Module III· Capital Markets FundamentalsBasic
Question
What are primary versus secondary markets?
Answer
| Primary Markets | Secondary Markets | |
|---|---|---|
| What | New securities are issued | Existing securities are traded |
| Examples | IPO, capital increase, bond issuance | Stock exchange trading, OTC bond trading |
| Cash flow | Investor cash goes to the issuer | Buyer cash goes to the selling investor |
| IB role | Underwriting and origination fees | Sales & trading, usually lower-margin flow business |
Core point
The primary market funds the company or selling shareholder at issuance. The secondary market provides liquidity after issuance.
Pitch tip
'IPO is primary; later share trading is secondary. The investment bank earns the underwriting fee on the primary transaction, not every later trade.'