Question

explain the difference between the primary and secondary markets. What roles do banks play in these markets?

Answer 1

Primary market is where securities are first issued by firms. The securities are sold to the public for the first time through the primary market. An example is an IPO. In an IPO, common stock is issued by a company to the public for the first time.

Secondary market is where securities already issued to the public are exchanged between buyers and sellers. These securities are already in circulation among the public, and there is are no new securities issued. The existing securities are traded between different parties. An example is NYSE.

Banks play the role of advisors, underwriters and other intermediary roles. They facilitate the issue of securities by underwriting the issues, advising the issuers and providing advice. They also provide intermediary services in the secondary market such as custodian services, trusteeship services etc.