Secondary Market Trading Services Gain Steam

The Wall Street Journal, October 28, 2020

Trading shares in private companies remains far from efficient and cheap today. New services looking to improve the process are lining up.

ClearList Holdings, majority-owned by electronic trading firm GTS, is one of the contenders. It has recently launched a cap-table management service. It’s also in the process of obtaining licenses with the Financial Industry Regulatory Authority, or Finra, and the Securities and Exchange Commission to set up a secondary market for private shares, said Chief Executive Bill White.

ClearList’s goal is to bring the cost of selling shares of private companies “almost down to zero,” Mr. White said.

ClearList’s efforts are concurrent with those by venture-backed Carta, which has talked up its forthcoming secondary-market platform CartaX for a while.

Carta is making progress with regulators. It is now registered to operate as a broker-dealer in four states, most recently in Pennsylvania as of Monday, according to its regulator, Finra. Carta also has an alternative trading system license from the SEC, as of the end of September, according to that regulator.

Even as these companies are setting up to launch, their market is quickly changing. Going public fell out of favor for a while among tech entrepreneurs, making liquidity provided through secondary sales more needed. But that’s changing now with the IPO window wide open, and dozens of blank-check companies looking for acquisition targets.

There’s “great activity in capital markets,” Mr. White said. At the same time, demand for secondary trading continues, he said. Secondary trades conducted close to public listings could help companies get a better understanding of their current valuations, he said. That could help them better negotiate with special-purpose acquisition companies or establish a reference price in direct listings. 

Yuliya Chernova

Risk Disclosures

Private Placement Disclosure:

ClearList warns that investments in private, unregistered securities involves a high level of risk and may not be suitable for all investors. An investment in private company securities is highly speculative and should only be considered a long-term investment. Before deciding to invest, you should carefully consider your investment objectives, level of experience and risk appetite. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities, including on the ClearList LLC Alternative Trading System. There is also no guarantee that any private placement will be publicly listed through a direct listing or Initial Public Offering. You should be aware that each investment also carries its own specific risks and that you should complete your own independent due diligence regarding the investment including obtaining additional information, opinions, financial projections, and legal or other investment advice.

Risk Related to Private Securities:

Investing in private, unregistered securities is not suitable for all investors.  Investing in private company securities generally involves greater risks than investing in publicly traded securities.     Investing in private company securities involves risk of loss that investors should be prepared to bear.  Private company securities may be more difficult to buy and sell.  Trading opportunities may be more limited for private company securities that are not widely held.  There may be greater liquidity risk and the possibility that a security cannot be sold at an ideal time.  If this happens, an investor account may be required to continue to hold the security and losses could be incurred. 

Private Securities, as well as any particular investment, may not be suitable for everyone. With respect to any investment or security traded on the ClearList ATS we urge you to carefully evaluate its appropriateness for your situation.  You are strongly encouraged to complete your own independent due diligence before investing in private, unregistered securities, including obtaining additional information, opinions, financial projections, and legal or other investment advice.  Private, unregistered securities are also highly illiquid and there is no guarantee that a robust market will develop for such securities, including on the ClearList ATS.

No investment process is free of risk; no strategy or risk management technique can guarantee returns or eliminate risk in any market environment.  There is no guarantee that your investment processes will be profitable. Past performance is not a guide to future performance.  Any trading success enjoyed by others does not guarantee similar results for you. The value of investments, as well any investment income, is not guaranteed and can fluctuate based on market conditions.  Diversification does not assure a profit or protect against loss.

Affiliations – GTS Securities and/or GTS Execution Services may place orders on both sides of a market for private company securities traded on the ClearList ATS.  Both GTS Execution Services LLC and GTS Securities LLC are affiliates of ClearList LLC and ClearList Securities LLC through common ownership and all of these entities are registered broker-dealers.  Affiliates, officers, directors, and/or employees of ClearList LLC and/or ClearList Securities LLC may hold a position in the financial instruments of an issuer of private company securities wherein certain underwriting, private placement, or advisory services were performed and private securities of that issuer may be traded on the ClearList ATS.

Commissions/Transaction costs – Before you begin to trade, you should obtain details of all commissions and other charges for which you must be liable.

When products are purchased or sold, several types of incidental costs (including potential transaction fees and commissions) are incurred in addition to the current price of the security. These incidental costs may significantly reduce or even exclude the profit potential of the products.  In addition to such costs directly related to the purchase of products (direct costs), you must also take into account any follow-up costs (such as custody fees). You should inform yourself about any additional costs incurred in connection with the purchase, custody or sale of a private security before investing. 

Affiliate Disclosure

ClearList LLC, ClearList Securities LLC, and ClearList Technologies LLC are separate, but affiliated companies through common ownership.

ClearList LLC, is a Registered SEC Broker-Dealer and Member of FINRA & SIPC, which operates an Alternative Trading System (the ”ClearList ATS”).

ClearList Securities LLC, is a Registered SEC Broker-Dealer and Member of FINRA & SIPC, which has the ability to engage in the following business activities:

                                                                           
A. Private placement of securities;

B. Firm Commitment Underwriter;

C. Broker or dealer that offers or engages in on-line trading / electronic trading;

D. Broker or dealer selling tax shelters or limited partnerships in primary distributions;

E. Broker or dealer selling interests in unregistered private investment funds;

F. Broker selling corporate debt securities;

G. Broker retailing corporate equity securities over-the-counter;

H. Non-exchange member effecting transactions in listed securities through exchange member;

I. Broker selling tax shelters or limited partnerships in the secondary market;

J. Investment advisory services; and

K. Mergers and acquisitions including fairness opinions.


Check the background of the ClearList Broker-Dealers on FINRA’s BrokerCheck.

ClearList Technologies LLC offers licensed software products and other authorized services, including Cap Table Management, to companies in the private securities marketplace.

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