Q: Primary and Secondary Market for Commercial Papers

Q: Primary and Secondary Market for Commercial Papers

A CP can be purchased either in a primary or secondary market. The primary market is where investors buy financial instruments at issuance, while in the secondary market, investors trade (i.e., buy and sell) instruments purchased at primary market issuances. 

The minimum purchase amount in the primary market may vary depending on the issue size. However, the minimum limit is typically set at N5m, while in the secondary market there are no standard lot sizes, but a minimum of N100m should be prepared for any purchase. 

The major limitation for secondary market trading of commercial papers is the illiquidity within the market, given that purchasers of these instruments typically only sell instruments in large volume sizes. Consequently, purchasing CPs is easier in the primary market.

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