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.

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