A viable alternative to the ASX has long been a goal for several business groups, but trading markets for companies that have not, or will never list may be the understudy that finally reaches the main stage.

Equity crowdfunding platform Birchal is considering offering low-volume markets for crowdfunded companies that are not ready or do not wish to undergo a public market listing.

And Primary Markets is pitching itself as an alternative to an IPO, citing its position as the founding market for the now uber-successful ASX company Tyro Payments (ASX:TYR) and snagging Animoca Brands earlier this year after it was kicked off the main market for cryptocurrency-related breaches.

Yet the National Stock Exchange (ASX:NSX) and the Sydney Stock Exchange (SSX) have been trying to attract companies and brokers to their platforms for years with carrots such as lower costs and smaller regulatory burdens, to no avail.

With liquidity volumes surging on the NSX (the SSX still hasn’t managed to list the three companies proposed for IPOs on its website, although the listing date for Torque Metals is today), the ASX being more selective around cryptocurrency companies, and new forms of capital raising, a recession may be precisely the time for secondary markets to make their debut.

While it may seem as though there is one real market alongside a handful of upstarts, there are in fact a significant number of licensed market operators in Australia

There are 22 licensed market operators, from the ASX down to those dealing largely in derivatives. There are 23 international markets permitted to operate in Australia and five markets are exempted from having to be licensed.

There are also 228 low volume markets. These don’t need a market licence but are restricted to no more than 100 transactions worth not more than $1.5m in a 12-month period.

An ASIC report released in April showed it had licensed 16 equity crowdfund platforms, of which eight were active.

Even the NSX is feeling the love

Excitement around share trading has put a rocket under public markets which have already listed companies.

Since March, ASX trading volumes have steadied but the amount of money raised has broken records, with capital raised in the three months to the end of June up 174 per cent on the same period in 2019.

The NSX has also flourished, with trading value for the first seven months of calendar 2020 hitting $13m, compared to $4.2m for the entirety of 2019, and volumes cracking 6 million shares traded at the peak in March.

The NSX is now 18 per cent owned by a subsidiary of a company run by the ASX’s bete noir John Karantzis, ISignThis (ASX:ISX), who is pitching the market as a rival to his nemesis the main bourse.

RaaS Advisory managing director Finola Burke says NSX stocks will see more liquidity come in over time, particularly given it’s on the same platform as the ASX which makes it easier for brokers to look across the stock universe.

However, despite the market froth building the case for alternatives such as the NSX and the SSX, to date both have been plagued by governance issues and a lack of funding.

That frothiness is also causing delays for the more bespoke substitutes.

Primary Markets is pitching itself as the new location for ASX minnows wanting a cheaper, lower risk market, pre-IPO companies and private businesses with shareholders which want to buy or sell.

It was also where Tyro Payments shares were traded before its sparkling debut in December last year.

Founder Gavin Solomon says allowing private, wholesale investor-only trading released a pressure valve from shareholders wanting to cash out and preventing Tyro from having to list on the ASX before it was ready.

“Tyro was the classic story… investors traded just under $40m in secondary sales in Tyro from $1.03 a share up to $2.20. They asked us to close the trading hub because they were doing the roadshows for the IPO and they listed in December for $2.50,” he told Stockhead.

The pitch to ASX and NSX companies is based on crypto gaming company Animoca Brands, which switched to Primary Markets in March when it was kicked off the ASX after falling foul of the exchange’s rules around raising money via cryptocurrencies.

The NSX and the SSX have so far failed to pick off many of the very small, very illiquid companies listed on the ASX — there are 143 with market caps under $5m — but Solomon believes he can because his business is not a licensed market operator.

“The situation is we are a private trading hub and we only act for wholesale investors, and we only charge commission to the seller,” he said.

Primary Markets, which Solomon bought back from a US acquirer in January, currently has eight live trading hubs on its platform.

Equity crowdfunders are in 2017 and early 2018 the chatter around how to raise money via tradable private securities was around blockchain-based security token markets based out of Malta.

But the advent of equity crowdfunding has taken the heat out of that argument in Australia.

Equity crowdfunding platforms Birchal and Equitise both applied for and received low-volume market licences last year.

Birchal was intending to launch the first low-volume secondary market pilot with Shebah this year.

The COVID-19 pandemic has paused those plans given most companies are looking to raise capital for their own balance sheet rather than pay to allow investors to trade among themselves, Birchal cofounder Matt Vitale said.

“It would have been great to have piloted this service at last once before COVID-19 because I think there is a great opportunity on a number of fronts for reform”, such as lifting the 12-month transaction limits and the value of capital raised, he told Stockhead.

“It’s hard to make that argument when we haven’t run a pilot yet.”

Vitale says there is more interest among companies for time-limited security trading options that aren’t subject to the same regulatory burden or the share price fluctuations seen in public markets.

Rachel Williamson – Stockhead

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