Securities Operations: A Guide to Trade and Position Management

3

Bringing Securities to the Marketplace

3.1 INTRODUCTION

An important component to understanding how the securities marketplace works as a whole is to understand how securities are brought to the marketplace, and the impact of this on the various operations undertaken by the STO, for example the settlement of transactions. The terms used to describe securities undergoing this process include ‘when issued’, ‘new issues’ and ‘IPO’ (Initial Public Offering).

The majority of trades executed in securities marketplaces around the globe on a daily basis are in securities that have been brought to the marketplace at a prior point in time. Securities that fall into this category are said to be trading in the secondary market.

Securities that are in the process of being brought to the marketplace are said to be trading in the primary market and usually this activity accounts for a much lower percentage of daily trading volume than that conducted in the secondary market. The following describes the activity within the primary market.

3.2 METHODS OF ISSUING SECURITIES

The process of bringing securities to the marketplace is one that requires specialist skills. An issuer (refer to Chapter 2) of securities typically operates in an industry other than the securities industry and consequently does not possess the expertise to manage the process efficiently.

It is therefore common practice for issuers to appoint specialists in the field of issuing securities; these experts typically reside within ...