Glossary
Primary market
Where new securities are created and sold for the first time, with the cash going to the issuer, as in an IPO or a new bond sale.
On this page
The primary market is where securities are sold for the first time, directly from the issuer to investors. When a company holds an initial public offering, or the US Treasury auctions new bills, the money buyers pay goes to the issuer to fund its operations or spending. That distinguishes it from the Secondary market, where investors trade existing securities among themselves and the issuer receives nothing.
How it works
Primary-market sales take several forms:
- IPOs. A private company sells shares to the public for the first time, usually with investment banks as underwriters. See Initial public offering (IPO).
- Follow-on offerings. A listed company sells additional new shares. See Secondary offering, which despite its name can be a primary sale.
- Bond issues. Corporations and municipalities sell new bonds through underwriters; the Treasury sells bills, notes and bonds at auction.
- Private placements and rights offerings. New securities sold to a limited group of investors, or offered first to existing shareholders.
In the US, a public primary offering generally must be registered with the SEC under the Securities Act of 1933, and buyers receive a Prospectus.
Why it matters to investors
Individual investors rarely buy directly in the primary market for stocks, because IPO allocations go mostly to institutions and favored clients. Most people first meet a new stock when it opens for secondary trading, often at a price well above or below the offering price. Treasury auctions are the exception: individuals can buy new Treasury securities at auction through TreasuryDirect or many brokers.