Secondary Distribution, Secondary Liability, Secondary Market and Second-Class Paper

Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order it here)

SECONDARY DISTRIBUTION

A 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).

Both in number and volume, secondary distributions have been by far the most active of the SPECIAL BLOCK PROCEDURES in recent years.

SECONDARY LIABILITY

Contingent 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).

SECONDARY MARKET

An 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.

SECOND-CLASS PAPER

Notes, 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.  

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