For many investors, the term “secondary market” immediately brings to mind buying and selling shares on a public exchange. Yet secondary transactions are not limited to listed securities. As private companies remain unlisted for longer and private capital becomes a larger part of investment portfolios, secondary markets are taking on a more important role in the way investors, shareholders and companies manage ownership and liquidity.
In simple terms, a secondary market allows an existing investment to be transferred from one investor to another. The company whose shares are being traded does not usually receive the sale proceeds. Instead, the transaction gives an existing shareholder the opportunity to sell and a new investor the opportunity to acquire an ownership interest.
For private companies, an organised secondary trading facility can help replace an informal and often fragmented process with clearer procedures, verified participants and structured transaction management. It does not make unlisted shares as liquid as listed shares, but it can provide a practical pathway for liquidity where no public exchange exists.
What is a secondary market?
A secondary market is a mechanism through which investors buy and sell securities that have already been issued. This differs from the primary market, where a company issues new shares or other securities to raise capital.
If an investor participates in a capital raising and subscribes for newly issued shares, the investment is a primary transaction. The money paid by the investor generally goes to the company and increases the capital available to fund its strategy.
If that investor later sells those shares to another investor, the sale is a secondary transaction. The purchaser becomes the shareholder, the seller receives the proceeds and the company’s total issued capital will generally remain unchanged.
Public exchanges provide the most familiar example of secondary trading. They bring together buyers and sellers, publish market information and support high volumes of transactions. Private-market secondary transactions follow the same broad economic principle, but they usually occur in a more controlled environment and are subject to company-specific restrictions, investor eligibility requirements and different levels of available information.
Why are private secondary markets becoming more important?
The traditional private-company pathway often assumed that early investors and employees would wait for an initial public offering, trade sale or company buy-back before receiving liquidity. That model has become less dependable as companies stay private for longer and exit timetables become more uncertain.
At the same time, the private capital ecosystem has expanded. ASIC’s work on Australia’s evolving capital markets recognises the growth of private markets as a significant structural trend and notes that many companies choose to remain private while pursuing longer-term growth opportunities. The regulator has also highlighted the importance of transparency, valuation, conflicts management and fair treatment as these markets develop.
This creates a practical need on both sides of the transaction. Founders, employees and early shareholders may want to realise part of the value they have built without waiting for a full corporate exit. Investors may need to rebalance portfolios, meet liquidity requirements or adjust exposure. Other wholesale, sophisticated or institutional investors may want access to established private companies after the original capital raising has closed.
Secondary trading can connect these interests. Its role is not to guarantee liquidity, but to provide infrastructure through which genuine buying and selling interest can be identified and, where the relevant requirements are satisfied, converted into completed transactions.
How does a private-market secondary transaction work?
The exact process varies according to the company, security and facility, but a transaction generally begins with an existing shareholder indicating a desire to sell or an investor expressing interest in buying.
Before a trade can proceed, the parties may need to complete identity checks, satisfy investor eligibility criteria and review the information made available for the opportunity. The buyer and seller must then agree on the number of securities and the price. Depending on the structure, the company may also need to approve the transfer or decide whether existing shareholder rights apply.
Transaction documents are executed and settlement arrangements are completed. Funds and ownership records must then be transferred in accordance with the agreed process. Once settlement is finalised, the company’s share register is updated to record the new holder.
This is more involved than placing an order for a listed share. Private securities are not ordinarily supported by the same continuous order flow, standardised public disclosure or exchange-based clearing infrastructure. A well-designed process therefore matters: it can establish clearer steps, improve communication and reduce the administrative friction that often accompanies privately negotiated transfers.
What determines whether unlisted shares can be sold?
Owning shares does not necessarily mean they can be sold at any time or to any buyer. The company’s constitution, shareholders’ agreement and the terms attached to the security may contain transfer restrictions.
Common provisions include board approval requirements, rights of first refusal, pre-emptive rights in favour of existing shareholders and limits on transfers to competitors or other specified parties. Some securities may also be subject to vesting conditions, escrow arrangements or restrictions created by an employee share plan.
The legal and disclosure requirements applying to an offer or transfer can depend on the circumstances and the parties involved. Investor classification is particularly relevant where an opportunity is limited to wholesale, sophisticated or professional investors. Participants should not assume that eligibility for one investment automatically establishes eligibility for every transaction.
These factors should be checked before a shareholder commits to a sale or a prospective investor commits capital. A platform or intermediary can facilitate the process, but it does not remove the need to understand the rights, restrictions and risks attached to the particular security.
How are private-company shares priced?
Pricing is one of the most important differences between public and private markets. A listed share may trade frequently, producing an observable market price. An unlisted share may trade only occasionally, and the most recent transaction may not reflect current conditions or the size and terms of a new proposed trade.
Private-company pricing may be informed by the most recent capital raising, financial performance, comparable companies, sector conditions, business milestones and the rights attached to the particular class of shares. Buyers and sellers may also consider whether a discount is appropriate for illiquidity, information limitations or the absence of a certain exit timetable.
A previous funding-round valuation should not automatically be treated as the current value of every share. A capital raising may have involved preference shares, downside protections, liquidation preferences or other rights that are not attached to ordinary shares being sold in a secondary transaction. Market conditions and company performance may also have changed since the round closed.
Ultimately, the price of a secondary transaction is the price accepted by the buyer and seller, subject to any applicable company approvals or transfer mechanisms. Where trading is infrequent, investors should distinguish between an indicative valuation, an asking price and the price at which a transaction has actually settled.
What are the potential benefits for shareholders?
For existing shareholders, the central benefit is the possibility of liquidity before an IPO, trade sale or other whole-of-company event. This can be valuable for early investors whose capital has been committed for many years, employees whose wealth is concentrated in company shares, or shareholders whose personal circumstances have changed.
A secondary sale does not need to involve an investor’s entire holding. Subject to the relevant rules and buyer demand, a partial sale may allow a shareholder to realise some value while retaining exposure to the company’s future performance.
An organised facility may also make the process more orderly. Instead of relying entirely on personal networks to locate a buyer, shareholders can engage with a defined process for expressing interest, agreeing terms, completing checks and managing settlement.
However, access to a facility does not mean a sale will occur. A transaction still requires a willing buyer, an agreed price and satisfaction of all legal, company and procedural requirements.
What are the potential benefits for private companies?
Secondary liquidity can support more than departing shareholders. For a private company, a controlled liquidity program may help manage a growing shareholder base, support employee retention and provide investors with a clearer pathway to realise value over time.
Employee equity is more meaningful when recipients can see a credible route to liquidity. Allowing structured secondary transactions may enable selected employees or early stakeholders to realise part of their holdings without forcing the company to undertake an IPO or sell the business before it is strategically ready.
The company can also retain greater visibility over who is seeking to buy and sell. A company-controlled Trading Hub may incorporate its transfer rules, approval processes and access settings, helping the board manage liquidity in a way that aligns with its capital strategy and governance obligations.
Secondary activity can sometimes provide useful evidence of investor demand and price expectations. It should not, however, be treated as a definitive valuation where transaction volumes are low or the securities traded have different rights.
What are the key risks for investors?
The first risk is illiquidity. A secondary pathway may improve the prospect of finding a counterparty, but it cannot guarantee that a buyer will be available when an investor wants to sell. Investors should be prepared to hold an unlisted security for an extended and uncertain period.
The second is valuation risk. Limited trading data and company information can make private securities difficult to value. The eventual exit price may be materially below the price paid, and the investment may lose its entire value.
Information risk also matters. Unlisted companies generally do not operate under the same continuous disclosure framework as ASX-listed companies. The volume, frequency and standardisation of information available to investors may therefore be different.
Other risks include dilution from later capital raisings, changes to the company’s strategy, restrictions on transfers, different rights between share classes, counterparty or settlement issues, and uncertainty over whether an IPO or trade sale will occur. Tax consequences should also be considered. The Australian Taxation Office notes that selling shares is generally a capital gains tax event, although the treatment will depend on the holder’s circumstances and whether the shares are held as an investment or as part of a share-trading business.
Investors should conduct their own due diligence and obtain independent financial, legal and taxation advice where appropriate. A secondary transaction should be assessed on the quality and valuation of the underlying investment, not simply on the availability of a trading process.
What should investors review before buying on a secondary market?
A prospective buyer should understand what is being acquired. This includes the class of security, voting and dividend rights, liquidation preferences, conversion terms, dilution protections and any restrictions on future transfers.
The company itself requires equally careful assessment. Relevant areas may include its business model, financial position, cash requirements, management team, competitive environment, capital structure and likely pathway to future funding or exit. Investors should consider why the existing holder is selling, while recognising that shareholders sell for many personal or portfolio reasons that may have little to do with the company’s prospects.
The transaction process should also be examined. Investors should know how their eligibility is verified, how orders or expressions of interest are handled, what information is available, whether company approval is required, how funds are managed and how the transfer will be recorded.
Finally, investors should test their own liquidity assumptions. If the investment could not be sold for several years, would it still be suitable for the portfolio? That question is more useful than assuming that the existence of a secondary facility will produce liquidity on demand.
The role of technology in private secondary trading
Historically, private share transfers were often managed through brokers, spreadsheets, email chains and bilateral introductions. This fragmented approach could make it difficult to identify counterparties, coordinate documentation and maintain a clear transaction record.
Technology is helping bring more structure to the process. Digital platforms can centralise opportunity information, participant verification, transaction workflows and communications. For companies, dedicated Trading Hubs can create an environment in which access and transfer processes are aligned with company requirements. For eligible investors, they can make private opportunities easier to discover and assess.
Technology does not eliminate investment risk or manufacture demand. Its value lies in improving access, administration and transparency around a transaction process that has traditionally been opaque and inefficient.
Secondary markets are becoming part of private-market infrastructure
Private secondary markets are moving from the margins of capital markets towards becoming an important part of the ownership lifecycle. Their growth reflects a simple reality: private investments may need liquidity mechanisms long before a company is ready for a traditional exit.
For shareholders, secondary trading can provide a potential path to realise value. For investors, it can create access to companies and securities that are no longer available through a primary raising. For companies, a controlled Trading Hub can support shareholder management, employee equity programs and longer-term capital planning.
The opportunity must still be approached with care. Private securities remain complex, information can be limited and liquidity is never assured. The most effective secondary facilities do not try to make private assets behave exactly like listed shares. They provide the structure, controls and transaction support needed to help buyers and sellers navigate the distinctive realities of private ownership.
For wholesale and sophisticated investors interested in unlisted opportunities, PrimaryMarkets provides access to private-company trading opportunities through a secure, end-to-end platform. Investors can explore current trading opportunities or register with PrimaryMarkets to learn more.