There are several important actors that facilitate buying and selling on the primary market, the home of initial public offerings (IPOs) and new bond floats. Private financial institutions create the new security issues that are sold on the primary market; without them, there would be no primary market. Investment banks underwrite the issuance of new securities and help list stocks on new exchanges. Stock exchanges and securities regulators help foster an atmosphere of trust and transparency as well.
Primary issuers are companies looking for extra capital that are willing to trade ownership interest (stocks) or claims against future cash flow (bonds) to willing investors.
It would be difficult to overstate the importance of investment banks in the primary market. Investment bankers help companies, especially new corporations, navigate through a sea of regulations and procedural requirements when creating new issues.
Investment banks help register new stocks and bonds with the Securities and Exchange Commission (SEC) and draft the necessary documents, such as the prospectus.
However, investment banks make the biggest impact in terms of underwriting security issues. When a security issue is underwritten, it means that the investment bank agrees to purchase all of the remaining issues that go unsubscribed after the IPO. This is an enormous insurance policy for securities issuers.
Stock Exchanges and Regulators
Stock exchanges and other spontaneous marketplaces are the unsung heroes of the investment world. These organizations create standardized rules of the game and safeguard the integrity of information and fair play that might otherwise be absent.
It is very unlikely that security issuers or investors would be willing to transact without confidence in the sanctity of contract and reliability of information available through exchanges.
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