What’s the difference?
Very, very different. If you are having confusion on these, you should probably re-read the material. Secondary offerings are releases of stock from a company that has already had an IPO. A short sale is borrowing a security to sell prior to purchasing the security (hoping that you can buy it cheaper than you sold it).
True…
Short selling entails you borrowing a stock when the price is highest so that you can sell it at that higher price, and then hoping that the price of the stock falls so that you can buy it back at a lower price so as to return it to the house that loaned it to you in the first place.
Secondry offering is well explained by JSD.
Cheers.
Sorry, meant something different, not short selling… closing out a long position, is that the same as a secondary offering? In which case, how is a secondary offering different to a secondary market? How do you then ascertain/differentiate between a share being sold for the second and say a third time? First time sale is obviously an IPO, but after that, I wasn’t aware anyone tracked how many times any given share has been traded.
IPO is in the primary market. Secondary offerings are those offerings after the initial offering that are issued and traded on the secondary market.
All issues apart from the IPO trades on the secondary market.
Closing out a long position involves your account being netted, and in the case where your account balance is not sufficient, you will be ask to make deposit to bring the account back to its maintainance marging.
Remember, you cannot default in a future market, so closing out entails paying for the security.
A year on, still haven’t got this figured out. Wikipedia and Investopedia seem to have differing views on this also:
https://en.wikipedia.org/wiki/Secondary_market_offering
“A secondary offering is not dilutive to existing shareholders since no new shares are created.”
http://www.investopedia.com/video/play/secondary-offering/
“Companies usually issue a secondary offering to raise capital for growth. Secondary offerings increase a company’s value, but they also dilute the holdings of stockholders who bought shares through the IPO.”
And they also contradict each other with regard to whether a secondary offering actually affects the issuing company in any way i.e. raises equity for the company or not.
Can’t really refer to the CFA material because the term is only mentioned I think 2ce in the whole curriculum.
Still not sure how a secondary offering is any different to just closing out a long position and why it’s called an offering when the way I see it, it’s simply the ordinary to and fro of trading in a secondary market… i.e. as I said closing out long positions - or indeed which of the two different interpretations wiki or investopedia is correct.
EDIT: Not 100% sure this is correct but after some additional research here’s my definition of a secondary offering:
You have two types of share sales occuring - one originating from existing shareholders i.e. they are simply closing out their longs in a company (why this is called a secondary offering is beyond me… seems to me this should just be called trading/investing or something of the sort) - this obviously has no dilution effects; the second type of secondary offering originates with the issuing company itself wishing to raise additional funds - this has dilutive effects.
The CFA curriculum seems to suggest the secondary offering is in line with the former definition only i.e. that there is no creation of additional shares taking place and is simply the sale of existing positions of existing shareholders.
Correct. One dilutive and the other non-dilutive is the distinction. The secondary offering by the company wishing to raise additional funds is called a follow on offering and is actually a secondary offering (2nd time shares have been sold) to a primary market (broker/dealers). The secondary offering that is non-dilutive is a large block sale used to exit a position partially or in full and directly sold to market participants. This will most likely not be tested…