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SECONDARY MARKET

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Sunanda K. Chavan
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SECONDARY MARKET - September 20th, 2010

SECONDARY MARKET

The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. Alternatively, secondary market can refer to the market for any kind of used goods.

The market that exists in a new security just after the new issue, is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange, as market makers provide bids and offers in the new stock

In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid and transparent. Before electronic means of communications, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly.

Secondary marketing is vital to an efficient and modern capital market. Fundamentally, secondary markets mesh the investor’s preference for liquidity (i.e., the investor’s desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user’s preference to be able to use the capital for an extended period of time.

For example, a traditional loan allows the borrower to pay back the loan, with interest, over a certain period.

For the length of that period of time, the bulk of the lender’s investment is inaccessible to the lender, even in cases of emergencies. Likewise, in an emergency, a partner in a traditional partnership is only able to access his or her original investment if he or she finds another investor willing to buy out his or her interest in the partnership.

With a securitized loan or equity interest (such as bonds) or tradable stocks, the investor can sell, relatively easily, his or her interest in the investment, particularly if the loan or ownership equity has been broken into relatively small parts.

This selling and buying of small parts of a larger loan or ownership interest in a venture is called secondary market trading.

Under traditional lending and partnership arrangements, investors may be less likely to put their money into long-term investments, and more likely to charge a higher interest rate (or demand a greater share of the profits) if they do.

With secondary markets, however, investors know that they can recoup some of their investment quickly, if their own circumstances change

The ability of companies to mobilize capital from the market depends, to a large extent, on the efficiency and liquidity of the secondary market. Investors must have confidence that they will be able to exit from the investment at prices reflective of its future earning potential.

The main focus of SEBl’s effo$ have been the modernization of market infrastructure and to introduce risk containment measures.

The major reform initiated by SEBI is to direct all the stock exchanges to introduce on-line screen based trading.

Further, to ensure effective clearing mechanism, SEBI has directed all stock exchanges to set-up clearing house/clearing corporation to settle all trades through them only. Almost all stock exchanges have already set up clearing house and the NSE has set up a clearing corporation viz., National Securities Clearing Corporation Ltd.

NSCCL assumes the counterparty risk .for all the trades executed on the capital market segment of NSE. SEBI has also advised the stock exchanges to set-up a Trade Guarantee Fund.

This would ensure timely completion of settlement in the event of defaults by member brokers. The trading cycle has been shortened to 7 days.

Rolling settlement has already been introduced on OTCEI and trading in dematerialized securities takes place on T + 2 basis.

The system of margin collection has been streamlined and the concept of mark to market margin has been introduced.

The carry forward and badla system have been banned. A number of checks and balances have been introduced in the modified system to prevent its abuse. SEBI has also introduced the Stock Lending Scheme to facilitate timely delivery of securities.

The introduction of depositories has helped overcome the problems of bad deliveries and reduce the transaction costs. SEBI is encouraging the investors to dematerialize their holdings.

SEBI has introduced capital adequacy norms for brokers. SEBI set intra-day trading limits on trading members. SEBI has been encouraging the process of corporatization of broking houses. SEBI directed that the upper limit for gross turnover (buy + sell) intra-day should not exceed 25 times the base capital.


SEBI has directed Stock-Exchanges to amend their listing agreements to enforce continuing disclosures. The cash flow statement, which is a part of financial statements in several countries, is not mandatory under The Companies Act, 1956. The inclusion of cash flow statement has been made a condition for continuation of listing. The listing agreement has also been modified requiring companies to provide shareholders with complete unabridged accounts.

Companies have been directed to disclose actual utilization of funds and actual profitability against the projected utilization of funds and profitability projections given in the offer document. SEBI has also accepted the Bhave Committee recommendations for quarterly disclosure of financial performanc d disclosure of material events by companies immediately after their occurrence.
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Rose Marry
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Re: SECONDARY MARKET - April 12th, 2016

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Originally Posted by sunandaC View Post
SECONDARY MARKET

The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. Alternatively, secondary market can refer to the market for any kind of used goods.

The market that exists in a new security just after the new issue, is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange, as market makers provide bids and offers in the new stock

In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid and transparent. Before electronic means of communications, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly.

Secondary marketing is vital to an efficient and modern capital market. Fundamentally, secondary markets mesh the investorís preference for liquidity (i.e., the investorís desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital userís preference to be able to use the capital for an extended period of time.

For example, a traditional loan allows the borrower to pay back the loan, with interest, over a certain period.

For the length of that period of time, the bulk of the lenderís investment is inaccessible to the lender, even in cases of emergencies. Likewise, in an emergency, a partner in a traditional partnership is only able to access his or her original investment if he or she finds another investor willing to buy out his or her interest in the partnership.

With a securitized loan or equity interest (such as bonds) or tradable stocks, the investor can sell, relatively easily, his or her interest in the investment, particularly if the loan or ownership equity has been broken into relatively small parts.

This selling and buying of small parts of a larger loan or ownership interest in a venture is called secondary market trading.

Under traditional lending and partnership arrangements, investors may be less likely to put their money into long-term investments, and more likely to charge a higher interest rate (or demand a greater share of the profits) if they do.

With secondary markets, however, investors know that they can recoup some of their investment quickly, if their own circumstances change

The ability of companies to mobilize capital from the market depends, to a large extent, on the efficiency and liquidity of the secondary market. Investors must have confidence that they will be able to exit from the investment at prices reflective of its future earning potential.

The main focus of SEBlís effo$ have been the modernization of market infrastructure and to introduce risk containment measures.

The major reform initiated by SEBI is to direct all the stock exchanges to introduce on-line screen based trading.

Further, to ensure effective clearing mechanism, SEBI has directed all stock exchanges to set-up clearing house/clearing corporation to settle all trades through them only. Almost all stock exchanges have already set up clearing house and the NSE has set up a clearing corporation viz., National Securities Clearing Corporation Ltd.

NSCCL assumes the counterparty risk .for all the trades executed on the capital market segment of NSE. SEBI has also advised the stock exchanges to set-up a Trade Guarantee Fund.

This would ensure timely completion of settlement in the event of defaults by member brokers. The trading cycle has been shortened to 7 days.

Rolling settlement has already been introduced on OTCEI and trading in dematerialized securities takes place on T + 2 basis.

The system of margin collection has been streamlined and the concept of mark to market margin has been introduced.

The carry forward and badla system have been banned. A number of checks and balances have been introduced in the modified system to prevent its abuse. SEBI has also introduced the Stock Lending Scheme to facilitate timely delivery of securities.

The introduction of depositories has helped overcome the problems of bad deliveries and reduce the transaction costs. SEBI is encouraging the investors to dematerialize their holdings.

SEBI has introduced capital adequacy norms for brokers. SEBI set intra-day trading limits on trading members. SEBI has been encouraging the process of corporatization of broking houses. SEBI directed that the upper limit for gross turnover (buy + sell) intra-day should not exceed 25 times the base capital.


SEBI has directed Stock-Exchanges to amend their listing agreements to enforce continuing disclosures. The cash flow statement, which is a part of financial statements in several countries, is not mandatory under The Companies Act, 1956. The inclusion of cash flow statement has been made a condition for continuation of listing. The listing agreement has also been modified requiring companies to provide shareholders with complete unabridged accounts.

Companies have been directed to disclose actual utilization of funds and actual profitability against the projected utilization of funds and profitability projections given in the offer document. SEBI has also accepted the Bhave Committee recommendations for quarterly disclosure of financial performanc d disclosure of material events by companies immediately after their occurrence.
Hey friend,

Here I am sharing Notes on Secondary Market and Its Operations, so please download and check it.
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