‘Beyond the Pipe Dream’

April 21, 2022

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By Gavin Solomon

While most investors think of the Australian Stock Exchange (ASX) or Nasdaq when they think of shares, there is also a thriving but lesser-known market for trading shares in unlisted companies and funds that offers high-quality investment opportunities.

Investors tend to automatically associate the buying and selling of shares with the ASX but many fail to appreciate the fact that there is a thriving market in unlisted shares which can be traded via online platforms such as PrimaryMarkets (www.primarymarkets.com).

Unlisted companies whose shares are traded this way cover all industry sectors and stages of development be it seed, series A to series F or pre-IPO. Additionally, companies are looking to delist from the main Exchanges and are moving to have their shares traded on platforms such as PrimaryMarkets.

While some investors believe that there is more liquidity on the ASX the truth is most listed companies are thinly traded with no real depth or stockbroker coverage or support.

If investors look at unlisted market they may be surprised at the quality of the companies on offer. One of the features of unlisted companies is they tend to retain earnings to fund growth rather than paying them out as dividends. So, the focus for investors is usually an increase in share price and the capital gain on selling, rather than a dividend income stream.

There are a variety of reasons why companies choose to trade their shares privately:

  • A number of stock exchanges  struggle to  deal with  digital assets and blockchain companies e.g. Animoca Brands was delisted from the ASX and now trades on PrimaryMarkets.
  • They are concerned that their share price will be exposed to extreme market volatility, which is a feature of listed small cap illiquid stocks where there is often a very big bid-ask spread especially during a market downturn.
  • They may be too small or have too few shareholders to comply with the complex burdensome listing rules and
  • The cost of listing and ongoing compliance and reporting requirements are considerable.

Over the last year, PrimaryMarkets has traded more shares by volume and value than the NSX and SSX combined.

PrimaryMarkets last year had its first T+0 trade – meaning that all the compliance, regulatory and settlement processes are completed on the same day.

Companies that do not want to list on a traditional exchange but want to have its shares trade privately have several options.

 


In the case of smaller companies, the company itself may facilitate the trading. The company secretary can maintain a list of sellers, e.g. employee shareholders who have left the company and match those sellers with potential buyers who make enquires to the company.

However, this process does not scale well and as the volume of turnover in the stock grows, the system becomes an increasing administrative burden, nor provides appropriate independence.

Most large brokers do not trade in unlisted stocks, as they find it hard to source the investment opportunities and to see transparency of volume and price for the trading of unlisted shares. Also, the paper work and administration associated with the transfer of title is time consuming and manually intensive.

Given the illiquidity of unlisted shares and the lack of price discovery, unlisted shares tend to be traded at a more significant discount to those of similar companies on the ASX. However, shares that actively trade on the PrimaryMarkets Platform tend not to suffer from this discount problem as there is price discovery and there tends to be a smaller bid – ask spread.

Some companies see the PrimaryMarkets Platform  as a stepping stone to a listing on the ASX at some stage in the future at a time when their earnings, capitalisation and share register more closely fits the ASX’s requirements. In those cases the investor may get a premium when the company does finally list.


One problem for investors in unlisted companies is the lack of information about the company. Unlisted companies are not subject to the rigorous  reporting requirements of the ASX and receive much less coverage in the financial press

The PrimaryMarkets Trading Platform addresses this lack of information for the unlisted companies via a dedicated Investor Recourses section on the company’s dedicated portal on the Platform.

Technology improvements have now enabled PrimaryMarkets to give sophisticated, professional and institutional investors all the “bells and whistles”  they need to trade safely and securely with online KYC/AML, Sophisticated Investor Status all coupled with online Escrow Services.

PrimaryMarkets has shown the success of companies staying private longer for two of its spotlighted offerings – both of which are now Australian Unicorns namely Animoca Brands (grown on PrimaryMarkets from a market cap of A$150M to A$6B+ in just 2 years) and Virtual Gaming Worlds (VGW) which now has a market cap of A$3B+.

PrimaryMarkets has now traded over A$250M of shares and has cemented its place as Australia’s No 1 Trading Platform for unlisted shares.