By Lee Saba – Head of Market Structure, Rialto Markets – As part of our regular thought leadership series on what’s current in financial markets
Very few people understand the revolution now taking place in financial markets.
It is to do with private markets and has been sparked by new regulations allowing investment and trading access to the masses.
For the first time, you and me, mom and pop, can invest in early-stage companies once exclusive to the elite investor. You know the investors I refer to: those with deep pockets that always seem to get in early, make a fortune when the company goes public, then exit the position as fast as possible to lock in significant gains.
Well, those days my friends are now a thing of the past.
Access to the best private company offerings
Retail investors now have access to some of the best private companies available at the early stage. Imagine investing in Tesla, Amazon or Coinbase before they listed on the “big” boards like the NYSE and Nasdaq, you know, during that high growth period where the real money can be made.
Accessing private markets is not in any way a guarantee for future gains however, because everyone who can pass anti-money-laundering (AML) and know your client (KYC) can get access to these companies now.
But how did we get this much wider access? It’s due to the JOBS Act of 2012 creating two new ways for private companies to raise money – Regulation A+ and Regulation CF (CF is short for crowd funding).
These two new rules (or exemptions as they are formally known) allow private companies to raise up to $75 million via Regulation A+ or up to $5 million via Regulation CF.
And anyone can invest in them. You no longer have to be a high-net-worth investor to get access – you can just be you. It’s a revolutionary development now gaining rapid adoption across the private markets’ landscape, allowing everyday citizens and traditional large financial institutions to invest side by side.
Gaining access to these previously inaccessible assets is a huge step in the right direction, but there is one more exciting angle to these assets. Drum roll please….
Secondary Market for RegA+
Secondary markets mean if you bought a private placement security, say a Regulation A+, in the primary market (when the private company is open to outside investors) and want more of it or need the money you originally invested to pay off student loans or put a down payment on a home, you can now monetize that investment and get your money well before the company sells or goes public.
And there is an SEC regulated marketplace to buy and sell private placement securities. This means investors in private securities have a government regulator looking out for them, not some fly-by-night unregulated crypto operation run by novice entrepreneurs but a full-blown marketplace to match any buyers to the sellers and any sellers to the buyers.
This regulated matching facility is called an ATS (Alternative Trading System) and the professional investors on Wall Street have used these for years to get the best price and least amount of market impact as possible. But now anyone can access the world of private placements through a regulated ATS like ours at Rialto Markets.
Rialto’s team has built numerous Alternative Trading Systems in the traditional capital markets arena and has now leveraged that huge experience to launch its new ATS for private securities, enabling all investors – from retail to high end institutions – to participate in secondary markets for private securities.
Secondary trading for private securities? Yup. It’s a whole new and brave new world.