The financial market is usually divided into two sub-markets:
- primary market (i.e., where the issue of financial instruments takes place);
- secondary market (i.e., where these instruments are traded after being issued).
We think about the primary market as the aggregate of trades in which investors underwrite financial instruments (bonds, stocks, etc.) at issue date, actually giving cash to the issuers.
An issue of financial instruments can take place via different techniques. The most important are:
- auction mechanism;
- capital increase;
- underwriting via syndicated counterparties.
With an auction, financial instruments are assigned to investors according to their underwriting proposals. Usually, the quantity of instruments is fixed, whilst the underwriting price is subject to variation according to the demand/offer mechanism. Focusing on the Italian financial market, we have two types of auctions for government bonds:
- marginal auction (for all the Italian govies with the exception of BOTs);
- competitive auction (only for BOTs).
With a capital increase, stocks are issued and primarily offered to current shareholders of the company (pro quota according to the number of shares hold by each one).
Focusing on the Italian experience, we distinguish between capital increases:
- for free (when the new shares are offered for free to the shareholders, without any payment);
- with payment of a specific price;
- mixed (i.e., partially for free and partially against the payment of a certain price).
With the underwriting through syndication, the issuer gives a mandate to set up the issue to a group of counterparties in order to reach the highest number of investors. This technique is mainly adopted by issuers different from the government (banks, corporations, etc.).
Editor: Ugo TRENTA

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