Legal Definitions - public market

A public market is a regulated financial marketplace where the stocks, bonds, and other investment instruments of companies that have offered their securities to the general public are bought and sold. For a company's securities to be traded in a public market, the company must first undergo an initial public offering (IPO) to make its shares available to a wide range of investors. After this, the company must continuously adhere to strict rules regarding financial reporting and transparency, ensuring that investors have access to important information. These markets are typically organized through established stock exchanges.

Here are some examples to illustrate the concept of a public market:

• Imagine a rapidly growing electric vehicle manufacturer, "ElectroRide Inc.," decides it needs a large amount of capital to expand its production facilities and research new battery technology. To raise this money, ElectroRide Inc. conducts an initial public offering (IPO), selling shares of its ownership to the public for the first time. Once these shares are listed on a major stock exchange, like the Nasdaq, they are then traded in the public market. This means that individual investors, mutual funds, and other institutions can buy and sell ElectroRide Inc.'s shares openly, and the company must regularly disclose its financial performance to maintain its public listing.

• Consider an individual investor, Sarah, who wants to invest her savings in established companies. She uses an online brokerage account to purchase shares of "Global Foods Corp.," a well-known multinational food and beverage company. When Sarah places her order, she is buying shares that are actively traded on the New York Stock Exchange (NYSE). The NYSE is a prime example of a public market because it provides a transparent and regulated platform for investors like Sarah to buy and sell securities of publicly listed companies, whose financial information is readily available to all participants.

• A large university endowment fund is looking to diversify its investments beyond stocks and decides to purchase corporate bonds issued by "Infrastructure Builders Ltd.," a publicly traded construction company. These bonds represent a loan to Infrastructure Builders Ltd., and they are bought and sold in the bond market, which is also a component of the broader public market. Because Infrastructure Builders Ltd. is a public company, its financial health and ability to repay its debts are regularly reported and scrutinized, allowing the endowment fund to make an informed decision based on publicly available information.