CFA Level I · CFA Level I Exam · Equity Issuance and Trading
Which of the following is the most likely primary function of secondary equity markets for a listed issuer?
Secondary markets mainly provide liquidity and price discovery for shares already issued. Investors trade among themselves, so the issuer receives no proceeds from these trades, and underwriting is a primary market activity. The liquidity and pricing indirectly support the issuer's ability to raise new capital.
- AProviding liquidity and price discovery for existing sharesCorrect
- BRaising capital directly for the issuer on each trade
- CUnderwriting new share offerings to the public
Explanation
Secondary markets let investors trade existing shares, giving liquidity and continuous price information. Issuers do not receive proceeds from these trades, and underwriting belongs to the primary market. Liquidity makes later primary issuance easier.
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