Which scenario represents a transaction in the primary market?

Which scenario represents a transaction in the primary market?

• A. A private sale by insiders.
• B. The issuance of new stock by a company through an initial public offering.
• C. Trading existing bonds on an exchange between investors.
• D. A company buyback of its own shares.

Answer: (B)

In the primary market, new securities are issued and sold to raise capital for the issuing company, with the proceeds going to the issuer. An initial public offering is exactly this: the company sells newly created shares to public investors for the first time to raise funds. The other scenarios do not involve issuing new securities to raise capital for the issuer: a private sale by insiders is a private placement and isn’t the broad public issuance; trading existing bonds between investors occurs in the secondary market, where existing securities are bought and sold; and a company buyback uses cash to repurchase its own shares, which does not create new securities.

In the primary market, new securities are issued and sold to raise capital for the issuing company, with the proceeds going to the issuer. An initial public offering is exactly this: the company sells newly created shares to public investors for the first time to raise funds.

The other scenarios do not involve issuing new securities to raise capital for the issuer: a private sale by insiders is a private placement and isn’t the broad public issuance; trading existing bonds between investors occurs in the secondary market, where existing securities are bought and sold; and a company buyback uses cash to repurchase its own shares, which does not create new securities.