Secondary market
Where investors trade existing securities among themselves, the issuer receiving nothing. Its liquidity is what makes new issues saleable, so it lowers the cost of raising capital.
Where you will meet it
Secondary market appears in 4 learning outcomes on the CFA syllabus. A few of them:
- Contrast public equity securities with private ones
“There is no active secondary market, so exit depends on a sale or a listing and the holding period is long.”
- Contrast the short-term financing options open to companies and to financial institutions
“Negotiable CDs can be sold in the secondary market, whereas non-negotiable CDs carry a penalty for early withdrawal.”
- Explain the secondary and primary markets for equity and the role each plays
“The secondary market is where investors then trade those shares among themselves, and the company receives nothing from those trades.”
- Set out the segments of the bond market and the kinds of bond indexes
“New issues are sold in the primary market and existing bonds trade in the largely dealer-based secondary market.”
See also
Practise it
Practise secondary market until it is automatic: questions that explain every wrong option.
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