors of the country as well as foreign institutional
investors.
7. Listing enables a company to know its market value and this information is useful in case
of mergers and acquisitions, to arrive at the purchase consideration, exchange ratios etc.
The Secondary Market
( Stock Exchanges )
The secondary market, also called the aftermarket, is the financial market in which
previously issued financial instruments such as stock, bonds, options, and futures are bought and
sold.It is also the market where investors buy securities from other investors, and not from the
issuing organization. The sale proceeds from the secondary market go to the investor, and not the
issuing company.
Secondary markets include all stock exchanges where investors buy or sell their securities
with other investors. Because investors who deal with securities needed a place to exchange their
offerings for money, the stock exchange emerged. Today, it is highly sophisticated and uses advanced
technologies to provide real-time prices of any share.
Secondary markets provide the liquidity for investors and even for the economy as a whole.
In general, the higher the number of investors, the greater the liquidity for that market. It is also in
tune with the investors' preference for liquidity because most investors would not prefer to lock up
their funds for long periods of time and the secondary market gives them the platform to have
liquidity when they want it.
Key Differences Between Primary Market and Secondary Market
There are some important difference between primary market and secondary market , they are -
1. The securities are formerly issued in a market known as Primary Market, which is then listed on a
recognised stock exchange for trading, which is known as a secondary market.
2. The prices in the primary market are fixed while the prices vary in the secondary market
depending upon the demand and supply of the securities traded.
3. Primary market provides financing to new companies and also to old companies for their
expansion and diversification. On the contrary, secondary market does not provide financing to
companies, as they are not involved in the transaction.
4. At the primary market, the investor can purchase shares directly from the company. But in the
Secondary Market investors buy and sell the stocks and bonds among themselves.
5. Investment bankers do the selling of securities in case of Primary Market. Conversely, brokers act
as intermediaries while trading is done in the secondary market.
6. In the primary market, security can be sold only once, whereas it can be done an infinite number
of times in case of a secondary market.
7. The amount received from the securities are income of the company, but same is the income of
investors when it is the case of a secondary market.
8. The primary market is rooted in a particular place and has no geographical presence, as it has no
organisational setup. Conversely, Secondary market is present physically, as stock exchange, which is
situated in a particular geographical area.
Listing of Securities
Listing means the permission to quote shares and debentures officially on the trading floor of stock
exchange. Only listed securities are allowed in the recognised stock exchanges . Listing is not
compulsory under the Companies Act but it is compulsory in the case of companies which intend to
,offer securities for public issue through the issue of prospectus or when a public limited company
desires to issue shares or debentures to the public.
Listing requirements
A company which desires to list its shares in a stock exchange has to comply with the following
requirements:
1. Permission for listing should have been provided for in the Memorandum of
Association and Articles of Association.
2. The company should have issued for public subscription at least the minimum prescribed
percentage of its share capital (49 percent).
3. The prospectus should contain necessary information with regard to the opening of subscription
list, receipt of share application etc.
4. Allotment of shares should be done in a fair and reasonable manner. In case of over subscription,
the basis of allotment should be decided by the company in consultation with the recognized stock
exchange where the shares are proposed to be listed.
5. The company must enter into a listing agreement with the stock exchange. The listing agreement
contains the terms and conditions of listing. It also contains the disclosures that have to be made by
the company on a continuous basis.
Listing Procedure
The following are the steps to be followed in listing of a company’s securities in a stock exchange:
1. The promoters should first decide on the stock exchange or exchanges where they want the shares
to be listed.
2. They should contact the authorities to the respective stock exchange/ exchanges where they
propose to list.
3. They should discuss with the stock exchange authorities the requirements and eligibility for listing.
4. The proposed Memorandum of Association, Articles of Association and Prospectus should be
submitted for necessary examination to the stock exchange authorities
5. The company then finalizes the Memorandum, Articles and Prospectus
6. Securities are issued and allotted.
7. The company enters into a listing agreement by paying the prescribed fees and submitting the
necessary documents and particulars.
8. Shares are then and are available for trading.
Objectives of Listing
The major objectives of listing are
1. To provide ready marketability and liquidity of a company’s securities.
2. To provide free negotiability to stocks.
, 3. To protect shareholders and investors interests.
4.To provide a mechanism for effective control and supervision of trading.
Advantages of Listing Securities
Listing offers advantages to both the investors as well as the companies.
Advantages of listing to Investors
:1. It provides liquidity to investments. Security holders can convert their securities into cash by
selling them as and when they require.
2. Shares are traded in an open auction market where buyers and sellers meet. It enables an investor
to get the best possible price for his securities.
3. Ease of entering into either buy or sell transactions.
4. Transactions are conducted in an open and transparent manner subject to a well defined code of
conduct. Therefore investors are assured of fair dealings.
5. Listing safeguards investors interests. It is because listed companies have to provide clear and
timely information to the stock exchanges regarding dividends, bonus shares, new issues of capital,
plans for mergers, acquisitions, expansion or diversification of business. This enables investors to
take informed decisions.
6. Listed securities enable investors to apply for loans by providing them as collateral security.
7. Investors are able to know the price changes through the price quotations provided by the stock
exchanges in case of listed securities.
8. Listing of shares in stock exchanges provides investors facilities for transfer, registration of rights,
fair and equitable allotment.
9. Share holders are provided due notice with regard to book closure dates, and they can take
investment decisions accordingly.
Advantages of listing to Companies
1. Listed securities are preferred by the investors as they have better liquidity.
2. Listing provides wide publicity to the companies since their name is mentioned in stock market
reports, analysis in newspapers, magazines, TV news channels. This increases the market for the
securities.
3. Listing provides a company better visibility and improves its image and reputation.
4. It makes future financing easier and cheaper in case of expansion or diversification of the business.
5. Growth and stability in the market through broadening and diversification of its shareholding.
6. Listing attracts interest of institutional investors of the country as well as foreign institutional
investors.
7. Listing enables a company to know its market value and this information is useful in case
of mergers and acquisitions, to arrive at the purchase consideration, exchange ratios etc.
