Page "Capital market" Paragraph 13

Most capital market transactions take place on the secondary market.

On the primary market, each security can only be sold once, and the process to create batches of new shares or bonds is often lengthy due to regulatory requirements.

On the secondary markets, there is no limit on the number of times a security can be traded, and the process is very quick.

With the rise of strategies such high frequency trading, a single security could in theory be traded thousands of times within a single hour.

Transactions on the secondary market don't directly help raise finance, but they do make it easier for companies and governments to raise finance on the primary market, as investors know if they want to get their money back in a hurry, they will usually be easily able to re-sell their securities.

Sometimes capital market transactions can have a negative effect on the primary borrowers-for example, if a large proportion of investors try to sell their bonds, this can push up the yields for future issues from the same entity.

An extreme example occured shortly after President Clinton began his first term as president ; Clinton was forced to abandon some of the spending increases he'd promised in his election campaign due to pressure from the bond markets.

In the 21st century, several governments have tried to lock in as much as possible of their lending into long dated bonds, so they are less vulnerable to pressure from the markets.