secondary markets Archives

What Does ATS Mean in Trading

Posted on June 8, 2022June 9, 2022 by Oscar Jofre

Many investors are turning to the private capital market to make long-term investments in light of the current market conditions. This has increased alternate trading systems and secondary market trading for RegA+, RegCF, and RegD securities. An alternate trading system (ATS) is a non-exchange trading venue that matches buyers and sellers to trade securities. In the United States, an ATS must be registered with the Securities and Exchange Commission (SEC) and must comply with specific regulations.

Different Forms of ATSs

There are many benefits to using an ATS, such as increased liquidity, lower costs, and greater flexibility. For example, an ATS can provide more liquidity for a security by providing shareholders with a means to sell private company shares. In addition, an ATS may offer lower costs than an exchange, such as no membership fees or listing requirements. In addition, an can often be categorized as an electronic communication network, dark pool, crossing network, or call market.

Electronic Communication Network: An ECN allows buyers and sellers to exchange shares without a middleman. Trades can also happen outside of business hours, which means that hours are not tied to the traditional stock market.
Dark Pools: A dark pool is a type of ATS that does not publicly display the prices or orders of its participants. Dark pools are typically used by institutional investors, such as hedge funds, to trade large blocks of shares without moving the market.
Crossing Network: A crossing network is very similar to a dark pool, meaning that the details of a trade are not made publicly available
Call Markets: In a call market, trades are only executed once a certain number of orders has been reached, often at a set interval of time.

Secondary market trading of RegA+, RegCF, and RegD securities can take place on an ATS, which is typically a registered broker-dealer platform. These platforms allow investors to buy and sell these securities even if the buyer did not invest in the initial offering. The secondary market for RegA+ securities is the most developed due to the long history of these securities. The main difference is that RegCF and RegD shareholders are required to own their securities for a longer period of time before they can be traded in a secondary market.

What is the Difference Between an ATS and Exchange?

Many people are familiar with the concept of an exchange; whenever you buy stocks in publicly traded companies, you go through a stock exchange like the New York Stock Exchange or NASDAQ. National securities exchanges are self-regulatory and their members, or listed companies, must meet the requirements established by the exchange. Exchanges are also SEC-registered

An ATS is much like an exchange in that it brings together buyers and sellers of securities. However, the main difference is that an ATS does not take on regulatory responsibilities. Therefore, 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 Impact of Liquidity on Investing

Liquidity is an important concept to understand when trading securities and refers to the ability of a security to be bought or sold quickly and at a fair price. A security that is easy to buy and sell is said to be liquid. A security that is difficult to buy or sell is said to be illiquid. An investor might consider the liquidity of a security when making an investment decision. For example, an investor might choose to invest in a liquid security if they plan on selling it quickly. An investor might choose to invest in an illiquid security if they are willing to hold it for a more extended time. When trading securities on an ATS, it is crucial to consider the security’s liquidity. A security that is not liquid may be challenging to sell, and worth considering the liquidity of a security before investing in it.

KorePartner Spotlight: Jake Gallagher, Director of Business Development at North Capital

Posted on August 27, 2021August 27, 2021 by Oscar Jofre

With the recent launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners contributing to its ecosystem.

Jake Gallagher has always been interested in business. He wanted to know how they worked and why some were sustainable while others were not. On top of that, the private market for company offerings has presented challenges to businesses entirely separate from those faced by public offerings.

This has no doubt been part of the reason he works with North Capital Private Securities as the Director, Business Development. There, he works directly with issuers and helps with transactional compliance, but beyond that is the use of RegTech to streamline broker-dealer processes like KYC (Know Your Client) and accredited investor verification.

The difference that makes North Capital Private Securities and Jake unique is their work in both primary issuance and the secondary market for private market shares. Jake is well versed in both, having worked with many sectors and exemptions including, Reg A and D, VC, and hedge funds. In addition, PPEX, the ATS platform that North Capital Private Securities operates, makes trading on the secondary market easier for investors and provides options for liquidity in the private capital market.

The most exciting thing about the current climate of the private sector is that these options have provided for extreme growth, as more investors are ready and able to participate in the offerings of private companies. While it is a small ecosystem, the changes that have come in the last few years for who can participate in private market offerings are fueling the growth of many companies that would have otherwise been on the public market before they were ready.

Jake is thrilled about the partnership with KoreConX. He anticipates they will work together on primary offerings and secondary trading, bringing together a significant experience that can only benefit all involved.

What is Regulation A+?

Posted on January 20, 2021January 20, 2021 by Oscar Jofre

Regulation A+ (RegA+) was passed into law by the SEC in the JOBS Act, making it possible for companies to raise funding from the general public and not just from accredited investors. With the implementation of Title IV of the act, the amount that companies can raise was increased to $50 million (since increased to $75 million), offering companies the ability to pursue equity crowdfunding without the complexity of regular offerings. So, what investments does RegA+ allow?

Outlined in the act, companies can determine the interest in RegA+ offerings by “testing the waters.” While testing the waters allows investors to express their interest in the offering, it does not obligate them to purchase once the Offering Statement has been qualified by the SEC. Also allowed by the Act, companies can use social media and the internet to both communicate and advertise the securities. However, in all communications, links to the Offering Statement must be provided and must not contain any misleading information.

It is important to understand the two tiers that comprise RegA+. Tier I offerings are limited to a maximum of $20 million and calls for coordinated review between the SEC and individual states in which the offering will be available. Companies looking to raise capital through Tier I are required to submit their Offering Statement to both the SEC and any state in which they are looking to sell securities. This was a compromise for those who opposed the preemption that is implemented in Tier II.

For offerings that fall under Tier II, companies can raise up to $75 million from investors. For these offerings, companies must provide the SEC with their offering statement, along with two years of audited financials for review. Before any sales of securities can take place, the SEC must approve the company’s offering statement, but review by each state is not required. It is also important to note that for Tier II offerings, ongoing disclosure is required unless the number of investors was to fall below 300.

In contrast to typical rounds of fundraising, investors are not required to be accredited, opening the offering up to anyone for purchase. Under Tier I, there are no limits that are placed on the amount a sole person can invest. For unaccredited investors under Tier II, limits are placed on the amount they can invest in offerings. The maximum is placed at ten percent of either their net worth or annual income, whichever amount is greater. To certify their income for investing, unaccredited investors can be self-certified, without being required to submit documentation of their income to the SEC. Additionally, there is no limit placed upon the company as to the number of investors to whom it can sell securities.

Once investors have purchased securities through RegA+ investments, the trading and sale of these securities is not restricted. Only the company that has created the offering can put limits on their resale. This allows investors to use a secondary market for trading these securities.

Through Regulation A+, companies are given massive power to raise funds from anyone looking to invest. With the Act allowing for up to $75 million to be raised, this enables companies to raise capital from a wide range of people, rather than only from accredited investors. With two tiers, companies have the freedom to choose the one that best fits their needs. Regulation A+ and the JOBS Act have the potential to drastically change the investment landscape.

What is Secondary Market Trading?

Posted on January 11, 2021January 11, 2021 by Oscar Jofre

Even if you’re unfamiliar with the term secondary market, you’re likely familiar with the concept. Companies sell securities to investors, who in exchange own a piece of the company. The investor can then decide they would rather not own that security any longer, so they sell it to someone else who does. For public companies, this typically happens on the NASDAQ and the New York Stock Exchange, where people freely sell and purchase stock in publicly traded companies.

The exchange is considered secondary because the transaction is not done with the original company that offered the security. An example of a primary market transaction would be an initial public offering, or IPO, during which a company is offering securities directly to investors for the first time. For any security sold through a secondary market, the funds go to the investor selling, and not the company that originally offered the security. This is one of the major distinctions between the primary and secondary markets.

Securities in private companies can also be sold through a secondary market, similar to stocks in public companies traded on the stock market. The investor, with the help of their broker, can offer their securities for saler. Once the offer has been accepted, the company that originally offered the securities must be contacted to approve the deal. Once approved, both the buyer and the seller complete the paperwork for the transaction and complete the deal.

Without the secondary market, investors would be unable to trade the securities they have purchased, leaving them without any options for their investments. Importantly, access to a secondary market allows employees of the issuer to sell their securities that they may have been awarded. Without a secondary market, these investors and employees would not have any option to sell their shares unless the company was to go public during an IPO.

Despite the straightforward logic behind the process, secondary market trading has been relatively fragmented, with not all processes occurring in the same place. This increases the potential for errors and any increases in transaction time that they may cause. To combat this, platforms on which securities can be traded through the secondary market have been developed as secondary market trading has become commonplace in the world of investing.

KoreConX has developed an all-in-one platform, which includes a secondary market as one of its features. On the platform, every important authorization that is deemed necessary for the transaction to occur is kept in one place, allowing for information to be easily tracked and recorded. Buyers, sellers, brokers, and the transaction itself are brought together in one place to prevent errors that may have occurred otherwise. Additionally, the KoreConX Secondary Market eliminates central clearinghouses from the process, allowing for real-time confirmation and availability of funds once the transaction is complete.

Secondary market trading allows investors to sell securities they’ve purchased from private companies to other interested investors, similar to trading public stocks. Even though their sale is decentralized, platforms such as KoreConX allow for people to easily and securely sell their securities, creating a more efficient and streamlined process.

How to Manage Investments in Private Companies

Posted on December 4, 2020December 4, 2020 by Oscar Jofre

For investors, investing in private companies can be a beneficial way to diversify their investment portfolios. Whether the investment was made through private equity or RegA+, proper management can contribute to long-term success. However, once the investment is made, investors need to ensure that they are correctly managing their shares. With this in mind, how should investors manage their investments once they have been made?

Investments made in private companies can often come with voting rights. Being a part of company decisions is an important aspect of being an investor and helps to elect company directors and resolve issues. Investors exercising their voting rights can be a major aspect of managing their portfolio.

Whether information is provided directly to the investors by the company or through a transfer agent, as companies release reports and other key information, shareholders should maintain current knowledge of the information. Understanding the company’s direction and changes that are occurring can give investors a picture of the future so they can determine how their shares will affect their portfolio. The investor should also know where the data can be found so that they are easily able to access and assess it.

Additionally, investors should monitor the liquidity of the shares. Since some private company shares can be traded in a secondary market, understanding the value and the option to trade is important for investors. If they know how much their shares are worth, and they have the ability to sell them, investors can freely trade their shares. This is key if they decide that they no longer want to be a shareholder in a particular private company.

However, for investors who own shares in multiple different companies, managing this information can become a burdensome task. With an all-in-one platform that incorporates portfolio management for investors, KoreConX streamlines and simplifies the process. KoreConX Portfolio Management allows investors to manage their investments from a centralized dashboard. Investors are easily able to see the shares that they own in each private company they’ve invested in. Through the platform, investors can access critical company information and performance data in one place, eliminating the need to remember where each piece of information is kept. Investors are also notified of upcoming shareholder meetings and can exercise their voting rights through the KoreConX platform. When companies and investors utilize the KoreConX platform, they can achieve higher success rates by maintaining compliance with necessary regulations. Utilizing KoreConX Portfolio Management is a powerful tool for investors to make informed decisions regarding their investments.

When dealing with private company investments, it is incredibly important that investors properly manage their portfolios. Remaining up-to-date on company decisions and performance can help them plan for the future of their shares while allowing them to make decisions to increase the success of their investments. When investors understand their voting rights, company developments, and the liquidity of their shares, they can be an active participant in their financial success.

Understanding Digital Assets

Posted on September 4, 2019September 4, 2019 by Jason Futko

There has been a lot of talk in recent years about crypto, tokens, blockchain, ICOs, STOs, Digital Securities, etc. What does it all mean and why should you care? In order to navigate the new financial digital world, it is important to first understand the terminology. Below, I have broken down the typical terms being used in this current digital environment. In certain sections, I have provided the example of the USA, and its primary regulator, but this is globally applicable.

Distinguishing the types of secondary markets or exchanges where you can trade digital or traditional assets also seems to be confusing. I have created the following chart to try to distinguish these.

Now, why should you care? What does this mean to you? Despite what some people say in the press, blockchain is here to stay. So understanding the types of digital assets that it hosts is going to be important in making business and investment decisions.

As a co-founder of a company that is focused on revolutionizing the private capital markets, I am not going to get into cryptocurrencies as this is not my area of expertise. This is for currency experts to discuss. Similarly, while I know the public listed markets well and how they operate, there are plenty of people who know these markets far better than I.

My background is geared towards the issues faced by private companies. Thus, I will elaborate on the fragmented ecosystem of the private capital markets that sorely need solutions.

Since the SEC and other government regulators around the world started stepping in to ban ICO’s, other alternatives have evolved. The security token offering or STO is one such term that got some wings in 2018. However, the institutional and traditional investment communities were still leary of the idea of a token or blockchain solution being provided by people without an appropriate understanding of the entire market they are trying to disrupt. Many people from the ICO space were just changing the name and using STO as a new hype to sell the same ideas.

Many of the players (intentional choice of word) in the ICO space were trying to circumvent securities regulations saying they know better how the ecosystem should work. After decades of scams, the securities regulators know that the current system has built-in checks and balances for a reason. We all understand there are issues and inefficiencies in the private capital markets, but in order to change securities rules you better have a big budget and strong case for it. As an example, the JOBS Act took well over five and likely closer to ten years to come into place. The use of blockchain has valuable applications that can certainly provide more efficient and cost-effective solutions to current private capital markets, as long as you work within the existing securities regulations.

There is a lot of exciting stuff being built with blockchain technology. I believe that if you are looking at this as a solution to the private capital markets, you need to consider a few things if you are looking at public chains as a potential solution:

Use of private wallets for sole custody of financial instruments will not work. Securities law requires the use of transfer agents in many situations and transfer agents need to have custody of assets in order to manage them. If the digital securities are being held by individuals in their own wallet, there is no way the transfer agents can have custody of them. Think of public markets: you do not hold the securities (share certificates) yourself, they are digitally represented in your brokerage account and held by transfer agents.
Mining of securities: It is generally not acceptable for unknown miners to verify transactions; even known miners must be eligible to perform business validation of a transaction either because they are parties to the transaction, have fiduciary responsibility, or certified subject matter credentials or otherwise registered and regulated entities.

Gas prices are not acceptable when it comes to securities. In order for a token to move on some blockchains, a gas price needs to be paid to miners. Transaction fees must be contractually fixed in advance and cannot be uncertain or subject to an auction style of payment (which leads to a form of ad-hoc discrimination). For individual investors, transaction prices need to be certain and follow execution guarantees.

Exempt Market Update 2019

Posted on June 17, 2019June 15, 2019 by Oscar Jofre

The exempt market in Canada is going through some major developments that will fundamentally change how the private market will be seen by investors.

Digital Securities provide companies, who are raising capital, the opportunity to offer their investors another potential exit that until now was only seen as a pipe dream.

It’s no longer a dream, it’s in fact reality. Digital Securities are a direct representation of the securities a company offers to investors, but instead of a piece of paper, it’s put on a technology that is immutable.

Companies around the world are raising capital offering investors Digital Securities, which would allow them to have secondary market trading.

ATS (Alternative Trading Systems) have been around for decades around the globe, in most cases unused due to inefficiencies and high costs.

With over 16 ATS now launching in the USA and more coming in Europe and ASIA we will see more ATS secondary markets for private shares than public stock exchanges in the next 24. The reason is very simple. There is more private companies than public listed.

450 Million private companies vs 85,000 public listed companies worldwide.

$2.4 trillion raised by U.S private companies vs. $2.1 trillion by public companies, a gap that has been widening for 6 years. With the decline in the number of public companies and the rise of private financing will drive a need for efficient secondary market trading of private shares. A blockchain enabled and global compliant digital security is critical to the success of secondary markets for private shares.

On 29 May 2019, OMEGA has filed an application with the regulators to launch a Digital Securities ATS. This announcement shows you how the market is evolving to provide further liquidity in the private capital markets. This will not be the first ATS in Canada.

KoreConX is leading the market by providing the tools for Exempt Market Dealers to put their business online, in a secure and compliant manner, to be connected in the private capital markets ecosystem.

The KoreConX all-in-one platform, powered by IBM’s Hyperledger Fabric, is the key infrastructure that, until now, was missing from the private capital markets. Our globally compliant digital securities protocol is the key to creating efficient securities management throughout their lifecycle.

KoreConX Revolutionizing Private Capital Markets

Tag: secondary markets