Secondary Liquidity

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DEFINITION of 'Secondary Liquidity'

A form of liquidity that is part of an initial public offering when shares are distributed to both retail and institutional players. These secondary parties may then sell the security to other interested buyers, with an exchange typically acting as an intermediary.

Secondary holders, or liquidity providers, often hold fewer shares and provide less liquidity and/or share volume than the initial underwriter.

BREAKING DOWN 'Secondary Liquidity'

When a stock or bond is traded in the secondary market, it falls into a number of different hands, both retail and institutional. These holders often have fewer shares than their underwriter counterparts. Furthermore, while they offer investors a valuable source for shares, the liquidity providers are almost always less liquid then underwriters, which may retain a large portion of the initial offering for long-term investment.

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RELATED FAQS
  1. Do underwriters make guarantees to sell an entire IPO issue?

    Underwriters represent the group of representatives from an investment bank whose main responsibility is to complete the ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What kind of assets can be traded on a secondary market?

    Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
  4. Why would a company decide to utilize H-shares over A-shares in its IPO?

    A company would decide to utilize H shares over A shares in its initial public offering (IPO) if that company believes it ... Read Full Answer >>
  5. How do I place a buy limit order if I want to buy a stock during an initial public ...

    During an initial public offering, or IPO, a trader may place a buy limit order by choosing "Buy" and "Limit" in the order ... Read Full Answer >>
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