How does Secondary Market work?
CEO and Co-Founder
CEO and Co-Founder
Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide. Oscar is a featured speaker on Fintech, regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business.
Emergents @ Weild & Co.
Elliot Chun is Managing Director of Emergents @ Weild & Co., a middle-market investment bank and broker dealer. The Emergents team specializes in working with Issuers to raise capital through Digital Asset structures. Elliot brings 20 years of Capital Markets experience across functions (Investment Banking, Buy-Side, Consulting, Sell-Side) and across asset classes (Digital Assets, Equities, FX, Fixed Income, Privates).
Director, Business Development
North Capital Private Securities
Director, Business Development
Jake Gallagher is the Director, Business Development at North Capital Private Securities. He is responsible for establishing and maintaining relationships with issuers, institutional and retail investors for North Capital's primary issuance brokerage business and their alternative trading system, PPEX. Throughout his career, he has worked on offerings spanning various sectors and exemptions including Reg A, CF, D, and S. He graduated from the University of North Carolina at Wilmington with a B.A. in Economics and Minor in Mathematics. Jake is a CFA Level II Candidate and currently holds the Series 7, 24, 63, and 65 registrations.
Elliot Chun 00:14
Looks like we lost them.
Jake Gallagher 00:16
Yeah, I don’t know, if we were taking a picture or what was going on.
Oscar Jofre 00:20
You didn’t lose me. Well, good afternoon, everyone, and welcome once again to the KoreSummit webinar series 2021. And just to remind everyone, yes, we are exactly five days away from the big day. That’s right March the 15th, when we can go live and raise up to 75 million with reg A, and of course, 5 million with REG CF. So lots of work to be done. And finally, we get to have the discussion that we’re going to have this afternoon that wasn’t available years ago, in a meaningful manner, meaning, it’s real, it’s live. And we’re going to have that today. So, two great guests. We’ve had them before, but I want them to deduce themselves. Please, Elliot, if you can start us off.
Elliot Chun 01:09
Everyone, how you doing? Happy March 2021. Eliot Chun here, Managing Director at Weild & Co. Lead the Emergents team, which is the emerging technology and digital asset and impact group under the Weild & Co banner. And for those that don’t know, David Weild, who founded Weild & Co a lot of his writings went to become the foundation for the Jobs Act which led to reg CF and reg A plus so happy to be here today to talk about an excellent topic on what these new regulations have paved the way for
Oscar Jofre 01:55
Thank you, and you know, I told him that your you I have you on recorded so this is now three times. Thank you. You know what, when? When it’s due? It’s due to those who got us here? And of course my other colleague it seems like I just saw us just a little bit Jake please.
Jake Gallagher 02:15
Once get Oscar I appreciate the time is always out. My name is Jake Gallagher. I’m a director private secondaries here at North capital I in the PPEX platform by North capital. You know, we’ve been a boutique investment banking firm in that space now for the better part of a decade. And then we’ve expanded into the secondary markets for for reg A, reg D, and various other exemptions. Yeah, and that’s always looking forward to presentations that
Oscar Jofre 02:42
Well, it’s not my presentation. Actually, Jake, it totally can be about the two of you. Because, man, did I come with questions? You know, the exciting thing about what happens here is that we we get to listen to people and people often don’t ask questions here. They wait till afterwards, and then they come. And nobody asked a basic question about, you know, we use acronyms and stuff. So today, it’s not going to talk about how, you know, secondary market who is it for? But how does it work? What how does it work? I mean, I think this is a really important and, and Jake, we’re gonna base it on the PPX model. Okay, so we’re gonna make it fair. This way, we’re going to put Elliot off he wasn’t ready for that. I didn’t prepare him. I told him we were going to do something separate. So this way, he he can be a little bit off. But and the reason we’re going to do that for you is because I don’t want to put you on the on an environment where it’s different than the way you operate. So I want people to learn about how an ATS works from the perspective of PPX all the way through. So I want us to go, but let’s start right off the top. And I’m going to give this one to Elliott. What is the ATS and why are we using ATS in one sentence and then we’re using the word secondary market. Somebody asked me that the other day and I didn’t have an answer. So I’m asking you as a broker dealer, what are what are these two things mean? Are they both the same? Or are they defining something totally different? Yeah, for
Elliot Chun 04:13
S o from our perspective, a ATS alternative trading system is a subset of secondary market, right secondary market, broadly defined is after the primary issuance or the first time a issuer taps capital markets in a specific capital raising events. They are raising directly from private investors. That’s your primary issuance, typically or before, a lot of the innovations that we have today, private investors were required to hold on to their investments, and some until they’re are some sort of exit events. And typically that was a an IPO in the public markets, some m&a activity where the, it was an acquirer into the space. And there was really no options for a private investor to be able to sell their position. And so the whole concept of secondary markets came when we had a very manual type scenario where you would pick up the phone and say, Hey, I saw someone was a private investor, I’d love to offer you a certain price for your shares in this company. And all of that would happen in a very opaque, Misty gray area of secondary market activity. And not not much was done in a regulated way. Not much was done in terms of kind of rules and regulations for facilitating in investors in current private transactions for them to kind of get out of their position. And now we fast forward into 2021. And we have the opportunity to operate with alternative trading systems that are facilitating a more familiar transaction methodology, transaction kind of process. For investors, it’s mirrors similar to how equity markets are run today, which is one of the great great benefits of, of innovation of regulation, and what positions us to have secondary market activity through alternative trading systems for private companies.
Oscar Jofre 06:59
You know, I have to this is really interesting. So I, I learned something today. So secondary market is the heading and ATS is just one of the elements that could be other forms. And that’s it. You know, that’s, that’s a good thing. You know, it’s, it’s funny, we, we, I hear that words interchangeably. And this is, you know, it’s like everything else. We’re leveling it up one more step. So thank you for that. That was extremely helpful for me as well. So okay, so we now know it’s an ATS, right and PPX operating at an ATS to allow secondary market trading private exempt securities in the marketplace. So you know, the floor is yours, Jake. Because this started, I mean, how it works from PPX high level and then we’ll dive deep dive a little bit. interjecting with Elliott there. Okay.
Jake Gallagher 07:52
Yeah, no, absolutely. Um, yeah. And I think Elliot did a fine job there kind of summarizing the big differences between just the broader secondary markets and then the kind of niche section that we’re carving out with the alternative trading system. So the way the PPEX as a platform works is right now it is mainly it is an institutional platform. And I should clarify that by saying that your everyday retail investors High Net Worth accredited investors, reg A plus reg CF investors can’t access it, they just have to access it through an institutional partner like a broker dealer. And so you know, when they’re when an issuer launches, a reg A plus offering, a lot of those are run through a broker dealer. And so we are partnering with various broker dealers that are active in the reg A market, to provide them access to an alternative trading system to help facilitate secondary transactions with their current investors. So what for instance, we’ve got groups that are, you know, their model is raising money through reg A capital raises, they’ve got a group of investors, they’ve you know, some groups have grown their investor groups to you know, 345 10,000 investors. And there are times where those investors may or may not need liquidity for one reason or another. And so instead of, you know, having them route directly through PPEX, like by going to PPEX.com and trying to log in, create a profile in place a trade that that issuer is already partnered with a broker dealer, and then we have a partnership with a broker dealer and are able to route those trades through the broker to the ATS via our API calls and our API system. So it is an institutional only platform to an extent that, you know, retail investors can still access it kind of indirectly through an institutional platform like a broker dealer. And then we also have your traditional institutional investors that are onboarding as well in terms of your hedge funds. Private equity firms, VC firms and so forth.
Oscar Jofre 10:04
Okay, so that so there are two sides to any trade, right? So there’s the seller. And so now I get it. So the seller, the way PPX works is BDS on both sides. Right? That I get that right? That’s correct,
Jake Gallagher 10:19
whether it’s North capital being the broker dealer to an institution, or if it’s, or if it’s a broker that has direct access to the ATS. That’s correct.
Oscar Jofre 10:28
Okay. So and this is good. And I’m the reason I’m recapping for the audience is I want to make sure, because this is part of the educational phase, we want everybody to come in with their eyes wide open, there is no one right or wrong model. It’s just that you need to know which of the models it is, in order for you to onboard yourself properly, right? Because this is all about onboarding. Ultimately, I think I’ll lead early, it’s because he’s got this cool little terminology for this. But onboarding. So but it, it’s imperative for them to recognize that it the broker dealer, so there’s some communications that need to happen between the broker dealer, the issuer to the investors. What about on the other side? On the other side, there’s a broker dealer as well, that needs to represent the buyer correct. And that buyer could not be an individual buyer, or does it always mean? I recognize it’s an institutional buyer, but it can it be an individual buyer,
Jake Gallagher 10:43
It could very well be an individual buyer. And the reason why we designed it like this is because you know, a lot of you know, in these initial capital raises, you know, there’s great relationships built on initial on that primary issuance. And so there’s a great relationship built between the broker and the issuer. And we want to provide an avenue so that relationship wasn’t disrupted. It was built upon the our API, so the broker could access the APs in order to facilitate their secondary trade instead of trying to establish brand new relationships directly with the ATS, if that makes sense.
Oscar Jofre 12:07
No, it does. And you’re the broker dealer Elliott, so tell me I mean, you’re now the BD, you’re now managing my trade. Right? I come to you. In as you said, this is not to disrupt the relationship between you and the client. You know, how do you foresee that happening with your environment, the way you guys operate, to onboard yourself into the PPX and to work through that flow, because I’m still in the individual. Right?
Elliot Chun 12:37
I, I appreciate the model because it is a baby step from what people are familiar with today. And particularly in publicly traded securities, right. So generally speaking, if I’m an investor in public equities, today, I have a brokerage account, name, any of the household names that you want. And so through that brokerage account, I’m able to go and access and purchase positions, or or equity, an equity position into publicly traded companies. This is a very familiar model, because the only difference here is that we’re applying that flow from different actors in the publicly traded equity situation into the private equity situation. And so there’s a lot of familiarity in the process, right versus, you know, today the onus is, in, in the non PPE X model, the onus is on me, as an investor who is buying a reg a position through a ATS, I have to do that on my own, I have to go and navigate what that flow and process looks like. And I don’t have to have a broker dealer that is helping me through it when I need it. And there are significant benefits to having a broker dealer play a role in that process on both ends. And so we can we can name a lot of them, but the number one is thing is if I make a mistake, who do I go and call, right today, if you make a mistake on a trade, you can pick up the phone and call someone ideally, right? If you flip it to the other side, are you calling the ETs are you calling the issuer? You didn’t use a broker as an investor you didn’t use a broker to make the trade. So who are you calling if you made a mistake, right and so on. You know, as the, as people get more and more familiar with this process, I think having a very familiar process, I having a broker dealer with you along each step of this can be very, very valuable and very helpful from an education perspective, as well as a execution perspective.
Oscar Jofre 15:25
Okay. And if I understand correctly from the PPX model, ATS is that PPX is it’s purely onboarding the broker dealer, the institutional elements of your leaving the individual investor needs to be on boarded by the broker dealer, I got that correctly. And the end for the issuer, the issuers and coming to you, the issuer has to come through the broker dealer as well.
Jake Gallagher 15:54
Yes and no. So the for, for new issuers, for instance, we’ll still as as the ATS will still want to perform due diligence on them. And, you know, a lot of that due diligence is captured by the broker dealer on the on the primary issuance. So that certainly makes it a lot easier. At the end of the day, we still want to perform and improve the security to be listed and traded on the ATS. So it’s kind of with the issuer, it’s kind of a multi approach are kind of two ways you’ll want to get on with the broker. But you also need to get approved by the ATS as well. But by working with the broker, on the initial raise, that obviously makes the due diligence process a lot easier for us as an ATS.
Oscar Jofre 16:36
Got it? Okay, so the the issuer in this case is onboarding with you, and will most likely onboard with the broker dealer at the same time because the BD has its own. And then of course, through that onboarding process, that’s when the BD, Elliott, you become aware of the shareholders that you can now represent to, to assist them in placing their, their securities on the PPX platform. So that’s one phase did I, I pretty nailed that. And the, okay, so that’s phase one. And then of course, phase two, on the other side of there is a BD, there is a buyer, then if an individual buyer comes, again, what I’m trying to do here is making sure people understand that the reason why nobody is allowing you to knock on their door, or you’re knocking knocking, nobody’s listening is because you need to be talking to another party, should they be looking for a broker dealer to find? Or will you be listing broker dealers that they can connect with to help them make up a purchase? They get? How does it How does it work on the on the buyer side?
Jake Gallagher 17:47
That’s a great question. And so if it’s a, for instance, I mean, we learn our primary issuance business, we are the broker on a number of transactions. And so if it is an investor of one of those offerings, and we saw that existing relationship with the issuer, we as a broker can help facilitate those transactions directly with the end investor, but the the, depending on the issuer, we would refer that out to other brokers as well. And so they really kind of depends on the specific use case. But But yeah, we, you know, with a lot of issuers that are looking to onboard that, you know, don’t necessarily have they’re not working currently, with a broker, we have looked to make referrals out to other brokers to you know, to limit that direct to retail, you exposure as the ATS is we want to be as mainly institutional as possible.
Oscar Jofre 18:44
Yeah. And the only way you can do that is by making sure that firms like Elliott’s has deal flow to participate, even though you’re a broker dealer as well, you could do that. Your it only works with the more BDs are involved, right. I mean, that’s an element. Okay. Yeah, the great
Jake Gallagher 19:03
value in it is by partnering with firms, like Elliot’s to in in really trying to create a larger network effect. I mean, at the end of the day, we, you know, we’re, we believe we have a pretty great network, right, and we’re continuing to expand that every day. But there’s 1000s of family offices and high net worth individuals and millions of investors that, you know, we’re just never going to be able to get to, if we wanted to do a by ourselves, and we could, it’s just gonna take us a lot longer versus when we’re building, you know, mutually beneficial partnerships with firms like Elliots and other BDS. It allows us to create that network effect much faster and ultimately, we believe will create more transparency and liquidity in the market,
Elliot Chun 19:51
which I think is a extremely important part to emphasize, particularly at these early stages of where our industry is right. We need to work cooperatively in order for in order to facilitate a stronger and more robust environment for secondary market transactions, whether or not they’re ATS or not. And so the more and more that the thing I appreciate about the PPEX model is that it really is that network effect of being able to tap into the resources of other various regulated entities that are participating in this in this reg A specifically process in order to facilitate higher and increase participation from those that may not be familiar with what’s happening in reg A plus, and as the search for alpha continues, and you know that I think we downplay that a lot. And in this situation, it’s important, any institutional investor, their job is to generate alpha full stop. People like to say I manage risk, okay, you manage risk, at the end of the day and investor is paid to generate investment returns. And more and more, those of us that have transitioned from public securities into private markets are understanding that the opportunity to generate alpha is coming from investing into earlier stage private companies that have a infrastructure, institutional infrastructure that is surrounding it, which is what we’re talking about now, which is why this area is so exciting. And why what PPEX has come up with, it could be extremely attractive, as institutional investors seek to start investing earlier into the private investing process, yet be able to one, if they do participate in primary issuances, be able to off ramp their position or get access to their capital, or on the flip side, there has been some maybe initial market validation, and that company is now wow, that is something that we would want to participate in. Let me go through a regulated broker dealer access the that opportunity through the PPX exchange, and now I’m doing it again, in a very familiar process. It’s not something that is you that’s new or that you have to learn about, hey, I’m, I’m executing, I’m shooting a message to my broker dealer, that broker dealer is going to help me get access to what is trading on the PPEX, get my order fields, and done in again, in a way that’s very familiar to institutions.
Oscar Jofre 23:11
You know, that I’m going to go to the other side, and I we hear this on the public side, but I don’t want to make it kind of the public, but it’s the way to shift the conversation. Because where, in one side, I think it’s pretty clear. Now, you know, the onboarding, when it comes to PPX or this type of model, which is an institutional grade type of ATS is where the investor needs to go through the broker dealer. That’s all great. Now it’s on the other side, like anybody else people will want to list if there’s a there’s also not so much a demand. But is there a market? So if it’s an individual selling, it’s an individual buying it? Where where is that? The guy I’m, I’m still I’m not sure from an individual. Right now, where do I go? Like, I am not a seller anymore? I’m not the seller, I’m just a buyer. So am I seen what, what’s available on the platform? And just like from outside that this companies there that are the shares are available, or there’s no visibility for me whatsoever. What how do I get to know about it? How do I on the other side now? Or leave it to you Jake?
Jake Gallagher 24:28
Great question. So, so when you go to PPEX, you know you try to create a profile, we do collect some information on you because we do right now we are issuing kind of seats one by one. And so the traditional retail investor can’t access the platform directly as it is today. We are looking to expand that out. But right now, what we would say is, you know, you know, does your broker or is your broker currently tied in with the ATS or who is your broker in That would be our approach and in the scenario where their broker isn’t, you know, tied in with the PPEX ATS, and we would say, All right, that’s terrific. What we can do is for us, we would either look at the opportunity ourselves or perhaps look to refer that out to another broker, like Weild & CO, or or many of the other ones out there. So quickly happen.
Oscar Jofre 25:27
Okay, so, no, I knew that the individual themselves going on board, but I was just curious. The because in order for someone to list there’s got to be a buyer, right. And then obviously, the buyer would have to be, again, BD and all that to be able. So tell me the mechanics, let’s go through the mechanics. Now on on the buy side, we, I think we kind of get the idea here that the BD needs to do their due diligence, what responsibilities are now being done. On the other side, obviously, to Elliott’s point, if you’re selling it yourself, there’s no responsible. I mean, you could make a mistake, now you’re buying it the representation that that BD is doing, what are they having to do to make sure that that investment that’s been presented that shared that offer there is something you should be buying? What you What responsibilities does the BD have on that one, Elliot?
Elliot Chun 26:25
Well, ideally, if it’s if it’s on PPEX, then the good news for the broker dealer on the buy side of the transaction is that there’s a level of diligence that that issuer has gone through to even be considered to be listed on PPEX. Right, so that gives us as a broker dealer, a good feeling that the issuer or the issue that is listed on the ATS is one that fits and meets regulatory requirements. Right. And so I think that’s part of the power here of what’s been constructed is that reg A plus has long been one of the regs that we assume that individuals want to participate in, and would participate in. In this, in this scenario, we’re seeing, hey, there’s going to be an environment for the more institutions to come in. And this is part of that institutional type offering that individuals can participate in and through. Okay, there’s probably a couple of other things you may want to add on that.
Jake Gallagher 27:46
Yeah, no, absolutely. And there’s obviously as the broker is going to make sure, you know, there’s various, it’s suitable for the investor and, you know, there’s going to be a level of due diligence that kind of goes into not only, you know, onboarding the issuer, but as they you know, are listed throughout the year and renewing their issuing or issuance on the platform. For instance, with reg A plus securities in particular, you know, blue sky compliance is a is a large factor in kind of keeping not only current investors, but prospective investors up to date as much as possible. In here at [uncertain] partnership with a company called guards. In full disclosure, we are invested in the company and our CEO Jim Dowd is on the board at guard, but what guard does is they allow you to really work with the issuer to be able to put all of their financials all material information about the company into an easy you know, report on terms of up to date financials and they help file they help the issuers file with all 50 states to remain compliant under blue sky laws, which is which is also another big factor in terms of you know, when the broker or when the investor is looking at investments are you know, are these companies you know, remaining compliant past their initial capital raise and so, with reg A plus securities, you know, they may they may use guard, they may use another provider, but there would be a report available for reg A plus securities, that investor would investors would be able to access as well as access to a lot of the public filings that are filed on the SEC Edgar site. You know, that way you prospective investors and current investors can stay up to date as you know, our as up to date as possible and the financial health and well being of the company,
Elliot Chun 29:43
which which is interesting to note because if you go the other, there’s the other side of the reg A plus spectrum right, which is you can have a scenario where you have an issuer that has not worked with a broker dealer on their issue. They have in a, they are, you know, offering to sell their positions, either on an ATS or not. But let’s assume this since we’re talking one end of the spectrum, not on an ATS. And you can have a individual investor walk up and potentially purchase directly from that issuer, right? So in that scenario, you don’t have a broker dealer on the issuer side, you don’t have a broker dealer on the on the buy side. Could there be things that don’t go right? In that transaction? And, yeah, if they do so, yes, there could be? And if the answer is yes, thing, something goes wrong. It’s significant risk on the issuer side, it’s significant risk on the investor side. And it’s, quite frankly, it’s just not the type of environment that I think many of us in the in this in this space want to have for both the issuer and the investor. There’s just too much risk inherent in that. And that’s, I don’t think that that’s the right way for the industry to move forward. And so it’s important to kind of note that that’s what’s happening on one spectrum, as we’re talking about this side of the spectrum, in, in what Jake and PPEX have put together.
Oscar Jofre 31:33
No, no, no, please continue.
Jake Gallagher 31:36
I was just gonna add on to that and just say, Yeah, I mean, when you’re involving multiple regulated parties, in terms of the ATS and brokers on both sides of the transactions, you have a lot of licenses and a lot of careers that, you know, that’s their focus is making sure things remain in compliance. And in Ultimately, the goal of the PPEX platform, and by building these partnerships with, you know, brokers that are in good standing, in clean records, our goal is to create as much trust in the private markets as possible. And, and kind of what to Ellie’s point earlier is the secondary market to, up until really recently has been, it has been manual, it’s been opaque. It’s been, you know, a large gray area, and there’s been a lot, a lot of asymmetric information that’s been out there. And by partnering with multiple regulated parties, we’re hoping to, you know, increase the transparency, you know, increase the trust in the market and hopefully, increase the liquidity that’s needed.
Oscar Jofre 32:37
You know, it’s, it’s pretty interesting. You know, the, the whole idea behind dsta, for me was to really demystify what people’s perception is the way they speak of ATS is in secondary market. The way it’s onboarded. There’s a lot of misinformation out there. They’re people speaking the terms of the individual investor, without putting the caveat of hey, yes, they can. But they it’s not the but but the process is the following. And this, because what it does, it confuses everyone, right, there’s going to be it’s safe to save there’s going to be different ATS is different structure. ATS is this is an institutional grade ATS that has that, that additional layer, that Washington say additional layer, just the way it works is through the institutions and the institutions. In this case, it’s referring to the broker dealer, is there another definition for institution other than broker, you are defining the institution as the broker dealer right to be correct. So
Jake Gallagher 33:46
they are among the institutional investors. Absolutely. But in terms of other institutional investors, it’s really anyone that manages you, anyone that manages 50 million or more of assets, or, or is a bank, or Trust Company, savings and loan, there’s a list of various criteria that could qualify you as as an institutional investor. And so in this era, we are working with a lot of broker dealers that are onboarding the ATS to and there’s our institutional investors and then they’ll obviously work with the underlying investors at the retail and high net worth market. And then we’ll also work directly with you your, your direct institutional investors where they are, you know, a GP that’s making investments in, you know, on behalf of the fund, or it’s perhaps a pension or an endowment that’s making an investment or, or selling an asset. And so that those were working with institutional investors across the spectrum. And then you know, you mentioned that there’s there are other ATS out there and, you know, it kind of comes back to that network effect is We’re also looking to expand and create partnerships with other ATS, because we, you know, our vision is that it’s not a winner take all market, you know, there’s not going to be one winner that just wins everything, you know, into, we think by partnering with other ATS, it’s just going to grow our network, ultimately, maybe indirectly, but nonetheless, it’s growing. And we think that’s gonna, you know, once again, help provide that, you know, that transparency and the look the ultimate liquidity in the market.
Oscar Jofre 35:29
I agree. I agree. And I’m surprised to you, Elliot, I am I’m just gonna have a sip of coffee, because I just can’t believe getting go on him. On the word liquidity. He went on me hard. Jake, I just wanted to let you know, he embedded in my head never to use that word ever, ever again. My wife, what Elliot did? And I did
Elliot Chun 35:57
notice it. And but the way Jake is using it is a little bit different. Right? Okay. So please, the intention for the market is to provide liquidity. That’s, that is where we are all driving to we want to get to a place where we can use that term. Now, is it ever going to be a term used today for you know, the top down components? liquidity? No. Right? But is it going to be used in a way where we can say, as a owner of a position I can sell out of my position at a price that I deem generally, around the market value of what one would expect? Yes, right in, in getting into valuation and market is another thing, but facilitating an environment where a seller of a position can get out of that position in a reasonable band, from a percent of where it’s marked to where they execute out of? Yeah, that could be it could be we’re building towards liquidity, right? We’re not there yet.
Oscar Jofre 37:23
But I told you, list, I have a video not that there’s a video today. There’s a video meet crying tears tears. In fact, I forced my entire team never to use that word. Again.
Elliot Chun 37:39
It’s, I won’t be there, unless we’re talking about future state. But today, it’s dangerous today. It’s dangerous to use the term.
Jake Gallagher 37:49
Yeah, no, I I certainly agree with you on that. And full disclosure, obviously, we can never guarantee liquidity in any position. Thank you for saying that. There you go. Absolutely. And that’s the goal is like we are working towards liquidity. I mean, that’s ultimately our goal is to create as much transparent to create that transparency and liquidity. Obviously, we can never guarantee anything. And you know, investors should very much understand that.
Oscar Jofre 38:15
Yeah, and I would just, you know, it’s, it’s important at this stage. That, you know, I found that the other webinar that we did earlier, very education, I mean, it it was, and I’m noticing our own team, now, we’re being very careful. If people say, look, there’s a venue, it’s not guaranteed, but there’s a venue. That’s it. There’s now a venue, we never had that before, like, before we you had the exemption, but you didn’t have the venue. Now we have the venue. And that’s the exciting part. Then from the venue, we can start talking about maybe the next stage as Elliot refers to the term off ramp and the investor, right, where they get to monetize their investment in any secondary market. So I think these are, I think this is the time now where clarity needs to come up because I don’t know about you guys. But the, in the last, I would say in the last four or five days, I probably receive somewhere between five to 10 emails about ATS secondary market offering liquidity. And I know your industry, I mean, when you when you told me that I was going down [uncertain], you cannot guarantee it, you’re providing the venue, the mechanism to bring these parties together. And they will, you know, they transact liquidity occurred, but if they don’t transact, you’re not on the hook for it. You know, you’re you’re, you’re not there to guarantee that a transaction needs to happen. So, and this is just
Elliot Chun 39:51
Even when the US stock market was just getting going on the New York Stock Exchange in the 19 40s and 50s there wasn’t liquidity, right. I mean, things were trading at dollar plus spreads and you were taking 50 cents, you know, on on on a spread for commission. Right. So the exciting thing that you had said is there’s the venues now, which is, again, the importance is to be able to provide a familiarity a sense of familiarity to what works today. And what works today, from an equity public equity markets perspective, the private markets have never been able to provide, we just haven’t been able to do it. But now we have the venue, as you say, we’re talking, we’re talking with one of the top ones now, they have provided a process that includes two regulated entities on both sides, in addition to the ATS. So now Oh, I get that that that sounds very familiar than a as a public equity trade. So it’s in very important for us to be able to provide that environment because I think not having that environment with the mist. And the opaqueness was something that was a deterrent for people to participate. And rightly so. misinformation or disinformation or asymmetry or asymmetric information, as Jake was saying, that was all reasons to not participate with the venue, with the familiar aspect and flow of regulated entities on both sides. Were make, we’re taking away reasons for investors to say no, and eventually, they’re going to be out of the reasons. And they’re going to have to be they’re going to be forced to start looking at investing from an institutional perspective in these markets.
Oscar Jofre 41:56
You know, I have an interesting perspective on that. And I, I interested to hear both your perspectives on it. So my introduction through secondary market was back in 2003 2002. I, I know you guys were young bucks just coming out of high school, but I was still an old guy. But in those days, we would hear about trades occurring. And you needed to be ultra, ultra high net worth that guy or person, as you say, or an entity to be able to buy the shares of LinkedIn, and, you know, Facebook and all that. So I the only, I’m only saying this is not so much as a challenge as I think it was there, there’s a certain space that’s been doing it now, for over two decades, I could be wrong, you guys have the data. So that’s one space. And then I remember a colleagues of mine, during the crowdfunding era, you may remember them Jake CFX, Jordan, and then they started doing secondary market for real estate equity crowdfunding, we all got excited. And you know, they were going live. And there was there was an appetite. But when people found out how long this thing was gonna take, it died. Like I remember, when we brought our clients it, it for them, it, it bringing on onboarding a client could take months, and that was just the client then they would have to. So there, there was one element that I think private market was hindered by one adoption to your point, Elliott, but for those who already used to it and liked it, there was another problem with it, that the trade had to be big enough in order to warrant that lag of time. Now, there we can shorten that cycle down dramatically, because there with the introduction of technologies that could put everyone on the same framework per se, to allow a transaction to occur. That’s, that’s my perception of ATS. I got introduced to it very early on. When I had my company babelfish. I never had heard of it of events. I was very young to it in and I remember when I when I went into it to to use it. It didn’t seem like an exchange. It was really weird. It was like a matching. And then when CFX was sort of like, okay, we’re getting close. This has to be very different. It I’m not sure if the word is familiarity for me at the moment, as it is. I want to sell now, I don’t want to wait eight months later. Does that makes sense? Jake, I mean, you’ve seen this right. You know what I’m talking about?
Jake Gallagher 44:52
Absolutely. Absolutely. So and you know, we do a lot of you know, as much as we say having Not everyone is as quick to adopt an alternative trading system. And so we do a lot of secondary transactions still over the counter. And so I can kind of relay that process to what we’re doing on the ATS. And that, you know, with a traditional secondary transfer, you know, view, I’ve got shares and in, you know, company A, that I’m looking to sell, you know, even once we find a buyer that is willing to buy my shares at a price that I think is fine, you’re ultimately there’s still a lot of paperwork, and a lot of contracts that need to be signed, that can take days or weeks. And we have to send it off to the issuer. And the issuer has to sign off on the transfer of shares. And a lot of times, they have the ability to refer it or execute a right of first refusal where either they are one of their larger investors, and the company has the ability to purchase the shares at that execute, or that negotiated price. And so even on the over the counter of the secondary over, over the counter secondary trades, that process, you know, from the time that you have an agreement, you know, in theory on price and size, that could take, you know, a month or two months to settle and clear, which to your point it takes that’s a long time, right? When you can sell your shares of Apple and, you know, two minutes and that and half of that’s logging on and, you know, trying to find out your password. And so, you know, the settlement time there is extremely large. And I think what we’re trying to do here with with the PPEX ATS is look at each one of those friction points and see what we can do to minimize the friction in accelerate the growth. And in accelerate that timeline. And it’s by partnering with with the brokers and having those trades routed instead of being over the phone, by routing via API’s. And by clicking a button, right, and then it’s by partnering with the issuers and then having the issuers who have worked with a transfer agent, like yourself to know to Okay, well, as long as we know, we’re not going to violate any securities laws, or we’re not gonna be subject to public reporting requirements, you can approve the trade in the transfer, and that will help take time off the table. Right? So if you’re looking at every step of the transaction, it’s where can we shave off days? Where can we shave off time? It make this a more seamless process in the traditional secondary transaction today. You know, obviously, we’re not it’s not the New York Stock Exchange today, and it won’t be tomorrow. But nonetheless, it’s by examining and try to dissect it to see where you can shave off time and where you can create those mutually beneficial partnerships to do so.
Elliot Chun 47:47
And, yeah, three months is, that’s offensive one to two months, that is just offensive and 20. I mean, it’s like we’re sending like homing pigeons back and forth. And as I change those things, you know, why why does it take that long? And the answer, I think, is because of the lack of trust, right? There’s no reason it should take two months to get it. Okay. So it does, that’s just the state of it. Why is it that get the case, because there’s a lack of trust, I don’t trust that you as a private owner of X things that you actually have what you say you have, and that you’re actually going to say you’re going to send the money, and the issuer knows that you’re going to sell your position, and they have to validate it, it all comes down to a trust environment or an environment unfortunately, that is completely trust less has proven by two months to get a trade done. What what is now happening here with technology and using not the homing pigeons of of prior past but now 2021 technologies that were able to bring trust to the private market system. And and with necessary groups like transfer agents, broker dealers, ATS are able to provide that trust in an environment that lets investors share in that trust and we can prove that trust. And that’s what it all comes down to. And that’s the exciting part is because we’re moving from a trust less environment to a trust worthy environment that could change this execution scenario from two months to minutes. And true minutes, right, like not not where you actually have t plus two where you have to, you know, send your custodian stock electronic stock certificates around each other. This is truly private transactions in minutes.
Oscar Jofre 49:56
Yeah, I’m in agreement with that. I am by the way that to Mike Right, Mark, I’ll let you use it in this context. So hey, I don’t joke around that. No, it’s true. It. I think, you know, one thing I’ve learned from watching the secondary markets, not particularly PPX because obviously we’re all trying to make it more better and more efficient, is to look at all the participants all the way down the pipe, meaning all the way down, when you look at all the way down, and you look at all the friction all the way coming down. And as you start recognizing you start recognizing where all the points are. And that’s one of the things that we build in this infrastructure. I, I truly believe that we can, and I know we can bring a transaction down to minutes. When I’m talking in, you know, the, the money transfer, the security transfer, automatically update the cap table portfolio, the new investor, boom, everything. Why? Because if all the participants I mean, that’s how the public markets work. That’s, I mean, to the other day, somebody was telling me, what’s the difference between private and public, very simple, get a phone, get an app, you can get any stock you want in any public invested anywhere in the world, for me now for private companies doesn’t exist. That inherently is why well, I can build an app, that’s it’s not about building the app, it’s about where do all these things sit. So Elliot, to his point, he can trust it, I believe we’re there, I truly believe we are. It’s going to take a lot of work, it’s not going to be easy. But be we have to because if it’s months or weeks, it we’re back to where we were 10 years ago, we’re GFX was and then they became open finance. And they never, you know, they changed the name, but they never changed the process. Right. So we have to be better than that. And there’s, there’s the technology is definitely there for to get the broker dealer to trust it. Like some of the things that we’re doing. And our infrastructure to facilitate this is if we’ve encoded the idml on Oscar Jofre, that’s already been done by a BD, as long as that ID and along with all the credentials that came with it. And it’s put in an immutable form, it should be allowable to be trusted by the next party. And the only way that party will know that they can trust it is that they know that the only person that can vote on it with somebody of their caliber have the same level of licenses. And that is the infrastructure of trusts. I put in a plug I haven’t done in a long time. But no, this has been a listen, this has been a good conversation, because I think it’s important that the takeaways is look, there are going to be different flavors of ATS that Jake and Elliot alluded to. That is an important. The first questions you need to be asking the ATS straight out, are you an institutional or your retail base? They’re all going to say their retail, but who do you need to go through because that’s going to determine how your onboarding will need to happen in order for you to take advantage of their platforms. And but ultimately, to, to Jake’s point, we’re going to have many there isn’t going to be I think this the reality, I want people to understand and I’m glad you said a jig, we there’s going to be cards, there’s going to be PPX there’s going to be real, though there’s going to be a teaser, there’s going to be all of them not there is that many companies, people 150,000 of them raise capital every year, I assure you no Personal Capital, you don’t have all of them, do I? So we need to understand that. It’s not a matter of whether one is better. It’s what’s best for you in the company that’s elected to power. And I think that’s the you know, that’s the way I look at it ultimately, wouldn’t it be great if everybody worked together all the secondaries one day interconnect with each other. I mean, that would be awesome. That’s it, you know, it we we love to see that mean broker, broker dealers do that I know we’ll employ you guys like doing syndication. I hope I used the right term. But I mean, imagine doing that in secondary market where you know you listed with PPX but PPX then listed directly on another platform that deals with the retail investor. But because the other the ATS is an actual broker dealer, it matched your requirement. I mean, that’s just me imagining so it’s been a great, so just a few minutes, Elliot, your words wisdom. I’m gonna leave it to last because you always have two wonderful words. So Jake, from your end, I mean, I’ve made I never told you that he was going to be about PPX today. I hadn’t done that before. I wanted to discount because I felt that other conversations we’ve had together. It’s been kind of, you know, talking generality and obviously this what you do best and you understand how The playground works. So your last words for everyone regarding the PPS ATS at North capital?
Jake Gallagher 55:08
i Yeah. And first of all, I’d like to just once again, thank you for having me on, as always Oscar, in, you know, I think, you know, moving forward, you know, our goal is to, to create more partnerships in intelligence and create a more open, accessible, you know, liquid and transparent market. And I think, you know, if you do have, you know, securities that you’re looking to sell, you know, ask yourself, you know, who did I buy him from? In? Did I buy them from a broker? And then and then ask your broker, if they if they’re tied in with an ATS, whether it’s ours or another’s? Or if you bought them directly from the issuer? I would, I would ask the issuer, you know, how can I, you know, are you tied in? Are you listed on an ATS or whether it’s ours or another’s? It’s really about having these conversations, instead of kind of making kind of a lot of assumptions and relying on asymmetric information, where, you know, we’ve seen what that has caused in the past. And I think it’s really about having these conversations and getting greater adoption in the market to help drive it forward. So you know, with that I once again, really appreciate the time, Ellie, it’s always great to connect, as always, we’ll have to connect here soon. And yeah, thanks again.
Oscar Jofre 56:27
Oh, yeah, please. Yeah. Just to summarize here, I think this, the secondary market activities through alternative trading systems, is something that we get to talk about in 2021 as a reality, and it’s taken close to 10 years to get here, you know, call it 856. However, we don’t want to put on it. The thing I like to think about is what is this going to environment going to look like in the next five years? Because that is that’s the vision I think all of us are in the industry are looking at. And I do think that there is a chance that within five years, we can be saying that execution of reg A plus positions in in secondary markets through ATS is could be more efficient than publicly traded securities, as we know it today, particularly equities. That’s a real powerful statement, and one that I think we can stand behind. In five years, given how quickly the industry evolves, we won’t get there without partnerships. As Jake said, we won’t get there if we aren’t being cooperative. And we aren’t being collaborative and how we drive to that five year goal. But with the types of people that we’ve been exposed to, and that particularly Oscar and the KoreConX team are building from a network perspective. It’s full of very quality people who have great intentions. And all each of us are proud to be a part of, of what’s being built here. And so we’re, this is a key component of it. And then five years, I think we’ll be having a very, very different conversation Oscar, about what this environment looks like, and where we came from, and where we are going from there. I couldn’t disagree. I agree. 100%, I’m with you. I did get something here that um, my last comments are going to be something you said Jake, and you both said it, we kept using the word broker dealer. So for those listening in is and investors. Obviously, when you go to these investment pages under reg A aids, obviously, BD make your brand visible to the investors. This is a new, obviously, it’s not only going to help you work with PPX, but it also gives up brand recognition to the investor to let them know who the BD is the industry. Like everything else, we’re evolving. And with this new momentum, this new momentum brings different responsibilities. So in order for the secondary market to work, we need more transparency over here, with the investors given full visibility, not to say that it isn’t in the form one or any of the documents. But you know, people are people they don’t read the 300 pages. So this really was a great takeaway for me. I wrote it down here, because I have an ecosystem meeting with everyone and I’ve been, I’m a big believer in best practices. We brought in a number of best practices for reg A, opt in something that nobody else was doing. We shared with the industry to make sure to protect everybody and privacy. And the other one that we’ve been actually getting our clients to do is best practices in showing Who their broker dealer is who their escrow provider, the auditor, who their payment processor is why? Because this way you eliminate returns this way when they see in the statement that it came from this company. Oh, yeah, yeah, there it is. It’s on the all of that stuff is buried, and this country back to secondary market. This is. So I this value, it’s one more reason why they should do it. So thank you both. I really enjoyed this again, and you’re right. Two to five years from now. We’re going to be all of this is historical on YouTube. So we’ll be able to look at, we’ll see what Jake said. We’ll see what Elliot said. And we’ll reconvene. But thank you again, until remind everyone, on the 15th of March, we have a great event day the whole week, actually Monday through Friday. We have webinars that two to three webinars a day, but we’re starting it off with called state of the jobs act 2021, featuring none other than the Father the Jobs Act, David weild, with Sarah Hanks, and of course being hosted by Vincent millenary. From Molinar video media, also known as fin Tech TV, it’s going to be a great day for everyone. And obviously, it’s going to be great that we can finally say end to end. Finally, after all these years, and we’re just getting started. Thank you both. Have a wonderful afternoon. great week and we’ll be talking to you soon. Take care guys.