It may come as a surprise to discover there is a thriving marketplace offering high-quality, private investment opportunities. Unlisted shares can offer excellent long-term opportunities for investors who are looking to diversify their portfolio.
What is an Unlisted Share?
An unlisted share (security or asset) is a financial instrument that’s unavailable on the formal or listed exchange.
Unlisted shares trade in the over-the-counter (or OTC) market and are therefore often referred to as OTC shares. Unlisted shares are available for purchase through unlisted market exchanges and platforms, or are facilitated by other market participants who are happy to support trade in unlisted assets.
Types of Unlisted Shares
The OTC market offers investors the opportunity to trade in:
- Corporate bonds
- Government securities
- Some derivative products such as swaps
- Unlisted securities
- Unlisted funds
- Unlisted commercial and direct assets
- Fixed income investments
Who Sells Unlisted Shares?
- Unlisted property trusts
- Building societies
- Manufacturers of building products
- Pharmaceutical wholesalers
In addition, food and agriculture co-operatives often sell their shares in over-the-counter markets using specialised brokers.
Characteristics of Unlisted Shares
- Usually have lower liquidity than shares found in listed exchanges, such as the ASX
- Trade at lower PEs (price to earnings ratio) than listed shares
- Trade in lower volumes
- Have slower transactions than those in listed exchanges
- Require both parties to reach an agreement before the trade can take place with agreed terms covering more than just price and volume
- Can offer a 'liquidity' premium to investors for the challenge of exiting the market
Unlisted companies can issue the same types of shares as listed companies do, such as:
- Preference shares
- Ordinary shares
- Undertake rights issues
- Pay franked or unfranked dividends
- Dividend reinvestment plans
Companies selling unlisted assets usually retain their profits as opposed to paying out dividends. This means your return on investment can only come from a capital gain once you sell the shares. However, private share trading can still be a smart investment providing you:
- Select the right kind of company and
- Pick-up high quality securities at a lower price than you would find on a formal exchange
Where are Unlisted Shares Purchased?
There are a few options available for companies who wish to privately trade their shares.
- Some will manage the trade of unlisted shares via their company secretary who maintains a list of sellers (for example ex-employees). These sellers will be matched with potential buyers who make direct enquiries to the company.
- Companies can use boutique brokers who specialise in the trade of unlisted assets. These brokers will run a form of OTC market called an 'exempt' market because it is exempt from the Corporations Law requirements.
- Another option for companies is the use of online, private exchanges and platforms that facilitate the trade of unlisted shares. This is how PrimaryMarkets operates.
Who Should Buy Unlisted Shares?
Experienced, sophisticated investors have the most to gain from investing in unlisted shares. However, investing in unlisted shares could be a smart investment strategy for any investor with a good understanding and knowledge of a particular company or industry.
PrimaryMarkets provides sophisticated investors with a platform which facilitates the trade of unlisted securities, funds, direct assets and fixed-income investments. Our platform connects sellers with global buyers who are looking for smart, off-market opportunities. Contact us to find out more about our PrimaryMarkets platforms.