DEFINITION of Secondary Liquidity

Secondary liquidity refers to the ability of IPO investors to sell shares in the secondary market, that is, to buyers on a public stock exchange. The primary market consists of those institutional investors who buy the issued shares directly from the underwriter and/or syndicate of brokerages.

BREAKING DOWN Secondary Liquidity

When a company goes public, the underwriting investment bank and/or syndicate of securities dealers sell the initial shares to the primary market, mostly institutional investors. These investors may then want to sell those shares in the secondary market, where it is purchased by retail and institutional investors.

The secondary market typically refers to transactions that occur on a public exchange. Secondary transactions can occur privately as well when an equity investor sells its commitment to a private equity fund or an alternative investor. These equity holdings are much less liquid than those acquired via public exchanges and are typically intended to be held over the long term.