Just been having a think
Would it be possible to buy / sell share in unlisted companies?
And / or be like a secondary marketplace for the likes of crowdcube? ECTđ˘
What your thoughts?
Just been having a think
Would it be possible to buy / sell share in unlisted companies?
And / or be like a secondary marketplace for the likes of crowdcube? ECTđ˘
What your thoughts?
Hello @Andy71uk, novel incoming
I appreciate the sentiment, and in the context of our record-breaking crowdfunding raise
I understand why there would be interest from the community in activities like this - after all, itâs just like investing in listed companies, isnât it?
Well, itâs actually very different in the eyes of the regulator (and I believe with good reason), so letâs consider the reasons why:
The above factors are not insurmountable from a business model perspective, provided you have retail investors and a wider customer base willing to take the inherent risks and the platform makes them transparent. This, though, is the killer:
Some regulatory arbitrage has been shown to be possible in trying to ensure that matching buyers and sellers does not amount to the definition of an MTF. Notably, bulletin boards are out of scope âbecause there is no reaction of one trading interest to another other within these systems - they do not âact reciprocallyââ. The relevant definitions are clearly legally opaque, and itâs a high risk business strategy to try to be an exchange without being regulated as one, unless you concede major limitations in the product offering.
As such, some key differences between the initial act of crowdfunding and any secondary market transactions which make it so different in a regulatory sense are that you have liquidity in that the company itself is offering to issue shares at a given price at a certain time, and making available up to date information that you can reasonably rely on to be clear, fair and not misleading at that time. This is all essentially lost once the crowdfunding round is complete, so itâs a very different beast.
The AIM market provides a good middle-ground example between a fully-fledged stock exchange and lighter touch regulation where there are some minimum requirements in terms of transparency and restrictions on insider trading, but nowhere near the burdens of a full stock market listing. This market is known, perhaps unfairly, for allegedly shady directorsâ deals and lack of liquidity. I can only observe that any market in unlisted shares would be a more extreme version, in many ways, for the reasons outlined above.
To end on a more positive note, something I am very interested in, and hope to write more about in the future, is the negative impact our natural instincts can have on investment returns. If you think about it, itâs a very un-human thing to hit buy when the price is decreasing and resist the temptation to hit sell when the price goes up. Investing an amount you can afford to lose in early stage unlisted companies, which essentially come with a lock-in period as there is no or limited secondary market activity, removes any temptation to sell too early or scare yourself into acting. Let your winners run!
@Viktor will tell you a story about selling unlisted shares too early (hindsight is a wonderful thing!)
Thank you @freetrade_cal for your time and in-depth knowledge of this subject I clearly need to learn more on how stock exchanges work.
But imagine if down the road we were able to work around some of these problems and even have our own exchange
Although the way it functions is very restrictive, Seedrs have their own secondary market for companies that have raised on their platform.
For the way they should do this is via integration with Seedrs and Crowdcube. One would be able to buy from their
account directly on the othersâ secondary platforms.
You have posted about this in six different threads already. People will see your idea in the original thread you keep linking to.
Superb answers
It is obvious that the players on unquoted company secondary marketplaces will make nice commissions hence CapDesk have worked on broker integration and have already done this for Seedrs which is already old news. should get involved in this new ecosystem.
Business roadmap priorities
From a business point of view, I can see the logic of âfirst things firstâ such as giving access to other Regulated Markets (exchanges in MIFID2 speak) such as Euronext and others which should be the primary focus enabling international expansion and we all know how far behind the initial roadmap (the ârealâ Trello one with ETAs we used to have access to) we have fallen.
Compliance blocking point?
From a compliance point of view, I see no clocker. Indeed, now we all know that all currently functioning unquoted secondary share marketplaces have chosen the bulletin board path to avoid MIFID2 MTF status, what is stopping from giving our GIA, ISA and SIPP accounts access to them from a compliance point of view? Of course it is a delicate topic but I can see nothing blocking from that point of view, hence the CapDesk and Seedrs cooperation which is live and functioning. One only needs to see the growing volumes (yes still small but growing) on Seedrs secondary market.