A secondary market in a crowdfunding platform is a marketplace where previously issued securities which includes both shares and debt can be bought and sold by the stockholders. So, it is a marketplace where investors buy securities from other stockholders and not from the issuing company.
When a firm issues its securities for the time, they issue in the primary market. After the IPO (Initial Public Offering), those securities offered to trade in the secondary market. Stock marketplaces like the New York Stock Exchange (NYSE) and the NASDAQ are the examples of the secondary markets.
FEATURES OF SECONDARY MARKET
- Secondary Market provides liquidity to all the investors. Any seller who wants cash can simply sell the security due to the presence of a huge number of buyers.
- There is a very short time lag between any new events affecting the company stock price reflecting that news. The secondary market rapidly adjusts the price to reflect any new event in the asset.
- There are lower transaction costs in secondary markets due to the large volume of transactions.
- The secondary markets are also an alternate to saving.
- Secondary markets face substantial regulations from the government as they are a vibrant source of capital formation and liquidity for the companies and also the investors. High regulations guarantee the safety of the investor’s money.
MAJOR INSTRUMENTS AND PLAYERS IN SECONDARY MARKET
The Major instruments in Secondary market are:
- Fixed income instruments are normally debt securities like bonds, debentures and also includes Preference shares.
- Variable income instruments are equity and derivatives.
- Hybrid instruments are favorite shares and exchangeable debentures.
Major players in the secondary market are Brokerage and Advisory services which includes commission broker, security dealers and more. Financial Intermediaries like Banks, Insurance companies, Mutual Fund and the Non-Banking Financial companies. The last player is the retail investors.