Tag: Liquidity

7 Golden Rules for the Secondary Market

Posted on by Oscar Jofre

Secondary markets provide investors a way to trade securities they have previously purchased or buy new ones offered by other investors. This blog will look at the seven golden rules of secondary markets as well as how these rules are enforced through JOBS Act regulations.

 

What is a Secondary Market?

 

A secondary market is an organized platform that provides investors with the opportunity to buy securities from other investors, rather than from the issuer itself. It allows investors to have more flexibility in trading their securities and opens up the potential for greater liquidity. Secondary markets can be used to buy or sell almost any type of security, including stocks, bonds, options, futures, derivatives, and commodities.

 

How an ATS Differ from an Exchange

 

When trading securities on a secondary market, it is vital to understand the different types of Alternative Trading Systems (ATSs) available. ATSs are electronic trading platforms that can be used to trade securities without going through a traditional exchange. These systems can provide investors with greater liquidity and flexibility in trading their securities than what is available on an exchange.

 

Like an exchange that brings together buyers and sellers of securities, an ATS does not take on regulatory responsibilities. This means that an ATS can trade both listed and unlisted securities, like those purchased under a JOBS Act exemption. ATSs are also regulated by the SEC but must be operated by a FINRA-registered broker-dealer. 

 

The 7 Golden Rules of Secondary Markets

 

To ensure that transactions are compliant with security regulations, both issuers and investors should consider the following rules when transacting on a secondary market. 

 

Rule 1: Know Your Client (KYC) – Before conducting transactions, there must be a KYC procedure carried out by the broker-dealer. This helps to identify potentially risky investors and ensure that steps are being taken to prevent fraud, money laundering, and other illicit activities.

 

Rule 2: Disclose Financial Data – Issuers must disclose all relevant financial data before engaging in a transaction on the secondary market. This includes any material changes that have occurred since the last disclosure was filed. From an investor’s perspective, it is important to understand the financial health of the issuer before investing in their securities. This can be achieved by viewing the issuer’s financial statements, annual reports, and/or audited financials. Transparency is crucial in building trust with investors, and failure to disclose pertinent information can result in legal repercussions that can affect the trading of your security on the secondary market.

 

Rule 3: Respect Minimum Price Fluctuations – When trading on the secondary market, investors must always respect price fluctuation limits set by the governing body. These limits are designed to protect both buyers and sellers from extreme volatility or manipulation of the market. With most investors not being able to trade JOBS Act securities on the secondary market for at least a year, these limits help protect investors from quick market movements while providing issuers with stability.

 

Rule 4: Execute Trades Quickly – All trades on the secondary market must be executed quickly to ensure that buyers and sellers are getting the best price attainable. This is especially important with JOBS Act securities, as they are subject to strict time frames for when trading can take place. By executing orders promptly, investors can maximize their profits and minimize losses.

 

Rule 5: Follow Market Regulations – All transactions on the secondary market must adhere to governing body regulations, such as those set forth by the SEC, FINRA, and other regulatory agencies. This ensures that trades are conducted fairly and within legal bounds. It also protects all parties involved in a transaction from fraud.

 

Rule 6: Adhere to Securities Laws and Regulations – Issuers must comply with all applicable securities laws and regulations when trading on the secondary market. This includes complying with JOBS Act regulations, such as Regulation A+ and Regulation Crowdfunding. Failure to comply with these regulations can result in fines, penalties, and legal action.

 

Rule 7: Maintain Good Communication with Investors – Issuers should maintain regular and open communication with investors, providing updates on the company’s performance and any important developments. This helps to build trust and confidence in the relationship between the issuer and the investor. Good communication can also help to mitigate potential issues or conflicts that may arise in the future.

 

Overall, secondary markets can offer a variety of benefits to both investors and issuers, including greater liquidity and flexibility in trading securities. However, both parties need to follow the rules and regulations governing these markets to ensure fair and secure transactions. By adhering to the seven golden rules of secondary markets, investors and issuers can mitigate risk and build trusting relationships that can lead to greater success in their investment endeavors.

Understanding the JOBS Act for Real Estate

Posted on by Oscar Jofre

Real Estate has become increasingly popular as an asset class in recent years and investors are eager to put their money into this space. However, the high capital requirements associated with real estate investments have been a large barrier for many individuals. From February 27th to March 3rd, the KoreSummit event “Real Estate + JOBS Act + Tokenization = Liquidity” will discuss the potential of blockchain technology and tokenization for transforming this industry.

 

Day 1

 

On day one of the summit, the discussion will be centered around why real estate is an attractive asset class and what steps can be taken to help make it more accessible to a wider range of investors. Douglas Ruark, Frank Bellotti, Nathaniel Dodson, and Oscar Jofre will speak during the first day’s panel, which is sure to provide valuable insight into the industry as well as the potential opportunities that could arise with the use of tokenization and blockchain technology.

 

Day 2

 

The second day of the summit will be focused on fractional ownership, a concept that makes it possible for multiple investors to own a single asset, and attracting the right investors. Laura Pamatian, Oscar Jofre, Peter Daneyko, Richard Johnson, Tyler Harttraft, Andrew Cor, and Jillian Bannister will be leading these discussions, which will provide attendees with an understanding of how fractional ownership can help to make real estate investments more affordable and accessible while attracting the right investors.

 

Day 3

The third day of the summit will be all about identifying which SEC exemption is right for raising Capital. Douglas Ruark, Peter Daneyko, Chris Norton, Nathaniel Dodson, Oscar Jofre, and Louis Bevilacqua will explain how to make the offering to retail, institutional, and accredited investors. These sessions will provide a great opportunity to learn from the experts and gain insight into how to ensure that your projects reach the right investors.

 

Day 4

 

The fourth day of the summit will focus on what companies should do once their real estate offerings are live. Panelists will include Kim LaFleur, Mona DeFrawi, Andrew Corn, Peter Daneyko, Amanda Grange, and Ryan Frank. This session is sure to provide attendees with valuable information about understanding what steps to take once their offering is live.

 

Day 5

 

The final day of the summit will look at private real estate shares and how they can be traded. Peter Daneyko, Kiran Garimella, Lee Saba, James Dowd, Frank Bellotti, and Laura Pamatian will provide insight into the concept of tokenization for private shares and how it can help to bring liquidity to this sector.

 

The upcoming KoreSummit is sure to provide invaluable insight into real estate and how blockchain technology and tokenization can help to make this asset more accessible and liquid. Attendees will have the opportunity to learn from industry leaders and gain valuable knowledge on how to successfully launch and promote their offerings. With the JOBS Act paving the way for real estate tokenization, this summit is an ideal way to get ahead of the curve in what is sure to be a huge market in the years to come. 

 

Sign up for the upcoming KoreSummit here. 

 

Selling Shareholders for RegA+

Posted on by Oscar Jofre

For many investors in the private market, one of the risks they face is the lack of a liquid market for selling shares.

Through a Reg A+ offering, however, accredited investors who purchased securities during a Reg D or Series A raise can sell a portion of their holdings, creating a powerful buy incentive.

The law allows issuers to allocate up to 30% of their Reg A+ offering to selling shareholders, and investors are under no obligation to sell stock. 

What is a Selling Shareholder?

A selling shareholder is an individual or entity that sells securities of a company in a registered offering.

The shares sold by selling shareholders are first offered to other shareholders on a pro-rata basis before being made available to the general public.

Selling shareholders are typically early investors in a company who are looking to cash out some of their investment. They may also be employees or insiders who are looking to sell a portion of their holdings.

In some cases, selling shareholders may be venture capitalists or other institutional investors who are looking to exit their investment before a company’s IPO.

Selling Shares with a Reg A+ Offering

The Reg A+ selling shareholder allowance is a valuable tool for companies seeking to raise capital from accredited investors.

For investors to sell their shares with a Reg A+ offering, the company must file an amendment to their offering circular with the SEC that includes a selling shareholders section.

The amendment must disclose the number of shares being sold and the maximum offering price. In addition, all selling shareholders must be identified in the 1A.

The Reg A+ selling shareholder allowance is a great way for companies to raise capital while letting investors potentially get a return on their initial investment.

The allowance also provides an incentive for accredited investors to participate in a Reg A+ offering, as they can receive immediate liquidity without waiting for a company to go public.

If you’re considering a Reg A+ offering, consult with your securities attorney to determine if the selling shareholder allowance is right for your company.

How Liquidity Impacts Investing

Posted on by Jim Caboy

This article was originally written by our KorePartners at Rialto Markets. To view the original article, please click here. 

 

Liquidity is a term used in finance to describe how easy or difficult it is to buy or sell an asset in a market without affecting its price – in other words, how simply an asset can be exchanged for cash.

Many private companies struggle to create cash events and liquidity for their shareholders or growth plans and, in what is possibly the largest market of all, this is starting to change with the advent of crowdfunding and secondary trading platforms, known as ATSs (alternative trading systems). The private securities market, currently worth $7 trillion and forecast to be $30 trillion by 2030, is expected to transform when it starts to demonstrate the same kind of liquidity that the public markets offer today.

Stocks in publicly traded companies, mutual funds and bonds can all be categorized as liquid assets; generally, an asset is liquid if there is a constant high demand for it, thereby making it much easier to find potential buyers.

Stocks as liquid assets

Generally, any stock listed on a stock exchange is considered a liquid asset because there are people constantly buying and selling stocks at the market price, making it easier to liquidate stocks into cash.

Conversely, stocks traded on smaller marketplaces and lower value stocks like so-called ‘penny stocks’ (shares of small public companies that trade for less than $5s per share) would not be considered fully liquid assets, as concessions on the price or quantity of these stocks may be needed to liquidate them in a timely manner.

The liquidity of a stock is also never completely fixed; factors that influence a certain company or the stock market, such as economic downturn or complete market crashes can significantly impact the liquidity of any given stock. Most of the time this effect is only temporary, as the market tends to bounce back, but the liquidity of even the most reputable and better-performing companies usually suffers some decline.

What does liquidity mean for your investments?

Investing in early-stage companies was typically a long-term investment more open to the wealthy, through venture capital and private equity funds, but early-stage companies are going public through an IPO (initial public offering) much further into their life cycle. So, where this used to average three years, an IPO was stretching to at least 12, but having an ATS to monetize an investment now explodes the number of investors willing to invest. Although the liquidity will not be as robust as on the NYSE or Nasdaq it is available as an option should an investor have a life event or another priority that requires monetization of their shares.

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