The Role of Primary Market

The securities market in general can be classified in to two. They are

Ø Primary market
Ø Secondary market

Let’s see the roles and functions of the primary market. The primary market provides the channel for sale of new securities. The primary markets in other words acts as a bridge between the securities issue and the securities exchange. Primary market provides opportunity to issuers of securities; Government as well as corporate, to raise resources to meet their requirements of investment and/or discharge some obligation.

They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market. Most organizations are usually started privately by their promoter(s). However, the promoters’ capital and the borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity and issue shares to individual investors. The way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. This is where the primary markets play a considerable role.