Secondary Distribution, Secondary
Liability, Secondary Market and Second-Class Paper
special block procedure used for effecting executions of extremely large
blocks of securities, outside of and without upsetting the regular market
of the stock on the floor of the securities exchange.
In a secondary distribution, the member firm usually acts as a
dealer, combining with other members and non-members to effect the sale
of the BLOCK, usually after trading hours and usually at a fixed price
less a concession to the dealers participating.
The securities exchanges generally require members to obtain the
approval of the exchange before organizing a secondary distribution.
On the New York Stock Exchange, Rule 393 specifies the filing of
an application for approval; the factors bearing on approval or disapproval,
including whether or not the other block procedures (special offering
or exchange distribution) are more feasible; announcement by the exchange
on the ticker tape of the terms and conditions of the distribution; minimum
discounts to dealers and to members of the selling group, which may be
headed by a syndicate manager; and reporting requirements (daily and at
the termination of the distribution summarizing all transactions and listing
all participants in the group).
in number and volume, secondary distributions have been by far the most
active of the SPECIAL BLOCK PROCEDURES in recent years.
or indirect liability. Unqualified
endorsers of negotiable instruments (on blank and special endorsements)
have conditional liability, i.e., upon presentment to and dishonor by
the primary party and notice thereof, they are obligated to pay the instrument
(Sec. 66, Uniform Negotiable Instruments Law).
organized market for trading existing assets.
It can involve physical facilities, such as organized exchanges,
or a network of electronically linked trading rooms located throughout
the world. These facilities
provide liquidity to the secondary market.
trade acceptances, and bills of exchange that are obligations of names
not as well known as those classified as first class and thus are not
entitled to the highest credit rating.
The term is not derogatory and does not imply that the risk in
purchasing this paper is unduly high, but only that the standing of the
maker is somewhat inferior to that of the maker of paper classified as
first class. Paper may also
fall into a third or lower class.