What is Primary Listing?
A primary listing refers to the initial phase in which a company first offers its stock for sale on an exchange. This is the first step for companies to be traded publicly. They do it to raise cash from investors by selling their stocks. However, to become eligible for listing, a firm must satisfy certain criteria established by this stock exchange. Moreover, after being registered, its stock can be purchased and sold by the public. Furthermore, primary listing facilitates access to funds for companies to expand and develop while allowing investors to own a part of a company through ownership shares. In this blog, we will understand the meaning of primary listing, its requirements, working, benefits, and challenges.
Key Highlights
- Primary listing is when the company sells its stocks to the public through an IPO. It is done to raise capital and allow investors to take ownership of a part of it.
- A company must meet minimum paid-up capital, positive net worth, and a profit-making track record as indicated in strict regulations of stock exchanges to qualify for a primary listing.
- Apart from enhancing visibility and credibility amongst investors, primary listing on a stock exchange also enables companies to access funds for growth.
- Once listed, such shares can be traded without limitations on stock exchanges. Thus, providing liquidity for investors and making buying or selling them easy.
Table of Contents
Primary Listing Meaning
To understand the concept better, here is the primary listing definition that will give you a better idea of it:
A primary listing happens when a stock exchange for the first time issues shares of a company. This is often followed by an Initial Public Offering (IPO). To do so, the company must meet some strict regulations as per the stock exchange on which they are seeking to list their shares.
Listing Requirements for the National Stock Exchange (NSE)
The requirements for listing in the National Stock Exchange (NSE) are rules that must be followed by companies wishing to list their shares. This will help you ensure that only financially dependable and strong firms are listed on the NSE. So, let’s discuss the listing requirements in brief:
Paid-Up Captial
The company should have a minimum of Rs. 10 crores paid-up equity capital. Whereas, the company’s total value should not be less than INR Rs. 25 crores.
Prerequisites For Listing
For a company to be listed, it has to follow the Securities Contract (Regulations) Act 1956, Companies Act 1956 and 2013, and the Securities and Exchange Board of India Act 1992 including other directives delivered by regulatory bodies.
Record
A profit-making track record of at least three successive years by the issuer company, promoter company, or partnership firm.
Net Worth
The applicant’s net worth must be positive. However, this requirement does not apply to companies that have a proposed issue size exceeding INR 500 crores.
How does Primary Listing work?
An initial public offering (IPO) occurs when a company sells stock for the first time to the general public through a stock exchange, following the guidelines that ensure compliance with the law. So let’s discuss the working of primary listing in brief:
Deciding to go Public
The primary listing process begins with a public announcement made by a company. The company must select a listing exchange that fits its objectives and where it wants to trade its shares. Some influences on this choice can include things such as current market conditions, investors available in the economy, and regulations of an exchange.
Preparing a Prospectus
Right after a company picks a stock exchange, it needs to make a detailed prospectus. This prospectus will contain insights about the firm business model, how well it has been doing financially, risks involved, plans, and other vital information that could be useful to new investors.
Getting Approval
Regulatory bodies receive the company’s prospectus for approval. The authorities take their time reviewing the prospectus to ensure that the company meets all legal and financial requirements for public trading. The company then proceeds to organise the Initial Public Offering (IPO) after it has been approved.
Initial Public Offering
IPO makes shares available for purchase to institutional investors, retail investors, and other members of the public. The price of these shares can be decided by considering the market demand, financial position, and company worth. Moreover, the price can either be determined through an open process called book-building or fixed pricing.
Listing and Trading
After the IPO, the shares get listed on the stock exchange and trading begins. This marks the end of the primary listing process. Investors can now buy and sell shares in the open market. Moreover, the trading that takes place in this way provides liquidity and leads to the determination of prices by firm performance and investor confidence.
Benefits of Exchange Listing
Companies gain from being listed on a stock exchange as it earns them access to numerous investors. Thus, they can generate funds for their development. Additionally, primary listing improves the visibility and credibility of the firm, making it more appealing to potential investors and business partners. This was one benefit of primary listing, let’s discuss other benefits in brief:
Makes Trading Easier
Electronic trading makes buying and selling company shares on any exchange fast and easy.
Increase Liquidity
If there are many traders in an exchange buying or selling a company’s shares, it will lead to an increase in the liquidity of those shares.
Offers Investors an Exit
Listing makes it possible for investors to offload their shares at any moment, hence having a way out easily.
Increases Company Visibility
Compared to unlisted firms, listed companies are more visible and generally trusted. Thus, gathering the attention of investors.
Attracts Better Talent
Through their visibility, listed companies can bring in and keep skilled staff who will help them to grow faster.
Makes it Easier to Raise More Funds
It gets easier to collect more cash through Follow-On Public Offerings (FPOs) when the firm is listed.
Difference Between Primary Listing and Secondary Listing
Understanding the differences between primary and secondary listings is essential for investors and companies. The below-given table below mentions certain aspects on which both listings can be classified.
| Features | Primary Listing | Secondary Listing |
| Definition | The primary issue of securities in the stock exchange. | Additional listing of already listed securities in one or more stock exchanges. |
| Purpose | To obtain funding and enable exit for early investors. | This increases liquidity and makes it easy for more investors to access. |
| Regulatory Process | The process includes more complicated regulatory approvals such as an IPO. | It is a more straightforward process than primary listing. |
| Market | The primary market, where the company was first introduced by listing. | The secondary markets trade the share of that organisation. |
| Capital Raising | This involves generating capital from public sources for investment purposes. | It does not require generating capital. It only permits the widening of access to a wider range of investors. |
Conclusion
A primary listing is one of the most important steps toward the public listing of shares for any company. The process of listing a company involves following strict regulatory provisions, preparing the prospectus, and executing an IPO. Moreover, primary listing allows companies to raise finance, and improve their visibility and credibility. It also offers liquidity for investors by enabling them to sell and purchase shares freely. Furthermore, knowing the differences between a primary and secondary listing helps the investor make wise decisions about their investments. Therefore, a primary listing is major for a company growing and trying to expand out of public markets.
FAQs on Primary Listing
A primary listing is when a company issues its shares to the public for the first time on a stock market. One way to do this is through an Initial Public Offering (IPO).
The primary market is where stocks, bonds, and debentures are sold to the public for the first time. In the primary market, companies directly raise funds from investors via newly issued securities.
No, NSE (National Stock Exchange), BSE (Bombay Stock Exchange), and other stock exchanges and bond markets are known as secondary markets.
Investors, brokers, and dealers can trade in the primary market as their function is to trade at market-driven prices.
Offer for Sale refers to the process where the promoters (owners) sell existing shares to raise more money for the company. The main reason why shares are sold to outside investors is to obtain financial resources for several reasons such as expansion and growth.
When a stock trades in an exchange for the first time it is known as primary listing. Whereas, a security's listing on another stock market after the first one is called a secondary listing.
No, separating the primary listing from the secondary listing is not required. Companies that satisfy the exchange requirements may opt to go public concurrently on multiple exchanges.
The term "primary listing" describes a company's initial listing on an exchange. The new stocks are first offered for sale to the general public on the primary market.
A company must meet specific requirements to be listed on an exchange. A corporation may trade on the over-the-counter (OTC) market, which is unrestricted by exchange laws if it does not fulfil the requirements for exchange listing.