Secondary market offering

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A secondary market offering, according to the U.S. Financial Industry Regulatory Authority (FINRA), is a registered offering of a large block of a security that has been previously issued to the public. The blocks being offered may have been held by large investors or institutions, and proceeds of the sale go to those holders, not the issuing company. Also called secondary distribution. [1]

In the United States, the Financial Industry Regulatory Authority, Inc. (FINRA) is a private corporation that acts as a self-regulatory organization (SRO). FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD) and the member regulation, enforcement, and arbitration operations of the New York Stock Exchange. It is a non-governmental organization that regulates member brokerage firms and exchange markets. The government agency which acts as the ultimate regulator of the securities industry, including FINRA, is the Securities and Exchange Commission.

A public offering is the offering of securities of a company or a similar corporation to the public. Generally, the securities are to be listed on a stock exchange. In most jurisdictions, a public offering requires the issuing company to publish a prospectus detailing the terms and rights attached to the offered security, as well as information on the company itself and its finances. Many other regulatory requirements surround any public offering and they vary according to jurisdiction.

A secondary offering is not dilutive to existing shareholders since no new shares are created. The proceeds from the sale of the securities do not benefit the issuing company in any way. The offered shares are privately held by shareholders of the issuing company which may be directors or other insiders (such as venture capitalists) who may be looking to diversify their holdings. Usually however, the increase in available shares allows more institutions to take non-trivial positions in the issuing company which may benefit the trading liquidity of the issuing company's shares.

A secondary market offering should not be confused with a follow-on offering, otherwise known as a subsequent offering, or a dilutive secondary offering. In a follow-on offering, the company itself places new shares onto the market, thus diluting the existing shares. [2] [3] "Secondary market offering" can be understood as an offering on the secondary market, and is thus different from a secondary offering on the primary market — in other words, an offering following an initial, primary-market offering. A follow-on offering which is the second offering from a company can be understood as a secondary offering on a primary market, which is where the confusion between a dilutive (follow-on) and a non-dilutive secondary market offering possibly comes from. If a company were to make a third, primary-market offering, this would be a follow-on offering which is not a secondary market offering. "Secondary offering" as described in this article is an offering on the secondary market which is non-dilutive, and is thus not a follow-on offering.

A follow-on offering is an issuance of stock subsequent to the company's initial public offering. A follow-on offering can be either of two types : dilutive and non-dilutive. A secondary offering is an offering of securities by a shareholder of the company. A follow on offering is preceded by release of prospectus similar to IPO: a Follow-on Public Offer (FPO).

Secondary market company

The secondary market, also called the aftermarket and follow on public offering is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac.

The primary market is the part of the capital market that deals with the issuance and sale of equity-backed securities to investors directly by the issuer. Investor buy securities that were never traded before. Primary markets create long term instruments through which corporate entities raise funds from the capital market. It is also known as the New Issue Market (NIM).

See also

Corporate finance area of finance dealing with the sources of funding and the capital structure of corporations

Corporate finance is an area of finance that deals with sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources. The primary goal of corporate finance is to maximize or increase shareholder value. Although it is in principle different from managerial finance which studies the financial management of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.

A seasoned equity offering or secondary equity offering (SEO) or capital increase is a new equity issue by an already publicly traded company. Seasoned offerings may involve shares sold by existing shareholders (non-dilutive), new shares (dilutive) or both. If the seasoned equity offering is made by an issuer that meets certain regulatory criteria, it may be a shelf offering.

An at-the-market (ATM) offering is a type of follow-on offering of stock utilized by publicly traded companies in order to raise capital over time. In an ATM offering, exchange-listed companies incrementally sell newly issued shares into the secondary trading market through a designated broker-dealer at prevailing market prices. The broker-dealer sells the issuing company's shares in the open market and receives cash proceeds from the transaction. The broker-dealer then delivers the proceeds to the issuing company where the cash can be used for a variety of purposes. A higher stock price means a greater amount of money can be raised. The issuing company is able to raise this kind of capital on an as-needed basis with the option to refrain from offering shares if the available prices on a particular day are unsatisfactory. ATM offerings can be started and stopped at any point, and they can also become more aggressive by selling more shares and raising more money when there is an opportunity in the market or additional need by the issuing company. ATMs can be positioned in advance of an upcoming liquidity event or major milestone to take advantage of increased liquidity and a rising stock price.

Notes

  1. "FINRA glossary definition of secondary offering". Financial Industry Regulatory Authority. 2010. Retrieved 2010.Check date values in: |access-date= (help)
  2. http://www.investopedia.com/terms/f/followonoffering.asp
  3. http://www.investopedia.com/terms/s/secondaryoffering.asp

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