Question

What is secondary market?

Why is secondary market important?

Why is development a good, liquid, deep secondary market important for the economy and the firm?

Answer 1

Secondary Market

Secondary Market is the market/place where stocks / securities which has already been issued in the market are traded by the investors. For better understanding we need to understand the primary market also. Primary market is like when a company issue IPO (Initial Public Offering) and thereafter same is traded in Secondary Market. Hence, while the prices are already determined in primary market, In secondary market prices are determined after considering multiple factors like market condition, company's performance etc.

Importance of Secondary Market

Secondary market is important for unlocking value for the company. This also helps investor to exchanges shares / bonds etc with each other. Since, secondary market offers the true value of price for the shares / investors, this depicts actual performance of the company. Normally securities (Shares / Debentures / bonds etc) are dealt through stock exchanges.

Development of Secondary Market

This is important for following reasons -

1. Helps company in unlocking true value of the company.

2. Investors can freely exchange shares / bonds.

3. Institutions controlling the market also ensures that no illegal practices are done.

4. All the information be it negative / positive are reflected in movement of securities.

5. Its also indicates the condition of the economy.