Definition
The term secondary securities market is used to describe the financial markets where investors purchase securities from other investors. Also referred to as the aftermarket, secondary market transactions such as the trading of stocks and bonds occur between investors and do not involve the issuing entity.
Explanation
When companies issue new securities, they are purchased in the primary securities market. Once issued, the buying and selling of these securities occurs in the secondary market, which can involve more complex securities (derivatives), and accounts for the vast majority of trading volumes.
Investors conduct secondary market transactions on stock, bond, and derivative exchanges. For example, the NASDAQ and the NYSE Euronext are considered secondary markets. The term also applies to securities purchased from financial institutions. In addition to stocks and bonds, examples of securities trading in the secondary market include: mutual funds, commercial paper, certificates of deposit, loans (mortgages), exchange-traded funds as well as derivatives.
Unlike the primary market, where the selling price of an initial public offering is determined well in advance, the prices paid in the secondary market are decided by the laws of supply and demand.
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