The private capital market is an important component of the economy and has seen considerable growth since the JOBS Act exemptions came into play. However, the public markets have the advantage of a strong underlying infrastructure, one that existed long before the advent of the Internet (the first public company was the Dutch East India Company which began stock trading in the early 1600s). In contrast, the private markets historically have fewer options for liquidity other than an exit or an IPO.
Technological advancements have had a profound impact on the secondary market, transforming the way trading is conducted through the use of electronic systems for order delivery and execution. On the public side, entities like the New York Stock Exchange and Nasdaq have automated many functions that streamline the process of buying and selling stocks. In addition, broker-dealers and institutional investors have been leveraging powerful computer systems and sophisticated applications to manage inventory, order flow, and risk while receiving market data, research reports, and company information electronically.
In the private market, alternative trading systems (ATSs) have emerged to let investors sell or buy shares on a secondary market. For example, anyone who has invested through RegA+ is then able to transact on the secondary market if the issuer has permitted that option. Still, there are many issues that face the private market. The unfortunate reality is that while a fragmented regulatory environment does allow for some secondary market transactions, issuers are not pre-empted from state securities regulations.
The private capital market is beginning to catch up with the public market in terms of technological advancements, with companies seeking to create digital infrastructure and platforms for the private market. However, to truly unlock liquidity in the secondary markets of the private capital market, there needs to be an overarching system that enables buyers and sellers to identify potential trades quickly, securely, and with full transparency on the secondary market.
The lack of visibility in information is a key issue inhibiting secondary marketing trading in the private capital markets. Solving these issues will unlock a huge opportunity for buyers and sellers. To do this, there needs to be an underlying infrastructure similar to that which exists in the public market, allowing companies to quickly and securely connect with potential buyers and sellers, as well as gain access to real-time information about the secondary market. With the right technology in place, this could open up unprecedented opportunities for liquidity in the private capital markets that have long been “dark”.