Secondary market, Financial Management

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The secondary market is a market where the investor purchases a security from another investor rather than from the issuing corporation. This market is secondary because the trading takes place after the issuer sells its securities to investors in the primary market. Due to this feature, the secondary market is also called as 'After Market'.

The securities traded in this market are of two types -

(i) On-the-run treasury securities; and

(ii) Off-the-run treasury securities.

  • On-the-run treasury securities are the most recently issued treasury securities and are traded at a higher price when compared to that of 'off-the-run securities'.

  • Off-the-run treasury securities are the treasury securities issued at previous auctions with nearly identical terms to maturity. In other words, when a treasury security of any maturity is issued, then the previously issued security with the same maturity becomes off-the-run treasury. These securities are less frequently traded, less expensive and carry slightly higher yield.

Secondary Market is vital for any efficient market because it adds high liquidity and transparency.


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