9.21 : The Secondary Market

The secondary market is a vital part of the financial system, facilitating the trading of securities such as stocks and bonds after their initial issuance. It provides a platform where investors can trade shares initially issued through an initial public offering (IPO). In the United States, exchanges like the New York Stock Exchange (NYSE) and NASDAQ ensure that these transactions are conducted efficiently, offering liquidity and transparency.

This market enables continuous trading of shares, which helps establish a company’s current valuation based on the forces of supply and demand. Such valuations are critical in guiding companies' future share offerings or debt financing decisions. Participants in the secondary market include individual investors, institutional investors such as mutual funds and pension funds, and intermediaries like brokers and dealers.

Unlike the primary market, the secondary market does not involve the issuing company directly in transactions. Instead, it operates as a platform where transactions happen between investors. For example, when a retail investor sells Apple shares on NASDAQ, the market’s mechanisms facilitate the process, ensuring fairness and efficiency. The secondary market is essential for maintaining investor confidence and supporting capital market growth.