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Registered sale of shares of stocks previously sold in the primary offering to the public is known as secondary distribution, more commonly known as secondary market offering. While in initial public offering the proceeds from the sale of shares of stocks goes to the issuing company, in secondary market offering, the money arising from the sale of the shares of stocks goes to the investors.

Aside from the aforementioned, secondary market offering differs from primary or initial public offering in the sense that primary or initial public offering is offered to the primary market while the secondary market offering refers to the subsequent offering of those shares initially offered to the primary market to the secondary market. It must be noted that no new shares are created in the secondary market offering which therefore do not dilute the interest of the existing shareholders. For his reason, secondary market offering is also referred to as non-dilutive.

Among the reasons why stockholders who avail of initial public offering opted to sell their shares thru secondary market offering is to expand their investments. A good illustration of this is the offering of shares to the secondary market of the shares previously acquired by the directors and its related parties from the initial public offering. As the ordinary course of issuance of shares goes, it is the directors and related parties of the issuing company who originally acquire shares arising from the initial issuance of shares to the public.

As the market price of the shares of stocks goes up, those who acquired shares thru initial public offering mostly choose to sell said shares subsequently thru the secondary market offering thereby earning profit from the transaction. In this manner, the investors were able to avail of the opportunity to diversify their investment thru secondary market offering.

In most cases, institutions avail of acquiring shares thru secondary market offering for purposes of increasing their shareholdings to gain control over the issuing company.

On the other hand, follow-on offering, also known as secondary offering differ from secondary market offering. They are different in the sense that while no shares are created in the secondary market offering which does not in any way dilute the shareholdings of existing shareholders, in follow-on offering, new shares are created. In this regard, follow-on offering result to dilution of shareholders interest. This is also the reason why it is also called as dilutive secondary offering.

To understand better the difference between the secondary market offering and follow-on offering, it is important to note the market with whom the shares are offered. In secondary market offering, the subsequent offering of shares is offered to the secondary market while in follow-on offering the subsequent initial offering of shares are offered to the primary market. Thus, any offering to the primary market after initial offering, whether second or third offering, are called follow-on offering.

To better understand the difference it is important to note the effect of making the secondary market offering and the follow-on offering to the company. Secondary market offering have no dilutive effect to the shareholders while the follow-on offering is dilutive. Another distinction is that the proceeds from sale of shares in the secondary market offering goes to the pocket of the stockholder while the proceeds from the sale of shares offered in the follow-on offering goes to the pocket of the issuer company.

The journalist who wrote this piece has recognized the creator of a PSSO by the name of Wade Entezar.

categories: micro-cap stocks,stock market,amex,investments,investor relations,corporate finance,personal finance,financial planning,investing,money

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