How private companies can unlock capital and liquidity

FCX is the first entity in Australia, and quite possibly the world, to provide a regulated, end-to-end, technology-driven liquidity solution to private companies.

Presented by FCX

In March this year, ASIC and RBA licensed FCX to clear and settle market events for unlisted shares or interests in managed investment schemes. For larger private companies, this can provide a viable alternative to listing on the ASX.

According to ASIC, the number of public IPOs in Australia are the lowest they have been in over a decade and private markets are growing faster than public. So why are so many companies choosing to stay private for longer?

David Ferrall, founder, managing director and group CEO at FinClear, believes continuous trading and disclosure obligations are major considerations. “A listed entity needs to maintain continuous disclosure, which many private companies don’t want to do. While Australian public markets open at 10am and close at 4pm, most companies are unlikely to benefit from continuous trade because trading is more likely to be events-driven.”

FCX offers what they describe as “liquidity on demand”. This enables companies to decide exactly when they want liquidity.

“This gives the company time to notify those interested in buying or selling shares, cleanse the market, make a disclosure and release financial results, for example,” says Ferrall. “The price of the shares is determined by supply and demand, and, when buyers and sellers are fulfilled, the company comes off-market. There’s no need for them to make further disclosure until they schedule another event.”

Cash for employees

Liquidity can enable early investors to cash out their stakes or attract new investors by providing a clear path to exit. Perhaps most importantly, it allows employees to realise the value of their shares.

“Many companies, particularly tech startups, incentivise staff by including a share issuance or ESOP (employee share option plan) in their remuneration package,” says Steve McLean, a director at FinClear Group. “When the companies generate value and employees decide they want to monetise some of their shares, it’s crucial they have that choice. In a sector where the war for talent is so intense, it could make the difference between retention and churn. FinClear has grown from scratch to about 180 employees in 10 years and all our employees are offered a shareholding as part of their package.”

While companies can provide an opportunity for shareholders to buy back their shares independently, if they allow buyers and sellers to determine a final price they are effectively running a market. This needs a licence.

“It isn’t necessarily a problem for smaller entities,” says McLean. “An ASIC low-volume market exemption allows companies to transact without a licence up to a cap of $1.5 million. However, if a larger private company assesses they’re not eligible for the exemption, they’re technically unable to run these events. If they do, they could find themselves operating in a grey zone of the Corporations Law. These are generally companies who take governance and compliance very seriously. They will typically have independent directors, a general counsel, perhaps even a head of compliance. Being able to perform their duties within a regulated, safe and transparent marketplace can bring them a great deal of comfort.”

End-to-end technology

FCX wraps a legislative safe harbour with powerful technology.

“Along with certainty from a legal perspective, the FCX technology capability removes a lot of administrative pain,” says McLean. “The FCX platform provides an end-to-end solution with a full suite of registry services including cap table management, ESOP administration, document management and integrated compliance, including Know Your Customer and Anti-Money Laundering.”

“If you're a company thinking about raising capital or having a liquidity market event, FCX can help you demonstrate it sits within secure and transparent infrastructure and a clear cap table,” says Ferrall. “For example, all your investors get a digital wallet and can see their holdings in real time. They also get real-time corporate communications and corporate actions.”

A trusted solution

FCX is a fully owned subsidiary of FinClear, a leading independent technology and infrastructure provider with a network of over 1.4 million investor accounts, $170 billion in listed equities on the platform and clearing $360 billion in listed equities annually.

“People trust FinClear to manage and move their money around,” says Ferrall. “That’s essentially what we’re doing with FCX by extending expertise in public markets to private market infrastructure.”

Find out more on how FCX is helping businesses succeed.