Primary & Secondary Markets
Negotiable securities
- Common stock is negotiable, meaning investors can buy and sell it with each other by agreeing on a price.
- When you buy common stock, you become an owner of the company for as long as you hold the shares.
- You can sell your shares at any time.
- Once you liquidate (sell) your shares, you lock in your gain or loss and no longer participate in the issuer’s future successes or failures.
Definitions
| Term | Definition | Example |
|---|---|---|
| Issuer | The organization responsible for creating, registering, and selling a security. | Tesla is the issuer of Tesla common stock; the US Government is the issuer of US Government bonds; Ford is the issuer of Ford preferred stock |
| Secondary market | Where stocks trade after they’re initially sold in the primary market (e.g., initial public offerings). Commonly referred to as the “stock market.” | Buying shares of Home Depot stock from another investor rather than directly from Home Depot |
- When you buy a negotiable security, you typically buy it from another investor who is selling.
- For example, if you want to buy shares of Home Depot stock, you generally buy them in the secondary market from another investor — not directly from Home Depot.
Negotiable vs. redeemable
If a security isn’t negotiable, it’s likely redeemable. Common stock isn’t redeemable, but a few securities are (like mutual funds and unit investment trusts).
| Feature | Negotiable security | Redeemable security |
|---|---|---|
| Who you trade with | Other investors | Directly with the issuer |
| Where it trades | Secondary market | With the issuer only |
| Common stock? | Yes — common stock is negotiable | No — common stock is not redeemable |
| Examples | Common stock; most securities | Mutual funds, unit investment trusts |
- A redeemable security is bought and sold directly with the issuer, not with other investors in the market.
- For example, investors purchase Vanguard funds directly from Vanguard. When Vanguard fund investors liquidate their shares, they redeem (sell) those shares with Vanguard — Vanguard “cashes out” the shares.
Settlement
- After a common stock trade executes, several steps happen behind the scenes.
- Settlement is the day the stock is “officially” in the buyer’s possession.
- Most trades use regular-way settlement, which occurs on the first business day after the transaction.
Regular-way settlement for common stock = T+1 (trade date plus one business day).
Don’t count weekends or holidays when calculating settlement time frames — settlement is based on business days.
More on the behind-the-scenes activity involving settlement is in Broker-Dealers, Traders & Clearing Firms.
The stock market
- Issuers can raise significant capital (money) by offering securities like common stock to investors in the primary market.
- The most notable primary market transaction is the IPO (initial public offering), which is the first time an issuer sells its shares to the general public.
- Primary market transactions are also known as issuer transactions because the issuer receives the proceeds from the sale.
Why companies sell securities
- Companies sell securities for one primary reason: to raise capital (money).
- Stockholders have some control over the direction of the company, so issuing stock means giving up some control.
- Companies do this because growing a business can require large amounts of money — for example, to build new offices, buy equipment, or hire employees.
Primary vs. secondary market
| Market | What happens | Transaction type | Who receives the proceeds |
|---|---|---|---|
| Primary market | Issuers offer securities to investors | Issuer transaction | The issuer |
| Secondary market (“the stock market”) | Investors trade securities with other investors | Non-issuer transaction | The selling investor (who gives up ownership) |
- After common stock is sold in the primary market, investors are generally free to trade it in the secondary market (often called the stock market).
- When a trade occurs in the secondary market, a non-issuer transaction takes place. That means the issuer did not receive the proceeds. Instead, the selling investor receives the proceeds.
Offerings after the IPO
| Offering type | Also known as | Who offers the shares | Who receives the proceeds | Notes |
|---|---|---|---|---|
| IPO (initial public offering) | — | The issuer | The issuer | First time an issuer sells shares to the general public |
| Follow-on offering | Additional public offering (APO); essentially “IPO part II” (or part III, IV, etc.) | The issuer, in the primary market after the IPO | The issuer | Issuers often don’t sell all possible shares in the IPO, leaving room to sell more and raise more capital later |
| Secondary offering | — | Large shareholders offering shares they previously obtained from the issuer | The selling shareholders (may not involve the issuer) | These shareholders are often officers or directors who accumulated shares through their employment |
“Secondary offering” ≠ “secondary market” and ≠ “follow-on offering.” A secondary offering may not involve the issuer at all — large shareholders sell their own previously obtained shares.
Worked example — Meta Platforms, Inc.
Let’s look at an issuer that’s been involved in all the transactions discussed above. Meta Platforms, Inc. (ticker: META), formerly known as Facebook, launched in 2003. After gaining some success and raising money from private investors, the company raised $16 billion from investors in its 2012 IPO. After the IPO, the stock began trading in the secondary market on the NASDAQ exchange (exchanges are covered in Market Makers, Spreads & the NYSE). Roughly a year after its IPO, the company completed its first follow-on offering, raising roughly an additional $1.5 billion. A secondary offering occurred at the same time as Mark Zuckerberg (CEO of Meta) sold over $2 billion of stock he personally owned.
Key points
Negotiable securities
- Trade in the secondary market between investors
- Common stock is negotiable
- Most securities are negotiable
Redeemable securities
- May only be bought and sold with the issuer
Primary market
- Where issuers offer securities to investors
- IPOs are a type of primary market transaction
Secondary market
- Where investors trade securities with other investors
Issuer transaction
- Sale of securities where the issuer keeps proceeds
- Takes place in the primary market
- Common example: IPOs
Non-issuer transaction
- Sale of securities where a party other than the issuer keeps proceeds
- Takes place in the secondary market
- Where securities trade after their initial sale
Practice questions
Q1. Define negotiable vs. redeemable securities. Is common stock negotiable or redeemable?
Show answer
Negotiable securities trade between investors in the secondary market (e.g., common stock). Redeemable securities are bought/sold directly with the issuer (e.g., mutual funds, UITs). Common stock is negotiable, not redeemable.
Q2. What is regular-way settlement for common stock, and how are weekends/holidays treated?
Show answer
T+1 (trade date plus one business day). ⚠️ Do not count weekends or holidays — settlement uses business days only.
Q3. In which market does an IPO occur, and who receives the proceeds?
Show answer
The primary market. An IPO is the first time an issuer sells shares to the general public. Proceeds go to the issuer — an issuer transaction.
Q4. An investor buys Home Depot shares from another investor on the NYSE. What market is this, and who receives the proceeds?
Show answer
The secondary market (non-issuer transaction). The selling investor receives proceeds; Home Depot (the issuer) does not.
Q5. ⚠️ Distinguish “secondary offering” from “secondary market” and “follow-on offering.”
Show answer
Secondary market = investors trade with each other after initial sale. Follow-on/APO = issuer sells new shares in the primary market; issuer gets proceeds. Secondary offering = large shareholders (often insiders) sell shares they already own; proceeds go to selling shareholders and the issuer may not be involved.
Q6. Why do companies sell securities like common stock in the primary market?
Show answer
To raise capital (money) for growth — new offices, equipment, hiring, etc. Issuing stock means giving up some control to stockholders.
Q7. After liquidating (selling) common stock, what happens to the investor’s participation in the issuer?
Show answer
They lock in their gain or loss and no longer participate in the issuer’s future successes or failures.
Q8. Meta’s 2012 IPO raised $16B; a year later it did a follow-on raising ~$1.5B while Zuckerberg sold $2B+ of personal shares. Which transactions were issuer vs. non-issuer?
Show answer
IPO and follow-on = primary market, issuer receives proceeds. Zuckerberg’s sale = secondary offering, selling shareholder (insider) receives proceeds.
Sources
Primary/official references for the material on this page. Every link was fetched and returned HTTP 200 on 2026-08-15.
| # | Source | Publisher |
|---|---|---|
| 1 | Nasdaq — market structure and market makers | SEC |
| 2 | Trading basics — order handling and execution | SEC |
| 3 | T+1 settlement rule adoption | SEC |
| 4 | Achievable Series 65 — chapter 1.1.2 | Achievable (course text) |