Seedrs has announced the first securities will trade on its secondary trading platform for shares in crowdfunded businesses next Tuesday, June 6, 2017. Previously announced, trading is scheduled to take place on the first Tuesday of each month (Trading Tuesdays). This will help to concentrate demand and hopefully improve liquidity and the ability to make successful trades.
The beta launch of the Seedrs Secondary Market is designed to be the marketplace that allows buyers and sellers to find each other efficiently. Seedrs clarifies they have been supporting the transfer of shares between investors for a few years already. Seedrs reports that, to date, they have completed over 200 trades, helping transfer over 2.5 million shares, with the first trade occurring back in 2014. Seedrs adds they are seeing “heavy demand” from shareholders seeking to sell, as well as purchase, shares in their listed companies.
In a recent blog post, Seedrs explained one of the challenges of creating an efficient market in a relatively illiquid and closely held security.
Seedrs stated that asymmetric information is one of the biggest challenges of a market in private shares. Intrinsically, the seller has more information than the buyer. This differs from public markets where information is equally accessible (at least according to efficient markets theory).
Seedrs pointed out that every company that has raised capital on their platform has a dedicated investment page with a discussion forum for knowledge sharing accessible to shareholders. A non-shareholder would not have access to this forum and is thus at a bit of a disadvantage.
These forums cannot be made publicly available as they would be deemed “financial promotion,” thus creating a different challenge to remain compliant in the eyes of the FCA. Seedrs said they are working on several workarounds as they move forward as they obviously want to open up the marketplace to as wide of an audience as possible.
“While this is a difficult problem to overcome, we do believe it is solvable and we are working on a number of potential ideas. But we do not think that it is in the interests of anyone to rush this without getting the feedback from our customers, and ensuring that any solution that we come up with works for them.”
As they try and work out how to manage this information asymmetry, for now only existing shareholders in a traded security will be able to purchase or sell.
The Seedrs Secondary Market is an event to watch. Creating liquidity for securities in crowdfunded securities is a global question. If Seedrs gets it right you can expect other platforms to soon follow.