Secondary Sharing

Secondary Sharing

Without the intervention of the issuing business, investors can purchase and sell shares amongst themselves through secondary market operations. Brokers and dealer markets are important intermediaries because they help match buyers and sellers and make transactions easier. Secondary market trading procedures might be continuous trading, where orders are fulfilled according to a set of rules, or auctions, where buyers and sellers compete to match their orders. 

What is Secondary Sharing? 

In contrast to primary shares, which are issued and sold by a firm, secondary shares are sold by current shareholders, such as early workers or investors. Using this method, early investors can get a return on their investment in the firm before it becomes public or is bought out. 

Although secondary sales are possible at any point in time, they are more prevalent in later rounds of investment when the valuation of the firm is much larger than in previous rounds. For workers and early backers, they mean a chance to see a return on their money. Careful management is required for these deals because of the impact on the capitalization table and the possibility of legal or public image problems. 

Understanding Secondary Sharing 

Buying and selling large numbers of publicly traded firm shares on the secondary market by current investors. The firm has previously offered these shares as part of its IPO. Neither cash nor more shares will be issued to the public firm in such a scenario. Stock transactions instead take place between individual investors. In a main offering, the corporation issues fresh shares of stock. This is distinct from that. It is the shareholders, and not the business, who will receive the proceeds of the secondary offering. 

Initial public offerings (IPOs) allow privately held enterprises to sell shares to investors who are looking to fund the company. The first public offering (IPO) is the initial public offering (IPO) of a company’s shares to the general public. To put it simply, these are brand-new securities offered to the public in the first market. The money from the sale might go toward acquisitions, working capital, or some other use for the business. 

Once an initial public offering (IPO) has concluded, investors have the option to sell their shares to the public through the secondary market. Instead of benefiting the firm whose shares are transferred, the seller receives all of the proceeds from the secondary offering. The term “follow-on offering” describes the situation in which a corporation does a subsequent offering. For reasons like debt financing, acquisitions, or R&D funding, this may be necessary. 

On the other hand, shareholders may let the firm know they’re ready to sell, and some businesses could even provide follow-on products to help their customers refinance their debt at cheap interest rates. 

Working of Secondary Sharing 

In an initial public offering (IPO), investors purchase shares of stock from a private company to finance the business. Initial public offerings, or IPOs, are the initial sales of a company’s shares to the general public. The primary market is where investors may purchase these brand-new securities. Proceeds can be utilised by the corporation for many objectives, including funding day-to-day operations, making acquisitions, and more. 

Investors have the option to make secondary offers to the public through the secondary market or the stock market once the initial public offering (IPO) is over. Investors hold the securities offered in a secondary offering and sell them to another investor or investors through a stock exchange, as previously stated. Thus, in a secondary offering, the seller, and not the firm whose shares are traded, receives the cash. 

Secondary offerings, often known as follow-on offerings, are sometimes conducted by companies. This can be necessary if the company has to pay off its debt, buy other companies, or put money into its R&D pipeline. 

Companies may also provide follow-on offers to refinance debt while interest rates are low, or investors may let the firm know that they want to sell their interests. 

Types of Secondary Sharing 

There are two distinct varieties of secondary offers available: dilutive and non-dilutive. The distinctions between them are detailed below. 

Non-Dilutive Secondary Offerings 

Because no new shares are generated in a non-dilutive secondary offering, the shares owned by current shareholders are not diluted. The shares are being offered for sale by private shareholders, including directors or other insiders, who are looking to diversify their holdings. As a result, the issuing firm may not reap any benefits. 

The increase in available shares may enhance the trading liquidity of the issuing business’s shares, allowing more institutions to take non-trivial holdings in the company. After the lock-up period ends, this type of secondary offering becomes commonplace in the years following an initial public offering. 

Dilutive Secondary Offerings 

The acronym “FPO” stands for “follow-on public offering,” which is another name for a dilutive secondary offering. This kind of offering happens when a corporation dilutions current shareholders by creating and selling new shares. A firm’s board of directors authorises this offering when they decide to sell more stock by increasing the share float. 

Earnings per share (EPS) are diluted as the number of outstanding shares rises. The money may be used to pay off debt or fund expansion, or it can assist the firm in accomplishing its long-term goals. For stockholders with shorter time horizons, this might not be a good thing. 

Example of Secondary Sharing 

In 2013, Mark Zuckerberg, CEO of Facebook, sold over 41 million shares to other investors in a fascinating secondary sale. Instead of the firm receiving the funds, he received them from investors as he was selling his shares. His tax liability was allegedly the motivation for his selling the shares. 

The firm did raise capital for internal operations through Zuckerberg’s secondary offering and the issuance of more shares to the general public. It is usual practice to combine main and secondary sales while holding an offering. 

An IPO is a firm’s first sale of shares to the general public. Primary shares are the ones offered for sale in an initial public offering (IPO). Shares go on sale on secondary markets like the Nasdaq or the New York Stock Exchange after an IPO. Secondary shares are those traded on a market other than the primary market. 

Investors can access secondary shares through two channels: broker-dealers and registered investment advisors (RIAs). 

The practice of buying and selling securities on behalf of customers is known as broker-dealership. FINRA is in charge of overseeing the financial industry’s broker-dealers. 

Any business that helps people with their investments must be a registered investment adviser. The Securities and Exchange Commission is in charge of overseeing RIAs. 

Frequently Asked Questions

When a corporation goes public, it issues primary shares, which are the first shares to the public. The opposite is true for secondary shares, which are exchanged on the secondary market by investors who already possess them. 

Existing stockholders can profit by selling their shares to a third party in a transaction known as a secondary sale. When a corporation sells shares to investors and reinvests the money, that’s called a “primary” issuance. 

The sale of shares by an investor to an outside party is known as a secondary sale. A secondary sale cannot take place concurrently with a purchase of the firm for it to be considered such. Selling the shares to another investor is the alternative. 

Instead of buying shares from the firm directly, secondary shares are acquired from current shareholders, such as investors, current or former workers, or both. 

Instead of the issuing business selling the securities directly to investors, this market facilitates trading amongst investors. Investors can swiftly and easily sell their assets on the secondary market if they need cash because of the liquidity it provides. 

 

    Read the Latest Market Journal

    Weekly Updates 27/5/24 – 31/5/24

    Published on May 27, 2024 41 

    This weekly update is designed to help you stay informed and relate economic and company...

    Unlocking Stock Market Potential with AI

    Published on May 24, 2024 78 

    Introduction of AI In the world we live in today, artificial intelligence (AI) is almost...

    Financial Sectors Thriving: Top Traded Counters in April 2024

    Published on May 21, 2024 92 

    At a glance: The Federal Reserve (Fed) held interest rates steady at 5.25% to 5.5%...

    One Dollar at a Time: The Potential of Fractional Shares

    Published on May 20, 2024 91 

    Table of contents 1. Introduction 2. Dollar-Cost Averaging 3. Popularity of Dollar-Cost Averaging 4. Small...

    Unit Trusts vs Exchange Traded Funds (ETFs) – Which is better for your portfolio?

    Published on May 20, 2024 91 

    Imagine you are dining at a nice restaurant, feeling overwhelmed by the variety of seemingly...

    Weekly Updates 20/5/24 – 24/5/24

    Published on May 20, 2024 22 

    This weekly update is designed to help you stay informed and relate economic and company...

    What is CFD? With 2 Practical Examples

    Published on May 15, 2024 109 

    In this article, you will learn what CFD (Contract for Difference) is, the costs and...

    What is ESG investing, and why is it important?

    Published on May 15, 2024 118 

    Over the last five years, Environmental, Social, and Governance (ESG) investing has evolved from being...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you

    IMPORTANT INFORMATION

    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  

     

    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com