The secondary market is the market for bonds that have already been issued on the primary market. On the secondary market, investors trade bonds with other investors through financial professionals. The investors who sell the bonds receive the proceeds, minus fees or commission payable to banks/brokers that facilitate the transaction.
Brokers and banks may purchase large numbers of bonds in the primary market and then sell them to investors in the secondary market. A bond may change hands a number of times on the secondary market before it reaches maturity.
The over-the-counter (OTC) market is the most common method of trading bonds on the secondary market. OTC trading refers to the buying and selling of bonds outside of an organized exchange. The market is made up of banks and brokerages that buy and sell bonds over the phone or electronically.
Many bonds are listed on a stock exchange, even though most trading is carried out on the OTC market. Stock exchanges are more transparent than OTC markets because prices and trading volumes are easily observable in exchange-traded markets. Despite this, exchange-traded volumes are still negligible compared to volumes on the OTC market.
The secondary market is the market for bonds that have already been issued on the primary market. The secondary market gives a price to bonds so that they can be sold before maturity.
On the secondary market, investors trade bonds with other investors through financial professionals. The original bond issuers normally play no part in the transaction at this stage. The investors who sell the bonds get the proceeds, minus fees or commission payable to the financial professionals who facilitate the transaction.
People Involved
It involves following people:
Trading Systems
The availability of automated trading systems and securities information systems has greatly enhanced bond trading. It accelerates trading and increases transparency for all market participants. In the US alone, bonds can be traded on over 80 trading systems.
These are the following:
Settlement and Taxation
Settlement
On the secondary market, settlement of trade usually occurs through domestic or international electronic clearing systems, such as Euroclear. Typically, settlement takes three business days (T+3), though it is sometimes shorter.
Taxation
Many countries charge a withholding tax on interest income and capital gains tax on capital gains from bonds.
Where a bilateral tax treaty exists between the issuer's country and the investor's country, the level of tax charged will be limited to the treaty amount. More and more countries are exempting non-residents from such taxes.
Brokers and banks may purchase large numbers of bonds in the primary market and then sell them to investors in the secondary market. A bond may change hands a number of times on the secondary market before it reaches maturity.
The over-the-counter (OTC) market is the most common method of trading bonds on the secondary market. OTC trading refers to the buying and selling of bonds outside of an organized exchange. The market is made up of banks and brokerages that buy and sell bonds over the phone or electronically.
Many bonds are listed on a stock exchange, even though most trading is carried out on the OTC market. Stock exchanges are more transparent than OTC markets because prices and trading volumes are easily observable in exchange-traded markets. Despite this, exchange-traded volumes are still negligible compared to volumes on the OTC market.
The secondary market is the market for bonds that have already been issued on the primary market. The secondary market gives a price to bonds so that they can be sold before maturity.
On the secondary market, investors trade bonds with other investors through financial professionals. The original bond issuers normally play no part in the transaction at this stage. The investors who sell the bonds get the proceeds, minus fees or commission payable to the financial professionals who facilitate the transaction.
People Involved
It involves following people:
- Broker
- Dealers
- Market Makers
- Inter-dealer broker
- Broker-dealer
- OTC - most common way
- ETD
Trading Systems
The availability of automated trading systems and securities information systems has greatly enhanced bond trading. It accelerates trading and increases transparency for all market participants. In the US alone, bonds can be traded on over 80 trading systems.
These are the following:
- Tradeweb
- E-speed
- Eurex bonds
- NYSE bonds
Settlement and Taxation
Settlement
On the secondary market, settlement of trade usually occurs through domestic or international electronic clearing systems, such as Euroclear. Typically, settlement takes three business days (T+3), though it is sometimes shorter.
Taxation
Many countries charge a withholding tax on interest income and capital gains tax on capital gains from bonds.
Where a bilateral tax treaty exists between the issuer's country and the investor's country, the level of tax charged will be limited to the treaty amount. More and more countries are exempting non-residents from such taxes.
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