OTC Markets Wants to Be the Amazon of Small Companies
While the media spotlight often focuses on big initial public offerings on one of the big public exchanges, where does a smaller company go to tap the capital markets for its funding and subsequent trading needs? And is there a need for such a place in the current age of crowdfunding, venture capital and debt?
Is there an opportunity for a securities trading platform to become the next Amazon.com?
Yes there is, according to Cromwell Coulson, chief executive officer of OTC Markets. In an interview with Markets Media, he revealed how his exchange assists smaller companies raise capital and have their securities available to trade in liquid secondary markets. How? By filling the void left by the larger exchanges such as NYSE and Nasdaq who cater to big companies and larger institutional investors, and bringing stock trading back to ‘John Q Public’.
“We’re providing a role that Nasdaq provided 30 years ago,” Coulson began. “It’s not a centralized exchange. The difference is we’re using today’s technology and transparency to connect highly electronic broker dealers who are internalizers — the KCG’s, the Citadels, as well as institutional brokers who hold a lot of the market and liquidity. We’ve created a big tent of electronically connected liquidity.”
OTC Markets is an electronic marketplace that is not a market maker but rather a market facilitator, Coulson explained. OTC Markets is open to agency brokers in electronic broker dealer network that keeps costs down. There are no ‘high-touch’ traders or trading floor here.
But there is more than trading going on at the marketplace. Coulson explained that OTC Markets also has its own listing business – enabling smaller companies the ability to raise capital much the same way larger firms would use the NYSE or Nasdaq. But OTC Markets relies on electronic databases and modern-day analytics to bring firms public, rather than human traders.
“We have data-driven listing standards that are about putting information on investors’ screens. That’s really important because 25 years ago, to get any investment information, you had to talk to someone on the phone or you had to get things in the mail,” Coulson said.” Now, the individual investor and the institutional investor are empowered with incredible data on their screens.”
Coulson’s personal mission is help these smaller companies get public and stay publicly traded without any extra costs.” You can be public without the priciness and the painfulness.”
And now with the four-year-old Jumpstart Our Business Startups (JOBS) Act, which is meant to lower the barriers of entry for small companies to go public and be traded more actively, Cromwell sees his marketplace well-positioned. To prove his point, he pointed to the marketplace’s first online IPO, Elio Motors. In Elio Motors, individual investors were directly able to get their hands on shares just as easily as a big company could get institutional investors on the NYSE or Nasdaq.
So by providing retail and other smaller investors a trio of electronic services – an electronic broker-dealer market, a transactional experience via online institutional brokers, affordable and easy to tap data – all the pieces are in place to help OTC Markets resemble an Amazon-esque type of marketplace. And that is Coulson’s ultimate goal – create an electronic marketplace for stock trading and offering customers purchasing economies of scale.
In the future, he said, companies will sell new securities. They’ll raise capital the same way Amazon sells books and toasters. It’s going to start in fits and starts but Coulson sees things like crowd funding gaining steam and other online capital raising methodologies gaining acceptance.
“(It’s) The same type of entrepreneurial disruptive personalities that changed trading 15 years ago. That part of it is really important because it’s going to bring back the individual to the market,” Coulson added. “It’s going to bring back companies. Small companies got shut out of the IPO process because listing on Nasdaq got too expensive, and pricey, and painful. The IPO process became institutional only. For a $100 million market cap company, 80% of their investors are individuals. The math is very straightforward.”
Featured image by Akira Ohgaki/Flickr
The venue is the first national regulated exchange offering T+0 settlement.
There is a need for institutional-grade liquidity in the digital asset market.
Since the start of 2022 liquidity has shifted to SOFR-based derivatives at an accelerated pace.
LSEG's derivatives venue is closing on 28 January after more than five years of operations.
The regulator said it is considering modernizing its rules related to the definition of an exchange.