Loading the player...

What is a 'Primary Market'

A primary market issues new securities on an exchange for companies, governments and other groups to obtain financing through debt-based or equity-based securities. Primary markets are facilitated by underwriting groups consisting of investment banks that set a beginning price range for a given security and oversee its sale to investors. Once the initial sale is complete, further trading is conducted on the secondary market, where the bulk of exchange trading occurs each day.

BREAKING DOWN 'Primary Market'

Companies and government entities sell new issues of common and preferred stock, corporate bonds and government bonds, notes and bills on the primary market to fund business improvements or expand operations. Although an investment bank may set the securities' initial price and receive a fee for facilitating sales, most of the funding goes to the issuer. Investors typically pay less for securities on the primary market than on the secondary market.

Facebook’s Initial Public Offering

Facebook Inc.'s initial public offering (IPO) in 2012 was the largest IPO of an online company and one of the largest IPOs in the technology sector. Many investors believed the stock's value would very quickly increase on the secondary market due to the company's popularity. Because of high demand in the primary market, underwriters priced the stock at $38 per share, at the top of the targeted range, and raised the stock offering level by 25% to 421 million shares. The stock valuation became $104 billion, the largest of any newly public company.

Although Facebook raised $16 billion through the primary market, the stock did not greatly increase in value the day of the IPO. After 460 million shares were sold and turnover exceeded 100%, the stock closed at $38.23. However, Facebook still raised funding and investors purchased stock at a discount through the primary market.

Example of Primary Market Selling

In June 2016, the Republic of Argentina announced it was selling $2.75 billion worth of debt in a two-part U.S. dollar bond sale. Funding was going toward liability management purposes. Joint underwriters included Morgan Stanley, Bank of America, Merrill Lynch, Deutsche Bank and Credit Suisse.

YPF, an Argentine oil company, announced it was offering peso-linked, U.S. dollar-denominated 2020 bonds worth $750 million. The senior unsecured notes were being marketed with no registration rights, listed in Luxembourg and governed by New York law.

Costera, a Colombian road concessionaire, announced a dual-currency bond sale. Funding would cover construction expenses and related costs for the Concesion Cartegena Barranquilla Project. The bonds were listed in Luxembourg and governed by New York law. The main underwriter was Goldman Sachs and co-manager was Scotiabank.

  1. Primary Offering

    A primary offering is the first issuance of stock from a private ...
  2. Secondary Market

    A market where investors purchase securities or assets from other ...
  3. Primary Distribution

    The original sale of a new security issue (bonds or stocks) from ...
  4. General Public Distribution

    A type of primary market offering in which the securities being ...
  5. Offering

    An offering is the issue or sale of a security by a company. ...
  6. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
Related Articles
  1. Investing

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks, bonds and other securities are traded.
  2. Investing

    The Road To Creating An IPO

    Through an Initial Public Offering, or IPO, a company raises capital by issuing shares of stock, or equity in a public market. Generally, this refers to when a company issues stock for the first ...
  3. Investing

    Basics Of Federal Bond Issues

    Treasuries are considered the safest investments, but they should still be analyzed when issued.
  4. Investing

    U.S. Corporate Bonds: The Last Safe Place to Make Money

    There aren't many other sources right now for relatively safe, steady income.
  5. Investing

    Top Reasons IPO Valuations Miss The Mark (MS, ZNGA)

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  6. Investing

    What's the Role of an Investment Bank?

    Investment banks provide financial advice to businesses and governments and help them raise capital through the sale of stocks, bonds and other products.
  7. Investing

    The Issuance Procedure of High-Yield Bonds

    The issuance of corporate high-yield bonds can have several advantages over equity. A closer look.
  8. Investing

    Explaining Government Bonds

    A government bond is a debt security a government issues.
  1. Who facilitates buying and selling on the primary market?

    Learn more about the primary marketplace -- home of initial public offerings -- and the major players that make buying and ... Read Answer >>
  2. What are some roles of an investment bank?

    Explore the world of investment banking and discover the various functions investment bankers serve, such as handling IPOs ... Read Answer >>
  3. After an initial public offering, does a company profit from increases in its share ...

    The short answer is "no". To understand why, recall that the stock market is actually comprised of two markets - a primary ... Read Answer >>
  4. How does insurance underwriting differ from investment underwriting?

    Understand the difference between insurance underwriting and investment underwriting, including what types of risks an underwriter ... Read Answer >>
  5. How does an underwriter syndicate work together on an initial public offering (IPO)?

    Learn how underwriting syndicates work together when helping a company undertake an initial public offering, and learn about ... Read Answer >>
Hot Definitions
  1. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  2. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  3. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  4. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  5. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  6. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
Trading Center