What do secondary markets facilitate?

Secondary markets play a crucial role in the financial system by allowing the buying and selling of existing securities. This means that investors can trade securities they already own, facilitating liquidity and price discovery. When securities are sold in the secondary market, it provides an opportunity for other investors to purchase these assets without impacting the overall supply of the instruments initially issued.

In contrast, direct investments into startups would typically happen in the primary market where new equity is issued. The trading of newly issued securities also pertains to the primary market rather than the secondary. Similarly, while government securities are indeed issued in a primary market, the subsequent trading of these securities occurs in the secondary market as well, but the initial issuance does not fall under the definition of secondary market activity.

Thus, the primary function of secondary markets is to enable the trade of existing financial instruments, which is precisely what option C describes. This aspect of liquidity is essential for a healthy financial market, as it allows investors to adjust their portfolios and realize gains or limit losses efficiently.