Question

A wholesale investor sold a tranch of NAB shares on the ASX. Is this a primary or secondary market transaction? Explain your answer.

(ii) What is an IPO? Why might a company choose to raise funds through an IPO rather than in a private equity arrangement?

Answer 1

Answer-

The wholesale investor selling tranch of shares of NAB on the ASX is a Secondary market. transaction. The wholesale or retail investors shares sold are considered as Secondary market transactions, whereas the shares sold by Investment bankers to investors on listing on any exchanges are considered as primary market ransaction.   

ii)

The Initial Pubic Offering (IPO) is the process in which a private company can go public by sale of its stocks to general public throgh a book buliding process via a investment banker known as underwriter. IPO is generally initiated to infuse new equity capital in the firm and to facilitate easy trading of the existing assets to raise capital for the future. The IPO initially issues a prospectus which have details of first shares. After the listing is over the stocks of the company starts trading in open market.

The companies in general prefer to raise funds through IPO as it is the most preferred way of raising money and is open to all investors. The scope of the IPO is broad as it is accessible to many investors who can participate in this issue whereas the private equity investment is sold to a certain section of investors particularly High networth individuals (HNIs).