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. The initial sale of the security by the issuer to a purchaser, who pays proceeds to the issuer, is the primary market . All sales after the initial sale of the security are sales in the secondary market. Whereas the term primary market refers to the market for new issues of securities, and "[a] market is primary if the proceeds of sales go to the issuer of the securities sold," the secondary market in contrast is the market created by the later trading of such securities.
20-805: The Resolution Funding Corporation ( REFCORP ) is a government-sponsored enterprise that provides funds to the Resolution Trust Corporation , which was established to finance the bailout of savings and loan associations in the wake of the savings and loan crisis of the 1980s in the United States. It was established by the United States Congress in the summer of 1989, as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 . The Resolution Funding Corporation
40-478: A new primary market offering, but accuracy may also matter in the secondary market because: 1) price accuracy can reduce the agency costs of management, and make hostile takeover a less risky proposition and thus move capital into the hands of better managers; and 2) accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing. The term may refer to markets in things of value other than securities. For example,
60-732: Is a 501(c)(1) organization . As of July 1997, the Resolution Funding Corporation's debt stood at $ 30 billion. On August 5, 2011, the Federal Housing Finance Agency announced that the Federal Home Loan Banks had repaid all of the interest on the Resolution Funding Corporation bonds. The Banks were required to pay 20 percent of their profits (after payments to the Affordable Housing Program ) toward
80-547: Is primarily done by some form of guarantee that limits the risk of capital losses to those supplying funds. Presently, GSEs primarily act as financial intermediaries to assist lenders and borrowers in housing and agriculture. Fannie Mae and Freddie Mac, the two most prominent GSEs, purchase mortgages and package them into mortgage-backed securities (MBS), which carry the financial backing of Fannie Mae or Freddie Mac. Because of this GSE financial backing, these MBS are particularly attractive to investors and are also eligible to trade in
100-587: The Federal Home Loan Banks in 1932; and it targeted education when it chartered Sallie Mae in 1972 (although Congress allowed Sallie Mae to relinquish its government sponsorship and become a fully private institution via legislation in 1995). The residential mortgage borrowing segment is by far the largest of the borrowing segments in which the GSEs operate. GSEs hold or pool approximately $ 5 trillion worth of mortgages. The U.S. Congress has specified that Federal Reserve Banks must hold collateral equal in value to
120-554: The Federal Home Loan Banks , are owned by the corporations that use their services. GSE securities carry no explicit government guarantee of creditworthiness, but lenders grant them favorable interest rates, and the buyers of their securities offer them high prices. This is partly due to an "implicit guarantee" that the government would not allow such important institutions to fail or default on debt. This perception has allowed Fannie Mae and Freddie Mac to save an estimated $ 2 billion per year in borrowing costs. This implicit guarantee
140-419: The United States Congress . Their intended function is to enhance the flow of credit to targeted sectors of the economy, to make those segments of the capital market more efficient and transparent, and to reduce the risk to investors and other suppliers of capital. The desired effect of the GSEs is to enhance the availability and reduce the cost of credit to the targeted borrowing sectors primarily by reducing
160-492: The "to-be-announced," or "TBA" market. In addition, the GSEs created a secondary market in loans through guarantees, bonding and securitization . This has allowed primary market debt issuers to increase loan volume and decrease the risks associated with individual loans. This also provides standardized instruments ( securitized securities) for investors. Some of the GSEs (such as Fannie Mae and Freddie Mac ) have been privately owned but publicly chartered; others, such as
180-550: The Federal Reserve notes that the Federal Reserve Bank puts into circulation. This collateral is chiefly held in the form of U.S. Treasury, federal agency, and government-sponsored enterprise securities. Congress established GSEs to improve the efficiency of capital markets and to overcome market imperfections which prevent funds from moving easily from suppliers of funds to areas of high loan demand. This
200-558: The RefCorp bond payments. These moneys will now be paid into a restricted retained earnings account until the Bank's account equals one percent of that Bank's outstanding consolidated obligations. This United States government–related article is a stub . You can help Misplaced Pages by expanding it . Government-sponsored enterprise A government-sponsored enterprise ( GSE ) is a type of financial services corporation created by
220-523: The United States, and they do not constitute a debt or obligation of the United States or any of its agencies of instrumentalities other than Fannie Mae." Critics of the GSEs have challenged the "implicit guarantee" since before the sub-prime crisis. Secondary market With primary issuances of securities or financial instruments (the primary market), often an underwriter purchases these securities directly from issuers , such as corporations issuing shares in an IPO or private placement . Then
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#1732772056997240-409: The ability to buy and sell intellectual property such as patents , or rights to musical compositions, is considered a secondary market because it allows the owner to freely resell property entitlements issued by the government. Similarly, secondary markets can be said to exist in some real estate contexts as well ( e.g. , ownership shares of time-share vacation homes are bought and sold outside of
260-401: The bond desk of one’s broker-dealer . Loans sometimes trade online, using a loan exchange. Another 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 term "secondary market" is also used to refer to the market for any used goods or assets , or an alternative use for an existing product or asset where
280-425: The customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production). In the secondary market, securities are sold by and transferred from one buyer to another. It is therefore important that the secondary market be highly liquid (originally, the only way to create this liquidity
300-483: The most visible example of liquid secondary markets—in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange , London Stock Exchange , and Nasdaq Stock Market provide centralized, liquid secondary markets for investors who wish to buy or sell stocks that trade on those exchanges. Most bonds and structured products trade " over the counter ", or by phoning
320-423: The official exchange set up by the timeshare issuers). These have very similar functions as secondary stock and bond markets in allowing for speculation, providing liquidity, and financing through securitization . This facilitates liquidity and marketability of the long-term instrument. It also provides instant valuation of securities caused by changes in the environment. Private-equity secondary market refers to
340-670: The risk of capital losses to investors: agriculture , home finance and education . Well known GSEs are the Federal National Mortgage Association, known as Fannie Mae , and the Federal Home Loan Mortgage Corporation, or Freddie Mac . Congress created the first GSE in 1916 with the creation of the Farm Credit System . It initiated GSEs in the home finance segment of the economy with the creation of
360-433: The underwriter re-sells the securities to other buyers, in what is referred to as a secondary market or aftermarket (or a buyer in contrast may buy directly from the federal government, in the case of a government issuing treasuries ). The secondary market can be for a variety of assets, that can vary from stocks to loans, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are
380-496: Was for investors and speculators to meet at a fixed place regularly; this is how stock exchanges originated (see History of the Stock Exchange ). As a general rule, the greater the number of investors that participate in a given marketplace, and the greater the centralization of that marketplace, the more liquid the market. Accurate share price allocates scarce capital more efficiently when new projects are financed through
400-463: Was tested by the subprime mortgage crisis , which caused the U.S. government to bail out and put into conservatorship Fannie Mae and Freddie Mac in September, 2008. Every GSE prospectus contains the following text, or something virtually identical, in bold letters, and has since before the sub-prime loans were originated: "Neither the certificates nor interest on the certificates are guaranteed by
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