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Primary Market
The primary market is where newly issued securities are offered for the first time to the public. In the context of the Treasury market, the primary market is where the government issues new securities to raise funds for its operations. Here is how the primary market works in the Treasury market:
Auctions: The primary market for Treasury securities operates through auctions. The government announces the issuance of new Treasury securities and sets a date for the auction.
Bidding process: Financial institutions, such as banks, primary dealers, and other market participants, submit competitive bids for the Treasury securities being auctioned. The auction process is designed to determine the price at which the securities will be sold.
Acceptance of bids: The government accepts bids for the securities, starting with the highest bid and working down until the entire amount of securities being auctioned is sold.
Issuance of securities: Once the auction is completed, the government issues the new Treasury securities to the successful bidders. These securities have a fixed maturity date and pay interest to investors.
Trading in the secondary market: After the issuance of new Treasury securities, they are available for trading in the secondary market, where buyers and sellers can trade them at market-determined prices.
The primary is that part of the capital market that deals with the issuance of new securities. Companies issue securities from time to time to raise funds in order to meet their financial requirements for modernization, expansion and diversification programs. Also government or public sector institutions can obtain funding through the sale of a new stock or bond issue. Primary market is a set-up which helps the industry to raise funds by issuing different types of securities. Individuals or other investors with surplus money invest their savings in exchange for shares, debentures and other securities. The new issue of securities is presented in the form of public issues, right issues or private placement. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.
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