Glossary - Secondary Market
The secondary market is a financial market where previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. Unlike the primary market, where securities are created (via an IPO) and sold for the first time, transactions in the secondary market involve assets that are already owned by investors. This market provides liquidity for investors looking to divest their holdings and allows for the price discovery of securities based on supply and demand.
Also known as
- Aftermarket
- Resale market
Use cases examples
- Shareholder Agreement: The clause stipulates the conditions under which shares can be sold on the secondary market, including any rights of first refusal granted to existing shareholders.
- Investment Memorandum: This section outlines the strategy for selling shares acquired in the venture through secondary market transactions to realize returns on investment.
Considerations for investors
- Liquidity of the asset class in the secondary market, which can significantly affect the ease of selling the investment.
- Potential impact of large transactions on the market price of the asset.
Considerations for founders
- Understanding any restrictions or rights associated with selling company shares on the secondary market, such as lock-up periods or rights of first refusal.
- The impact of secondary market sales on company valuation and investor perception.
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