The document discusses security markets, focusing on the two types: primary and secondary markets. Primary markets involve the issuance of new securities, such as IPOs and seasoned issues, while secondary markets facilitate the trading of already issued securities. Key players include investment bankers in primary markets and brokers or dealers in secondary markets, each with distinct rules and methods of operation.

1. Security Markets

2. Security Markets
• There are two types of security markets
• Primary markets
• Secondary markets
• Primary market: a market for new issues of
securities
• Secondary market: Trading of already issued
securities among investors occurs in the
secondary market

3. Primary Market
Following are example of primary issues:
• 1. IPO: (initial public offering) refers to stock
of company being offered to general public for
the first time
• 2. Seasoned issue: new issues are offered by
companies that already have floated equity

4. Primary issues
• Companies may choose to sell securities
either through public offering or private
placement.
• In private placement, the securities are
offered to a some wealthy individuals or
selected financial institutions.

5. Advantages of Private Placement
• Registration of the securities with SECP is not
required
• Funds can be quickly raised with private
placements, IPOs takes up to 4 months
• However, PP cannot be traded on stock
exchange and thus have less liquidity
• Because of illiquidity, higher rate of return is
paid to investors

6. How securities are sold in IPOs
• Securities are sold to general public with the help of
investment banker
• Investment banker helps companies in IPOs with their
advice, underwriting and distribution of securities
• Investment banker underwrites the new securities by
purchasing the securities from the issuing company
and assumes the risk of selling to general public. Such
agreement is called firm commitment
• An alternative to firm commitment is best effort
agreement where the IB does not purchase the
securities, rather tries his best to sell securities at good
price

7. Secondary Market
• The trading of already issued securities takes
place in secondary market
• Secondary markets helps the primary markets
as they increase the liquidity of existing
securities
• Secondary markets exists for trading of
common stocks, bonds, and puts and calls,
• Secondary markets include brokers market,
dealers markets

8. Brokers market
• This is also called stock exchange or
• It is an association of brokers and works like
an auction market
• All investor must deal through brokers
• No investors is allowed to directly buy or sell
shares from/to other investors
• Brokers charge commission on transactions
they make for their clients

9. NASDAQ
• National Association of Security Market
Dealers is a dealers market
• Unlike brokers, dealers(also called market
makers) buy and sell securities for themselves
• Every market maker deals in number of
securities and keeps a specific quantity of a
given security
• He stands to buy and sell a given security at
the same time

10. NASDAQ
• National Association of Security Market
Dealers is a dealers market
• Unlike brokers, dealers(also called market
makers) buy and sell securities for themselves
• Every market maker deals in number of
securities and keeps a specific quantity of a
given security
• He stands to buy and sell a given security at
the same time