Primary and Secondary Market
The capital market is divided into a primary and a secondary market. In both markets, banks are key
The primary market - also called "issuance market" - is the one in which a security is first issued.
Companies use the primary market to raise capital. By issuing securities, they can divide major
capital outlays into small units.
If a company decides to issue securities in order to raise short- or long-term capital, it enters the
money or capital market as an issuer. Companies can issue different kinds of securities: shares,
bonds, pfandbriefe, debt securities, warrants etc.
In a first step, securities such as shares and bonds are placed directly with investors or indirectly
via banks with no involvement of a stock exchange to begin with. The most important kind of placement,
and the one that is most common in Switzerland, is firm-deal underwriting of the issue by the bank or
banking group. After examining the issuer's accounts, the bank acquires all of the bonds or shares at
a predetermined price. The placement risk, then, is taken on by the banks, and the capital seeker can
dispose of the proceeds from the transaction.
If trading on a stock exchange is desired (secondary market), the bank continues the issuing process.
Among other things, this involves the duty to publish a prospectus, the subscription period and the
lodging of a listing application with the stock exchange. When a joint-stock company goes public,
the first share issue is called the "initial public offering" (IPO).
The proceeds from issuing shares constitute or increase the company's equity capital. Issuing a
bond constitutes or increases its debt capital.
The secondary market is the market in which securities are traded on the stock market.
In the secondary market, companies are not in search of capital; instead, you as an investor deal with
other buyers and sellers of securities. This is where actual stock-exchange trading takes place. All
traded securities are public and available to everyone.
In order for a security to be traded on the Exchange, the company has to successfully complete the
issuing process and meet various requirements set out in the Listing Rules.
In order to remain listed, issuers have to carry out certain duties such as publication of
price-sensitive data. This is why news about listed companies is published in the media on an almost
daily basis. more