The primary market is where a company issues new securities and raises capital directly from investors. The secondary market is where those securities are later bought and sold between investors, without the money passing through the company. For the issuer, the primary market provides financing; the secondary market gives liquidity to those who invested, and that liquidity is part of its offering.
What differentiates the primary market from the secondary market
In the primary market the company creates securities that did not exist before: shares or units in a capital increase, bonds in a debt issuance or security tokens in an STO. Investors subscribe those securities and the amount goes into the company's accounts.
In the secondary market, already issued securities change hands between investors. The company does not receive anything from those trades, but the price at which they trade becomes the public reference for what they are worth.
| Aspect | Primary market | Secondary market |
|---|---|---|
| Who sells | The issuing company | An investor who already holds the security |
| Where the money goes | To the company's accounts | To the selling investor |
| How the price is set | The issuer proposes it in the issuance terms | Determined by supply and demand |
| Role for the issuer | Financing | Investor liquidity and price reference |
| Examples | Capital increase, bond issuance, STO | Stock exchange, multilateral trading facilities, DLT-MTF, bilateral trades |
Why the secondary market is a selling point for the primary market
No professional investor enters a transaction without an answer to the exit question. They may accept long timeframes, but they need to know how they will be able to sell: an agreed buyback, a transfer to another investor, future admission to trading. When the issuer does not have an answer, the investor translates it into price: they demand an illiquidity discount or simply do not participate.
That is why the secondary market, even if it does not provide cash to the issuer, determines how much capital it raises and at what valuation. An issuance with a defined liquidity route stands up better before the investment committee than an identical one without it. It is the same reasoning that separates an IPO from an STO: the liquidity mechanism changes, not the need to have one.
It is advisable to be honest in the documentation: describing the intended transfer route is not the same as promising liquidity. If the market for your security will be narrow, saying so avoids later claims and filters for the right investor.
The secondary market for tokenized securities
A security token is a financial instrument, so its multilateral trading requires regulated venues, just like trading a traditional share. The European piece that enables those venues on distributed ledger technology is the DLT Pilot Regime, Regulation (EU) 2022/858, which allows the authorization of DLT-based multilateral trading facilities (DLT-MTFs) and DLT settlement systems, with size limits by type of instrument and aggregate volume.
While that infrastructure matures, the practical route in Spain is bilateral transfer: two investors agree the sale and purchase, and the change of ownership is recorded in the register kept by the entity responsible for registration and record-keeping (ERIR) under Ley 6/2023 and its development in RD 814/2023. Distributed ledger simplifies the operational side of the transfer; liquidity, by contrast, does not come as standard: it must be built with an investor base, liquidity windows or future admission to a DLT venue. The details of each route are in the guide on the secondary market for security tokens in Spain.
What to decide before issuing
Three specific decisions to have resolved when designing the issuance:
- Declared liquidity route. Bilateral transfer, buyback windows or future admission to a DLT-MTF. Choose one and document it; it also applies to tokenized debt, where maturity does not replace the ability to sell earlier.
- Transfer restrictions. If the articles of association or the issuance agreement limit whom it can be sold to, the investor must know before subscribing.
- Consistency between narrative and reality. Do not promise a secondary market that does not yet exist; describe the one that does.
Does your issuance have a clear answer to the exit question? Take the issuance diagnostic (2 min) or request a proposal.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
Frequently asked questions
What comes first, the primary or secondary market?
Always the primary market: securities are created when the company issues them and investors subscribe. Only afterwards can they be traded among investors on the secondary market. Without issuance there is nothing to resell, and without the prospect of a secondary market the primary issuance is harder to place, because the investor discounts the lack of liquidity into the price they are willing to pay.
Do security tokens have a secondary market in Spain?
Yes, with caveats. Bilateral transfer between investors is possible today: the change of ownership is recorded in the ERIR register under Ley 6/2023 and RD 814/2023. Multilateral trading requires venues authorized under the European DLT Pilot Regime, an infrastructure that is still in an early deployment phase.
Does the issuer gain anything when its securities rise in the secondary market?
It does not receive anything directly: the money from those trades goes from one investor to another. But a firm secondary price makes its next rounds cheaper, serves as a valuation reference for new investors and improves the company's perception. That is why the issuer benefits from facilitating the transferability of its securities even if it does not take part in every transaction.
