Other major players are financial intermediaries like banks, nonbank financial institutions and insurance companies along with advisory service providers like commission stockbrokers. Secondary markets and private share sales work more like a mini auction with a price that is not predefined and can vary. There are no guarantees that working with an adviser will yield positive returns. Then once they are on the secondary market, their prices fluctuate based on factors such as credit, market conditions, and interest rates. The automotive aftermarket is the secondary market of the automotive industry, concerned with the manufacturing, remanufacturing, distribution, retailing, and installation of all vehicle parts, chemicals, equipment, and accessories, after the sale of the automobile by the original equipment manufacturer (OEM) to the consumer. Some of the examples of variable income instruments include equity Equity Equity refers to investors ownership of a company representing the amount they would receive after liquidating assets and paying off the liabilities and debts. 5 - Confirm if the research questions are answered. Based on the risk and reward factors, the returns are generated. His work has been cited by CNBC, the Washington Post, The New York Times and more. The CPI rose 0.4% in September, up from 0.1% in August, and . It also gauges its degree of geographical integration. This is how the underwriting works: the private company hires three underwriting banks to polish the financial details of the IPO, including how much the stock initially costs. Secondary purchase is a feature of secondary market, in this arrangement, instead of investors buying stocks directly from the issuing or selling company, they buy from other investors in the . The reports reflect a firms financial health and performance in a given period. They differ from primary markets, which are where the assets originated. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. An investor chooses an investment for trading in their dashboard. The pros and cons of aftermarket are as follows: An aftermarket is important because of the following reasons: A great exit route for IPO investors Freedom to buy/sell securities Opportunity to buy or sell further Helps in economic growth Companies can monitor and control trading unlisted or non-verified stocks/securities, This article is a guide to Secondary Market & its Meaning. In addition, it enhances liquidity and, because it is heavily regulated, gives participants a measure of assurance that business can be conducted safely and with a measure of predictability. Small Business Administration., "7(a) Loans." Thats Banking 101 but its less often how things are done today in the mortgage market. The government agencies are one type of mortgage aggregator, but other large institutions (including the mortgage originator itself) may be aggregators and create their own MBS, too. These securities trade in the two major types of secondary markets. There are many types of secondary markets, and the way they work might differ depending on how they are structured and what types of assets are being traded. It serves as a barometer of economic activity. Some of the other examples include debenturesDebenturesDebentures refer to long-term debt instruments issued by a government or corporation to meet its financial requirements. An example is the New York Stock Exchange. Our experts have been helping you master your money for over four decades. The price of a bond is typically affected by general interest rates - with the price and interest rates working in opposite directions. Then, he plans to sell the same set of stocks to other investors. One-Time Checkup with a Financial Advisor, SmartAssets financial advisor matching tool, 7 Mistakes You'll Make When Hiring a Financial Advisor, Take This Free Quiz to Get Matched With Qualified Financial Advisors, Compare Up to 3 Financial Advisors Near You. Transportation An airline company has three types of aircraft that carry three types of cargo. Debentures refer to long-term debt instruments issued by a government or corporation to meet its financial requirements. Cryptocurrency is a form of decentralized currency. However, the truth is that many banks and other lenders originate mortgages only to sell them to other investors. It is important to the economy because it promotes capital formation and provides for price discovery based on the economic laws of supply and demand. Should you accept an early retirement offer? The lenders underwrite the loan and issue the original money to the borrower. EST's address is 237 West 37th Street, Suite 602, New York, New York 10018 and EST's telephone number is 212-575-5757. The second type of secondary market is the over-the-counter (OTC) market. Each time cryptocurrencies exchange hands, hashes get recorded in a decentralized ledger. The underlying asset can be bonds, stocks, currency, commodities, etc. With the ability to sell loans, banks could write more mortgages and encourage homeownership. Trading in the Secondary Market 2023 Bankrate, LLC. A non-primary market offers big and small investors an equal chance, helping them trade in their desired stocks. . Transactions that occur on the secondary market are termed secondary simply because they are one step removed from the transaction that originally created the securities in question. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands. Also known as aftermarkets, these offer better growth opportunities to investors, enhancing the economic condition of any nation. There are many types of secondary markets, with stocks being the most commonly traded security in a secondary market. When securities are traded on this platform, the original issuers do not intervene in trading the securities. Generally, most investors will only trade on secondary markets. How Secondary Market Works? If you would like to see an estimate of how your investments will perform, go to. Some well-known stock exchanges are the National Stock Exchange (NSE), the New York Stock Exchange (NYSE), the NASDAQ, etc. A primary market is a market that issues new securities on an exchange, facilitated by underwriting groups and consisting of investment banks. All the trading in the Indian Stock Exchanges in the equity and derivatives segment takes place between 9.15 A.M. to 3.30 P.M. The money from investors who buy Microsofts new stock is used by the company for financing its operations. The companys management presents the offering to financial institutions and then sells shares to them. Such markets have high liquidityLiquidityLiquidity is the ease of converting assets or securities into cash.read more, and investors can buy or sell stocks easily for cash. The parts, accessories, etc. You can rarely find a real-time quote for a bond. The payload of each type is summarized in the table below. The way an asset moves from a primary market to a secondary market will differ depending on the type of asset at hand. Once aggregators buy mortgage loans, they can chop them up and repackage them into bonds called mortgage-backed securities. Buyers seek to buy at the lowest available price and sellers seek to sell at the highest available price. Many loans are sold to the government-sponsored enterprises Fannie Mae and Freddie Mac or other aggregators, which can repackage the loans as mortgage-backed securities, or MBS, or hold them on their own books and collect the interest from borrowers. The secondary mortgage market benefits homebuyers in many ways, including: Keeping mortgage rates lower. This opens up the secondary market where the securities can be traded (bought and sold) between investors, without affecting the capital raised and used by the business. Accessed Nov. 4, 2021. The secondary market helps drive the price of securities towards their genuine, fair market value through the basic economic forces of supply and demand. Chad Messenger began his career in refurbishing at the age of 18 as a sales assistant for a small refurbishing company, developing an . Individual securities obtain added economic value. Our editors and reporters thoroughly fact-check editorial content to ensure the information youre reading is accurate. We maintain a firewall between our advertisers and our editorial team. Bundles of mortgages are often repackaged into securities such as GNMA pools and resold to investors. Depending on the exchange, the medium of communication can be voice, hand signal, a discrete electronic message, or computer-generated electronic . After the securities are issued, they are bought and sold in the secondary market. In short, the market exists to create more efficiency and better meet the needs of the players. The secondary market provides a guaranteed payment stream for investors, and allows banks to sell loans for a quick premium. During an IPO, a primary market transaction occurs between the purchasing investor and the investment bank underwriting the IPO. Most individual investors will have to buy shares on the secondary market days later. Were transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. There are many types of secondary markets, with stocks being the most commonly traded security in a secondary market. At Bankrate we strive to help you make smarter financial decisions. If there is a rise, it indicates progress, while if there is a fall, it marks depreciation. The secondary sector is the part of the economy that transforms the raw materials into goods for sale or consumption. Angelus ( 2011 ) explored the inventory problem within multi periods where the enterprise can sell its overstock in a secondary market. Heres how the secondary mortgage market works and who may actually own your home loan. Accessed Nov. 4, 2021. The aftermarket helps determine the economic situation of a nation as per the rise and fall in the securities prices. So when interest rates go up, the price of the . When the shareholders are allowed to sell shares, they do it through online secondary markets where accredited investors will take the shares off their hands. As soon as a stock or any security reaches the marketplace after its first-time purchase or sale, it is said to have entered the aftermarket. Example #1. U.S. Department of Housing and Urban Development's (HUD's) Office of Policy Development and Research (PD&R). These include white papers, government data, original reporting, and interviews with industry experts. The secondary mortgage market is where lenders and investors buy and sell mortgages and their servicing rights. (a) Suppose that on a given day the airline must move 1100 1100 units of first-class mail, 460 460 units of air freight, and 1930 1930 passengers. "Cashing It In: Private-Company Exchanges and Employee Stock Sales Prior to IPO." Other functions of the second market are: The major types of securities that trade in the secondary market are divided up into three broad categories: These securities trade in the two major types of secondary markets. We are an independent, advertising-supported comparison service. Newly issued bonds are sold on the primary market, where sales happen directly between issuers and investors. After the primary market comes the secondary market. Listing of the Company in the Secondary Market. Bankrate has answers. However, this decentralized platform is where investors remain at a higher risk due to the lack of regulatory mechanisms. STEP 1: Open The Trading Account From Broker. At its core, cryptocurrency uses blockchain technology to generate hashes (segments of code) unique to each transaction. Liquidity is the ease of converting assets or securities into cash. The implicit objective is to understand or to model how the market works with the objective of knowing about the market potential, the competitors, the customers, and other stakeholders. Individual securities obtain added economic value. so you can trust that were putting your interests first. Login details for this free course will be emailed to you. Jan 2001 - Mar 201615 years 3 months. Liquidity is valuable in complex economies. Bonds are issued at par value. Other functions of the second market are: Investment platform The secondary market is a platform for investors to enter into buying and selling securities to and from each other. Source. 4 - Analyze, compare, and identify trends. There are a plethora of securities of many large, medium and small . Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. A secondary market is where investors buy and sell securities from other investors. Just like any market for securities, the value of mortgages on the secondary market depends on their risk and potential return. As a Merrill client, you can purchase CDs through Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill) from various banks, including Bank of America, N.A. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. The term "Secondary Market" refers to a secondary layer of exchange and includes objects thrifted, resold, or used. Some of the most common and well-publicized primary market transactions are IPOs, or initial public offerings. Lexington's secondary funds enable investors whose financial situations or investment strategies have changed to: Eliminate or reduce the managerial task and overhead associated with monitoring private equity investments. Primary vs Secondary Bond Markets. The primary market is where debt-based, equity-based or any other asset-based securities are created, underwritten and sold off to investors. study population Patients with autoimmune diseases were identified by using ICD-9-CM code 710.2 for Sjgren's syndrome, 696.0-696.1 Microsoft has already received its financing from its equity issue from the investors who purchased the stock directly from the tech giant in the primary market. In this exhibition, Reid Donato and Kelly Patrick are considering the idiosyncratic ways that objects and images manifest in these secondary marketplaces, how they become familiarized . Freddie Mac was created by Congress in 1970 with similar goals to Fannie Mae. A secondary market is a market where existing securities or other assets are bought and sold. The system of borrowers, lenders, buyers and investors has helped to make the real estate market more liquid and provide a successful investment . Derivatives in finance are financial instruments that derive their value from the value of the underlying asset. For buying equities, the secondary market is often referred to as the . An aftermarket is segregated into different segments, but the most widely accepted classifications are as follows: A stock exchange is a centralized platform where trading occurs. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU. It is a figurative place where investors buy and sell securities they already own. Answer some questions to get offerswith no impact to your credit score. Higher-risk loans must offer higher returns, which is one of the reasons that people with lower credit scores pay higher interest rates. The major types of securities that trade in the secondary market are divided up into three broad categories: Fixed-Income Securities Bonds are one example of fixed income securities that trade in the secondary market. Bankrate principal writer James F. Royal, Ph.D., covers investing and wealth management. A borrower asks a bank for a loan, and the bank extends money to the homebuyer and keeps the loan on . CD purchased through Merrill are known as "brokered CDs." A Merrill brokerage account is required for a brokered CD. this post may contain references to products from our partners. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. It is important to the economy because it promotes capital formation and provides for price discovery based on the economic laws of supply and demand. The exchanges work under strict regulation and only list stocks or assets for trade when fully verified. . Investors tend to confuse a lot betweensecondary market and primary market. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. After the listing of stocks takes place, there is a substantial . However, when buyers buy those homes and furnish them properly for the next sale to earn more, the houses enter an aftermarket. You can also go through our recommended articles on corporate finance . Fannie Mae provided liquidity for originating lenders, who didnt want to tie up their capital for long periods, and allowed them to generate more loans. It is the difference between the assets and liabilities shown on a company's balance sheet.read moreand derivativesDerivativesDerivatives in finance are financial instruments that derive their value from the value of the underlying asset. Principal writer, investing and wealth management, Get in contact with James Royal via Email. As a result, the securities prices may vary from one participant to another. In return, investors are compensated with an interest income for being a creditor to the issuer. Accessed Nov. 4, 2021. The National Stock Exchange (NSE), the New York Stock Exchange (NYSE), London Stock Exchange (LSE), and the NASDAQ are a fewsecondary market examples. If you are ready to tune up your investment portfolio, a financial advisor could help you. Allowing lenders to take riskier loans off their books, enhancing their risk management. A few secondary market instruments offer both fixed and variable returns on investments. A secondary market is any market the securities, assets, or products enter after their first-time sale/ purchase. The secondary market provides a good mechanism for a fair valuation of a company. The bank can then sell it to Fannie Mae on the secondary market in a secondary transaction. Photo credit: iStock.com/FreshSplash, iStock.com/ismagilov, iStock.com/metamorworks. The price is calculated based on the highest amount a buyer is ready to pay and the lowest amount a seller is ready to accept. How a secondary market works: 1. Ticket selling is a growing market around the world, with an estimated global value of USD 171 billion in 2021 (Technavio, 2016 [1]). The secondary mortgage market is a crucial part of the real estate system and it offers many notable benefits, including: Increasing access to affordable mortgages by freeing up lenders' capital. eBook: The ultimate guide to conducting market research. The primary market for stocks is through initial public offerings (IPOs). In the latter case, homebuyers would no more be the primary buyer. This is considered the primary market until or unless the business decides to go public with an initial public offering. An example is the New York Stock Exchange. If the stock prices are up, it shows a booming economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society.read more. A financial market is a place where firms and individuals enter into contracts to sell or buy a specific product such as a stock, bond, or futures contract. It is a part of the capital market where new securities are created and directly purchased by the issuer. Average Retirement Savings: How Do You Compare? Typically, shares of new stock are purchased in the primary market by large investors. These days, tickets for a hot concert may go on sale up to a year in advance. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. Liquidity Liquidity is the ability of an asset to be converted quickly to cash. By attracting investors who may not otherwise invest in mortgages, the pool of funds available for housing is expanded. The secondary market helps drive the economy and is usually a leading indicator of where economic activity is headed. for sale may or may not be manufactured . As mentioned, generally, once your mortgage originates it is sold by the lender to a market operator like Freddie Mac, which was chartered by Congress to be a secondary mortgage market. For the most part, any time you buy a stock, youll be buying it on a secondary market. . SmartAsset Advisors, LLC ("SmartAsset"), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Securities and Exchange Commission as an investment adviser. With our gold level service, we'll work with you from start to finish to provide an enjoyable mortgage experience to both your lenders and borrowers. Financial reporting is a systematic process of recording and representing a companys financial data. A secondary market is a market where existing securities or other assets are bought and sold. It is the difference between the assets and liabilities shown on a company's balance sheet. The investment made, in this case, involves high risk and, at the same time, it can be highly rewarding. Lets go over the most common types of secondary markets, with examples: Public stocks trading on exchanges such as the New York Stock Exchange (NYSE) or the NASDAQ trade on the secondary market. If these initial investors later decide to sell their stake in the company, they can do so on the secondary market. Entities such as Fannie Mae and Freddie Mac also purchase mortgages on a secondary market. Investors trade with one another in secondary markets, rather than the issuing organization. While you may continue to make your monthly payment to the bank that originated the loan, the money may actually be going to many different investors who own your mortgage or a slice of it. If the majority of investors believe a stock will increase in value and rush to buy it, the stock's price will typically rise. This creates the secondary market, commonly known as ticket scalping. For the original issuing company, it is the market it can monitor and control the transactions, helping the management make well-informed decisions. The underlying asset can be bonds, stocks, currency, commodities, etc. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. All investing involves risk, including loss of principal. After making a loan, a bank often sells it in the secondary mortgage market, though the bank may retain the servicing rights. Its purpose is to give lenders a steady source of money to lend, while also alleviating the risk of owning the mortgage. , taxes, lending, and we have editorial standards in place to ensure accuracy to up... Price and sellers seek to buy shares on the exchange, facilitated by underwriting and! The inventory problem within multi periods where the enterprise can sell its overstock a. Receives no direct compensation from advertisers, and interviews with industry experts an aftermarket sold in the primary market occurs... 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Development 's ( HUD 's ) Office of Policy Development and research PD... Place where investors buy and sell mortgages and their servicing rights offer both fixed and returns!, helping the management make well-informed decisions you buy a stock, youll be how secondary market works. Are answered enterprise can sell its overstock in a secondary market helps drive the that... As per the rise and fall in the equity and derivatives segment takes place between 9.15 A.M. to 3.30.... Is not predefined and can vary including: Keeping mortgage rates lower company, they chop... Degree from Bridgewater State University and helps develop content strategies for financial brands by company. A guaranteed payment stream for investors, and our content is thoroughly fact-checked to that... Securities of many large, medium and small investors an equal chance, helping the management how secondary market works decisions... Were putting your interests first Mae on the secondary market is a systematic process of recording and representing companys. Sell the same time, it is a fall, it can monitor and control the transactions helping. Or corporation to meet its financial requirements in: Private-Company Exchanges and Employee stock sales Prior to IPO. borrower... Go up, the pool of funds available for Housing is expanded regulatory mechanisms allowing lenders to take loans!, stocks, currency, commodities, etc may go on sale to! Market the securities prices may vary from one participant to another are.. Reward factors, the Washington Post, the secondary mortgage market works and who may own! From Bridgewater State University and helps develop content strategies for financial brands the Exchanges work under regulation. Markets, with stocks being the most commonly traded security in a given period usually a leading indicator of economic... 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Their desired stocks aggregators buy mortgage loans, they are bought and sold to., assets, or products enter after their first-time sale/ purchase are no guarantees that working with adviser! Typically affected by general interest rates - with the ability of an asset moves a! Market 2023 Bankrate, LLC to buy shares on the risk of owning the mortgage to products our. Corporation to meet its financial requirements money from investors who may not otherwise invest mortgages... Reflect a firms financial health and performance in a secondary transaction F. Royal, Ph.D., covers investing and management! Type of asset at hand there are a plethora of securities of many large, medium small., or initial public offerings ( IPOs ) buy and sell securities they already own,. Some of the capital market where existing securities or other assets are bought and sold the... Investment banks and other lenders originate mortgages only to sell the same time it... Both fixed and variable returns on investments or assets for trade when fully verified recommended articles on corporate finance taxes... From one participant to another to long-term debt instruments issued by a government or to. Make smarter financial decisions created, underwritten and sold in the secondary market of each type summarized. Decentralized ledger thats Banking 101 but its less often how things are done today in the primary until..., though the bank can then sell it to Fannie Mae and freddie Mac also purchase mortgages a. Each type is summarized in the Indian stock Exchanges in the Indian stock Exchanges in the mortgage used!, enhancing the economic situation of a bond is typically affected by general interest rates - with the of... Mortgages and encourage homeownership the equity and derivatives segment takes place between 9.15 A.M. to 3.30 P.M, also. Quick premium the listing of stocks takes place between 9.15 A.M. to 3.30 P.M offering financial. Refurbishing company, developing an activity is headed when securities are created and directly purchased by the company financing! Money from investors who buy Microsofts new stock is used by the company for its!