Seedrs Blog

Trading Tuesdays: the key to efficiency on the Secondary Market 1 of 4

Trading Tuesdays: the key to efficiency on the Secondary Market 1 of 4

22nd May 2017 by Thomas Davies

Our first Trading Tuesday will represent the launch of our formal secondary market, but this is just one more step in our long history of facilitating sales of shares bought through Seedrs. As we mentioned in our last post, since 2014 we’ve completed over 200 trades.

Secondary trading isn’t something new for us, and one of the many reasons we designed our nominee structure at inception was to make trading as simple and straightforward as possible. The missing piece until now, however, has been the element of discovery. The trades we have facilitated so far have come after a buyer and seller found each other either outside of the platform or even within the platform in a discussion forum.

What the Seedrs Secondary Market brings is the mechanism through which buyers and sellers can find each other. Beginning on the first Tuesday of every month, the market will be open for one week. During this time, investors will be able to buy and sell shares from each other. This means that there will be one trading cycle per month. This is what we are calling Trading Tuesdays.

This is one of the key ingredients in allowing secondary trading to scale, and that is why we, and so many members of our community, are so excited about this development.

During the week after the trading cycle we will complete the paperwork, release the funds directly into the seller’s investment account and reflect the transfer of shares on the Seedrs platform.

During the week before the next trading cycle we will prepare the share lots for the next batch of sellers who have requested to sell their shares.

There are four key considerations as to why we have chosen this approach.

For investors:

Liquidity. While we are confident that the secondary market will increase liquidity for investors, introducing a concise window during which trading may take place helps focus demand and increase the chances of successful trades.

Discovery. Because the shares are purchased on a first come first served basis, buyers could easily miss out on opportunities if they were randomly listed on the platform at any time. A consistent and focused timeframe allows prospective buyers the opportunity to discover what is available as soon as they go live rather than having to continually monitor the market to see what share lots are available.

Speed. A trading cycle allows us to be highly efficient in administering trades by ‘batching’ the listing of shares and the completion of the necessary paperwork. The efficiency that batch processing brings allows us to complete the transfer of shares in a quicker and more cost-effective way.

For businesses:

Planning. For some companies, it is beneficial to know when their shares may be listed on the market so that they can plan accordingly. It may be that a company is planning an upcoming fundraising round and would therefore not want to be listed on the market. In this case, a trading window allows us time to consult with the company, talk through their concerns and make sure that we are both comfortable in having their shares listed on the market in the next trading cycle.

This is a high-level look at Trading Tuesdays; next, we’ll cover:

  • Who can buy shares and why?
  • What is a fair market price and why is there no bidding yet?
  • Why does the Seedrs nominee structure make it easy for the market to work?

Please note that investing involves risks, including loss of capital, liquidity, lack of dividends and dilution, and should be done only as part of a diversified portfolio. Not all shares will be eligible for the Secondary Market and, even if they are, the ability to buy and sell shares will depend on demand. Investors should not assume that an early exit will be available just because a secondary market exists.

Thomas Davies

Thomas Davies

I'm the Chief Investment Officer for Seedrs.

Digital Agency Kent