Can Research Help Secondary Market


Oscar Jofre

CEO and Co-Founder


Oscar Jofre

CEO and Co-Founder

Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide. Oscar is a featured speaker on Fintech, regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business.

James Row

Founder and Managing Partner

Entoro Capital

James Row

Founder and Managing Partner

James C. Row, CFA, is the Founder and Managing Partner of Entoro Capital, LLC, a middle-market investment bank based in Houston, TX. Mr. Row has over 25 years of experience in capital raising, deal structuring and energy finance, including project finance, equity and debt securities, risk management and digital securities. He has originated and arranged funding, in excess of $10 billion. Mr. Row is a Chartered Financial Analyst and maintains Series 7, 24, 28, 63, 79 and 99 FINRA securities licenses. He serves as a member of leading industry groups such as the Houston Society of Financial Analysts, Houston World Affairs Council, and Houston Producers Forum. Mr. Row is the author of several oil and gas issues and a featured speaker at global industry conferences.

Lee Saba

Head of Market Structure

Rialto Markets

Lee Saba

Head of Market Structure

Lee Saba brings more than 20 years of experience in the financial services industry. Prior to joining Rialto as Head of Market Structure, Lee was Managing Director and Principal at Wellington Management where he was responsible for proprietary and third party multi-asset electronic trading and connectivity infrastructure. For over 17 years, Lee led and contributed to industry standards on a variety of concepts including FIX post-trade for equities, futures and FX, execution venue normalization, risk mitigation symbology and electronic trading risk controls. While at Wellington, Lee headed the inaugural IT FinTech Working Group and was a vocal advocate of the investor hub for blockchain and digital assets research. Lee currently serves as the co-chair for the FIX Trading Community ( consisting of 290+ members worldwide and is also an active steering committee member for Northeastern University’s D’Amore-McKim School of Business FinTech Initiative.

Oscar Jofre  00:22

Okay, we’re just waiting for our friend, I think we’re just going to get started here and move it along so and that way we can once he joins in, we’ll be able to look at the you know, the Texan arrives and there he is and and you can tell he’s just ready to go. Where are your birdies? You know, the flying cell they, you know, we want you to let us have some of them back. All right, everyone, Welcome once again to KoreSummit webinar series 2021. My name is Oscar Jofre. And I’m really excited once again, to continue this amazing dialogue. We’re having that from every webinar, it just seems like we get another component subject out of it. Today, we have two great individuals, two panelists that are going to we’re gonna have a short discussion, there’s no presentation, these are people that, you know, you’re going to you would be asking them questions right across the table and having a coffee. And obviously, with the zoom meetings that we’re having virtual coffee, so cheers to our two colleagues today. So before we get started in today’s subject, first of all, please, Lee, if you could take a moment to introduce yourself.

Lee Saba  01:45

Yeah, sure. Hi, Lee Saba, I work for Rialto Markets. I’m the head of market structure. I have about 25 years in the financial services arena, mostly focused on electronic trading. Fix. And obviously over the last seven years or so I’ve been focused on blockchain and digital assets.

Oscar Jofre  02:07

Thank you. And ladies and gentlemen. Jim.

James Row  02:12

Hey, asked her. Thanks. Sorry, I’m a little late. I had so many invites and zoom links. I couldn’t figure out dialing into the wrong one. I’m looking at the one during the registration. So my apologies. Jim Row with Entoro. Entoro is a investment bank, broker dealer RIA. And we also have a valuation company called clear rating, my own background is likely have been in the financial services business. Unfortunately, I think it’s more than 25 years, I think I push in 35 years, but always appreciate being on with Oscar and look forward to a good dialogue today.

Oscar Jofre  02:53

Oh, you are ready for me today. I mean, loaded. You know that the monthly meetings? I’ve had lots of people inquiring asking questions, and I’ve been waiting a minute. I know who I’m gonna ask all this. All right. All right, God bring it. Yeah, you bet. So I’m gonna you know, let’s start with this. Because this is one that I personally to be. I’m having a little bit of difficult time explaining to people the difference between a secondary market and exchange. And I know it sounds simple to conflate the two view. Well, but I’d like if we can start from there. What is the just high level? What is the basic difference between those two? The since you’re knee deep into it right now?

Lee Saba  03:40

Sure, yeah. Thanks, Oscar. So Rialto Markets is actually offers what they call an alternative trading system. And it or ATS, as you would call it, we are a non exchange. However, we are registered, we are a registered broker dealer. And we do have the ability to, to affect buyers and sellers to to to offer, you know, matches to the subscribers that that are members of our ATS. So you know, I, you know, my compliance guys would say, Oh, you know, never call yourself an exchange. But I think in the larger world, folks that aren’t focused on this, they would see it very similarly. But we’re a singular, you know, entity, that’s a broker dealer. That’s not, you know, not a public exchange. We are an alternative trading system, but we can facilitate matches matches of buyers and sellers.

James Row  04:37

ask, Can I jump in and just say, yeah, yeah, so I would, I would, I would, I would, I would, I would maybe even go a little more granular. And just to go, there’s kind of put it in three buckets you have what is what is a secondary, what is a HTS and what is an exchange, and secondary is just something that is obviously Security that’s being sold after the individual or entity is selling it. And that can be sold in a number of ways between two individuals. It’s a secondary. So it’s being sold in ATS is what Lee has and, and they’ve got a, they’ve got a great program relatives a fantastic shop. And they’ve got what’s known as an alternative trading system. And it’s authorized by the Securities and Exchange Commission. And it’s not quite an exchange, there was only Lee, correct me if I’m wrong, there’s only really three exchanges in the United States. That’s the New York Stock Exchange, the American Stock Exchange, and I think, is bass back actually considered in the exchange. So those are the actual exchanges. And those have a difference, higher level of rules. And then there’s secondary organizations, you know, atss. And that’s what Lee has. And I believe there’s different types, there’s equity exchange, or atss. And there’s different types of ATS. And we can go into more details. But just for the, for the novice listener, that’s how I would maybe describe it a little bit better.

Oscar Jofre  06:11

Yeah. And I’ve described it that way, just people go. So what’s the difference? Do I put a bid and I know, there’s different languages, one of the latest one that I didn’t know, you list on an exchange, and you get placed on our secondary market that are new ones, right, there is, you know, listing versus in place. So, but I think it’s important because people are hearing about secondary market, and some out there. Unfortunately, regrettably, they’re almost describing it like an exchange. But it isn’t it isn’t that warm. Sorry, Lee, I know you got you want to add to that?

Lee Saba  06:49

No, I you know, I understand the nuance to it. Right. I mean, again, if you’re if you’re not super familiar with, with or have grown up in this industry, this will be confusing. But I think I think at the end of the day, what you can do, you know, coming into an ACS, like reality is, is actually, you know, poster or your buy order, and hopefully, a seller will pick it up and vice versa. Right. And we have the the regulatory authority to do that under the constructs of the, you know, ATS license that we have. So it’s, like I said, I’m hesitant to call it a mini exchange, it is not right, I mean, that my compliance officer would would would lose his mind. But I think for a lot of folks, it would behave very similarly in their mind, but it has a different legal connotation.

Oscar Jofre  07:39

Well, totally right. And, and the reason I’m asking this, because obviously, the subject we’re going to have is, can research help. And we know what research does for the public markets, right? So research in the secondary market of private securities, is very different. And therefore we need to understand what that research is related to the venue that you’re going to put it in. I mean, yesterday, I, with one of our clients that go Oscar secondary sounds great. But you know, I don’t want my stock jumping up and down. And I’m going well, no, that’s not how we need DSR. So we we take that relationship we know of exchanges and applied here. And it really isn’t that way. So we’re not going to dig too deep. Obviously, I just wanted a short description. And thank you to both for that. So let’s dive into the real topic at hand research and research. Well, Jim, you’re right. It’s becoming the top. The top, you know, question being asked, price discovery. You know, I’ve been asked that now a lot. So I’m gonna put that forward. What does price discovery and research, how do they correlate together? Or do they or are they two separate things first, and I’ll come back to you, Lee.

James Row  08:58

Well, I could argue that in a lot of cases, they don’t correlate, but a smaller, more illiquid side, they may or may not right, there’s, you’re talking about a lot of finance theories here and talking about the way it should work and the way it does work. And there’s even at the bigger levels that argue does a spec work and does it does a traditionalist one IPO work, I can maybe argue that the price discovery there may not work there as well. And if you look at the discovery and the actual price discovery there, there’s some arguments there that may or may not work, but I don’t want to get into the theoretical argument on that. That’s not the venue for today. But if you if you look at it does does any kind of information or research or intelligence help price discovery and that should be an emphatic Yes. So the more a organization more an investor is up to speed educated feels like they’ve had some additional insight into a a security Project etc, you know, the more information, the better. And I believe that helps all parties involved. And I think the more you can provide that, and the more that shops like Rialto provide a platform to allow that to happen, the more that organizations like, one of the ones, my one of my subsidiaries produces that type of information, I think it’s better, the more that, that you get data, I think that’s always good for the investing public. And I think you can do that. And I fundamentally believe that’s just good for markets, and it’s good for every stakeholder involved.

Oscar Jofre  10:34

In Okay, so it’s both are interconnected with each other. So, obviously, leave you being an operator of one. So how does both of these have impact? The the adoption? I guess? That’s one or the understanding of what this means to the average consumer? That’s going to trade?

Lee Saba  10:57

Yeah, no, i i agree with Jim, you know, you know, that this, this research and data is super important. And, you know, I love where reality fits in the other atss. Because there’s, there’s two different ways I think about, you know, research. And, you know, they’re pretty macro, but you have quantitative research, then you have qualitative research. Right. And I don’t think a lot of that has happened across across the private markets in particular, where, where reality fits in very nicely with that in ATS is in general, is that, you know, what, what is your stock worth? Like? What are people willing to pay for it? What will happen there? Right now, you know, I don’t think there’s any real mainstream ability to dictate that right? You know, you could say, I’m going to sell my, and I’m gonna use the, you know, the big markets hear about, you know, my apple shares for $10,000. But if somebody is only gonna give you, you know, 150, you know, 150, might be more, you know, in line with what it’s actually worth. So, you know, and I think we can start producing some, some very interesting statistics and numbers on exactly what a lot of, you know, what, what the valuations could potentially be, and what the price discovery is, and, you know, a whole host of other other areas. But on the other side, the flip side of this is that, you know, what’s the market fit for the, for the listing, or the placement on the ATS right now? Like, what, what, what problem? Are they solving? What type of, you know, who are their competitors, all that type of research, I think, you know, you have to blend into to the quantitative and the qualitative, and then, you know, but right now, there’s not too much of that exists, where reality is really fitting in is, and again, HS has, in general, these private markets is, is giving a little bit more of that quantitative figure to, to folks that that need that. And then obviously, the qualitative piece will come I think, over time, and hopefully, we, you know, one thing I wanted to chat about in the future is a little bit about standards around the quality of the data.

Oscar Jofre  13:04

Yeah, it’s like anything else, any new industry, everybody kind of goes at it, and then we start getting down. But Jim, you’re your firm, one of your firm’s eight agencies, you have Sorry, I didn’t used to work correctly there. But it is providing research for the, for the purpose of primary and secondary. So from your perspective, from the firm that you have, what exactly is going into that particular research that could be utilized in either, you know, in this case, for the secondary market, what useful information is going to come out? So

James Row  13:44

I want to make an advertisement for for my shop, that’s not what this is about, but it’s called clear rating. And it’s a company I started in 2013. And the concept was, was to use exactly the same kind of standards and discipline for a wall street type of equity research and valuation and ratings. Now, I’d like to get back to the differences there, for a private company, as you would a public company, and that’s a very different, difficult and different type of analysis. And it’s a very challenging analysis. And it’s a much it’s a, it’s a completely different type of approach, not me, we will keep if you will allow me just to go off for another 90 seconds here. In that doing doing an analysis on on a private company is very different. So we, we do a lot of, you know, if you’re looking at evaluation and evaluation is just what this company would be worth period. And a rating is what is something relative to its to its peers, or to something else, it’s got to fit between zero and 10, for example, or whatever it has to its relative a rating is relative to something value can have an infinite type of number to it. So if you’re looking at a valuation, it can be all the components, the biggest factor, historically, and for us, when we do it, we have models, and we have a lot of plumbing, and we do a lot of type of things to it is management. So how do you how do you approach it? And how do you value management? You have to think about how what their track record is, what is the industry? Or what’s their track of all of these things? People say, Oh, you can’t? Yes, you can’t. If you can, and you have to get down, you have to do numeric, you have to push that into standards and new numeric, it’s sometimes can be inaccurate, but you do have to do it. And when we do evaluation, what we do is we try to do the same discipline as you would a Goldman Sachs report or any other kind of Wall Street type of firm that does does standard valuation. Equity type report now we’re not doing credit reports. We’re not s&p or Moody’s or Duffin. We’re doing equity type reports, because that’s what we’re valuing the equity not up not the debt. So we’re approaching it that way, what is this company worth, and it changes, and each industry has its own specific, so we try to break it down into three key value, what those are in that we build it up, we, we have that and then we also do a risk analysis, and then we de risk it, or we risk it, and then try to figure out what that range of value is. So that’s how we approach it. But when you do ratings, we have proprietary ratings, methodology, we will also then we don’t do this right now, because there’s really not a need for but there will be even when when you get more issues, issuers, like on reality, there would be a need for ratings. And when that happens that actually will have valued. So to be translated into an actual ratings. So the there’s a lot of components. So it’s same things cash flow, industry, competitor analysis, all the types of things that you would normally see in any other type of valuation study, you’re just putting into into a into a model and you spit it out, we do it as a range.

Oscar Jofre  17:08

That’s interesting. Okay. So in and we obviously from, from the reality of you being the ATF, this is a report that is engaged by the issuer with a broker dealer. in what context is, will it be utilized? Now? Is this something we are? Well, this is a better question, maybe it’s something that we also uses in this case? Was it something that company uses in order to help price discovery per se, or information discovery by the buyer of the shares? of?

Lee Saba  17:47

Yeah, that’s a great question. You know, I think, you know, a lot of times research in, you know, I’m sure Jim can talk a bit more about this is independently done, you know, or there’s a service like, like gyms that actually does it for the masses, and they have a standardized philosophy on how to conduct it. Um, where where I think, reality will come in is, you know, especially on the quantitative side that I mentioned earlier, like, you know, what are the numbers? What are the volumes? What, what is going on here? How many orders were coming in? How many, you know, executions actually occurred? At what price? At what time, you know, we can really get super granular on that, I think the qualitative pieces in some of the outside research, I think we need to bring in a lot of the practices from from Wall Street into the private markets a little bit more in a more disciplined way. Because, you know, and again, I guess I think a little bit about it, too, with, you know, the difference between, you know, accessing retail folks, and, and then you have, you know, professional investors that come in, and obviously, the institutions or the professional investors will have a team and the ability to do some some deep dive research that I think will be difficult for, for most folks that to get that type of substance. I’d like to see, you know, a little bit of a standard, you know, have those two issues come a little bit closer together in the private markets. And then, you know, again, having the ATS provide the quantitative mode, but, you know, I think the jury’s still out, as far as you know, what type of qualitative data we would provide. But, you know, we’re certainly looking forward to the quantitative side.

Oscar Jofre  19:28

So, okay, so Jim, okay, so guess what I’m trying to look I’m the issuer right, I’m the company I’ve got this clear rating Report. I’m trying to utilize it for my shareholders. You know, because it’s going to come up I mean, I know what people are thinking okay, so I get this report. What do I do with it? Do I bring it to you the APS I mean, I’m not trying to put you guys on the spot but I’m, I’m trying to get a gist of it. I understand these things are created. What do they go Where Where is I mean, I already know of a company called crowd tide. what they’re going to do, they’re going to grab all this to provide as a free service. That’s great. But from a shareholder perspective, is this is this report that you provide jam? From clear rating? Is that for them to take away out or another secondary market for it to be listed there? Was this something independently sitting on your website? Like I’m trying to get a sense of, because the value that we put becomes where it gets accessible to the general public, right? Well,

James Row  20:28

yeah, look, it’s paid for by the issuer. Oh, ignore this requisition. Okay. Now, what we’re gonna do is we’re also going to as the market develops a little bit, we’re going to issue them when they don’t want them. Okay, so we’re going to do the same thing, just like some of the rate, what are currently the rating agencies, right. So we’re going to do the same thing on the research side. And we’re going to do both paid and unpaid. Now, your hell of a lot smarter as if you were to want one that’s paid, because then you’re able to basically put the right materials up front is unpaid, then you’re looking at whatever is publicly available. And then we can draw whatever conclusions we want to Okay, then at that point, then you’re at the mercy of somebody that’s only going to be able to find stuff that’s in the public sphere. So you’re kind of it’s kind of like, maybe you’re not providing information, you’re going to be subject to potentially very unfavorable responses, because then there’s no, there’s no transparency, there’s no clarity of what it is. Now, if you’re doing this, if you’re an issuer, you would want this because the de minimis cost of what a valuation report is, it’s usually more than I mean, if you don’t get at least a 50 or 100x, return out of it, then it’s pretty foolish, because you’re usually looking to try to go from a if you’re doing a RegA or whatever, you’re looking for that to go pretty fast, because it’s a third party report. What’s the third question every investor asked? Oscar was the third question.

Oscar Jofre  21:57

You’re on the third, What’s the title? Yeah, I’m thinking, What’s the third question every investor ask?

James Row  22:03

First question is what do you do? Second question is, how much do you How much are you raising? Third question is and wishes. Okay, right. I mean, okay, they may be a little out of order, but those are the top three. Okay, the first two questions every issuer can always answer. The third one, most issuers are standing there with their hands in their pockets. Now, they can somewhat answer, oh, my company’s worth $100 million. And they turn around and the investor will ask, Well, how do you do that? How do you justify that? Well, if you’re smart ish, or you would turn around and say, I had a third party report, okay, then it’s any standard, oh, look, somebody else said I did this. And these are the kinds of ways and here’s our comp analysis. And this is what somebody else did, of course, and this is why we believe we’re worth 100 million versus 50 million, or whatever, I can sleep, you standard a, your your you have intellectual superiority, or you’re at a higher level of approach there. And you standard me, you have the ability to make your, the salient arguments of why your company is worth the higher level. And then if you did, I pick, that’s just I think that’s just, you know, good preparation. And if you’re an intelligent issuer, and you’re ready for your investor, public, you’re ready to go. Same thing. If you when you turn around and you go to Li and you, you get posted or listed or whatever, leave us to whatever the semantic phrase is going to be, you would want to provide that that would either be on there that would be provided in whatever form or fashion Li and the reality team may want to do how they want to present it maybe I’m assuming that would be available to them in a bad either in the form of evaluation or some. I’m happy if all the issuer has hits their materials, if they’re paid for it. It’s their material, right? They just, you know, it’s it’s their materials to release. Right? It’s not my materials.

Oscar Jofre  23:52

No, no, I get that. Okay, so I’ve got this reportedly, I have obviously, I’m now placed on your secondary market. I got it from a registered broker dealer, because we don’t know.

James Row  24:07

That’s not

Oscar Jofre  24:08

apology. Sorry. Careful,

James Row  24:10

Oscar. It is. Let’s be very careful there.

Oscar Jofre  24:14

What it told me to say that you know, Lee did not, you know, you knew you allowed me to put my foot in it. And now I’m gonna get it. You have no idea what it’s like getting.

James Row  24:29

Okay, my friend. Let’s let’s be very, very careful here.

Oscar Jofre  24:33

Yes, of course.

James Row  24:33

Let’s let me be let me let me take 30 seconds to explain something in the United States under FINRA rules and sec. If you’re going to issue research, as a broker dealer, you need to be authorized to do that. And you need to have six FINRA licenses at 680 sevens to do research. We do not do that through the broker dealer and we because if you do that You are issuing either buy, sell or hold designations as well, we do not do that. We do also it’s a separate subsidiary. And we keep it outside of any of the regulated entities for that very distinct purpose because we don’t issue buy hold or sell recommendations, we do not provide recommendations, we provide information. Any, it’s a general research materials. So it does not fall under securities release. It’s not providing recommendations. And at that point, it’s got to be very clear to everybody that this is what it is. And this is, this is why you’re not going to see people do research at this at the federal level doing this at these kind of levels. Because doing a recommendation on reg CF or RegA at these levels, would only invite all kinds of trouble for a broker dealer doing those kinds of things. I just don’t see any BD doing that. If they do, God bless them. And let me know how it works out for you. But

Oscar Jofre  26:03

you made a you made some really interesting distinction. Sorry, I’m, I’m taking notes on this because this is so you mentioned you’re not making recommendations. That’s the that’s the key element to this report. It

James Row  26:13

doesn’t know you I think we need you and your audience, be very clear that we’re not making when I do a clear rating Report. I’m not making a recommendation. Cake is if I make a recommendation, that’s a totally different game. And release. Lee is not making a recommendation either. If he puts it on his his platform, he’s just he’s just giving it as another piece of third party research like the Wall Street Journal reporter of Financial Times story could be it’s up read, here’s here’s just a it’s just a piece of independent research. It’s, it’s a story. It’s it’s not endorsing it, he’s not providing it with clear writing. And my my disclosures are very clear that these are not recommendations from a broker dealer. It’s just from an affiliated entity. Okay. And it’s that’s how it is so, and even though

Oscar Jofre  27:07

the affiliated entity is registered with the SEC for you to do this kind of report is no good. No, no. Okay. So are you still are you doing the First Amendment? What kind of? Okay, yes.

James Row  27:20

So amendment. Exactly. So my entity clearing falls under the First Amendment, just like s&p and Moody’s. So we fall under those those categories. Okay. And that’s what that’s what s&p and Moody’s and Duffin Phelps and Fitch and all of those. So we fall into those same kind of categories. Okay, now, there’s other there’s other categories later. I don’t want to get into the

Oscar Jofre  27:43

No, no, but you know what, that clarity? Guys, That’s it? That’s an important distinction. Because you know, people are I mean, I, when you get a record, I mean, you know, it’s clear rating played, you see, so part of it like you go Oh, yeah,

James Row  27:56

so I look at Oscar, I’ve never, I’m not sure. But I’m happy to make, you know, provide you with five of our reports. And I’m not sure if Lee and his team have seen any of our materials, but I’m happy to make them available to anybody, whoever requests I’d be happy to because some of our materials are protected by NDA, some I can release some I can’t obviously. And then the white papers, a lot of people want them out. I mean, most people are like, yeah, push them out to everybody. We want everybody to know what we’re doing. And then some people are like, I don’t want anybody to know what we’re doing. So I have to obviously manage and monitor those. But if you see them, you’ll never see a recommendation.

Lee Saba  28:36

It’s telling a story, though, right about the company. But I think to Jim’s point, and thanks for doing all the clarifying clarifying around that. Yeah, we’re not making any recommendations. We’re not pushing any research. We’re not doing any of that. I mean, you would come to the ATS to transact, right, in order to potentially try to transact you know, and you can do your research, like you said, on Wall Street Journal, Yahoo Finance, you know, the issuers website and any documentation they have using Jim’s company, you know, and then you make a decision, when you come by that, you know, and that all this data helps you make that decision, do I want to buy some do I want to sell some? What do I do, and we’re facilitating that. Now, where I think, you know, our public market data may come into place, you know, providing a conduit of additional research for folks who say, Okay, what were the prices? What would have been that? What were what were the limit prices and how many transactions occurred, that sort of thing. But, yeah, we are we’re not in that, in that, in that business as far as providing research,

Oscar Jofre  29:47

you know, in its it recommend, you know, it’s interesting, we’re talking about research and, obviously, look at me, I I, I knew a one time because there’s a company in the market, right? Providing first amendment research, which is people pay to subscribe. And they I do believe they don’t make a recommendation, but they show they take information that’s already available in public eye and produce a rating that no, not even a rating. Yeah, reading for reg CF and all that. And still, if that’s all the risk today is that that type of research is unlimited, because where we are in the state of the market, do you think that that will change over time where we need more than just first amendment research? And if we could just take a moment to describe what that means it? Again, it’s it’s being produced by a non regulated entity? It’s not making a recommendation is just to storytelling based on public information, correct? It’s not anything that’s not available to the general public? I hope I got that, right.

James Row  30:54

I did. Yeah. Yeah, let me let me, let me tell you where I think it’s going to kind of fall out, I think, what you’re going to do is you’re going to see, you know, three or four groups kind of get out there. And I think they’re gonna have different levels of quality, right. And like anything, various groups are going to focus on certain areas, and they’re going to become good at certain things that certain groups are going to like certain types of formats, etc, I know what we’re going to do, we’re going to try to be, we’re going to try to be wall street light, in the sense of, we’re going to try to replicate the same kind of discipline, the same kind of quality, the same kind of stories, etc, an easy to read type of format for anybody between, you know, basically somebody that has an eighth grade education to a PhD, and I’m just being kind of a general, to take a Wall Street, a research paper, instead of repeating it three times, telling it once, but having it so people can read it and understand it that have a effectively a middle school education all the way through to, you know, post graduate, that understand what they’re what they’re going to be looking at. And to try to do it very simply. And to do it, we’re not going to be fat, you know, we’re not going to be focused on making a lot of cute little charts and making it look like the front cover of the USA today and kind of make it I don’t think that helps anybody that that that to me is cute. That’s, that’s not, that’s not information research. So our stuff is going to be boiled down into, we have three basic products, it’s going to be called a snapshot, a report, and the study, snapshot is going to be stuff that probably is going to be on Lee’s site more couple pages, people are going to be able to read it because remember, you’re talking about small issues. For the most part, I’m talking about the C FMEA. Now, when we get to the D and these are these this is it can end up but how much is in the market? How much is the float how much is I mean, look, a reg CF paper or something an issuer? 5 million up to $5 million here and a few you know a couple more weeks, there’s no money in it. I mean, there’s no initial there may spend, you know, X dollars just to kind of help spend it out, you know, kind of get a story, but there’s nobody that’s going to follow it independently. Like it’s not Apple, where you’re going to have 35 analysts following us there’s, there’s no market, you’re never gonna switch and say never, you’re not going to see a pool of research people following it independently, because nobody’s going to pay for that there’s not a depth of the market. Follow, there’s not going to be enough trading activity to justify hope so of independent brokers. And there was also something here a few years ago called mifid. To I’m not going to get into that, you know, paid research versus so that’s a whole other subject for that’s almost a whole webinar in itself. But the the the point is, is that I see it at the at the A in the CF level, Oscar, it’s going to be a hard putt for I mean, we’re talking five or 10 years, in my opinion, before you see anything that’s more than just, you know, the First Amendment type stuff, just Yes, there’s no there’s no, there’s no, there’s no money. There’s no money. I

Oscar Jofre  33:58

know, I understand that. As long as there’s, I think, like everything else. I think we’re okay with it. If any information is, you know, somebody compile stuff that’s already out there and put it in our storytelling. That’s great. Yeah, but as long as people know what that is,

James Row  34:14

I think that I think, but I think it’s going to end up being to the reputation of the shops. Okay. And looking it’s also going to be a clearing thing for for for the ATS. Like like Rialto. Look if, if, if, if my shop ends up creating stuff that’s quality, they’re gonna want to hat they’re gonna say, Hey, you know, Jim shop does good stuff. We really support the way they do it. If we falter in our stuff, they’re going to be like, we don’t really let the market have clear it. Right and event the market will do its let it work. The market will clear itself.

Oscar Jofre  34:50

Yeah, yes, I agree with that. I hope for the people listening in today is kind of a wake up because obviously Here’s one big distinction difference between a stock exchange report from a broker dealer firm with a buy and sell recommendation. We’re not seeing that here. These are independent reports being used by the First Amendment telling story with general public information. Do you think we will see these types of reports that will include information that is not available to the public? And what impact that could have? We just want to hear your call. And I’ll come back to you on that when Jim because you’re doing them. So I’m just curious, because I’ve seen the other party’s there. They’re using the First Amendment. They’re saying, look, if it’s not available in the general public, we’re not going to we can’t provide it because people need to find it. But we just put it together in a way that for people so they understand what they’re looking at. What are your thoughts on that? What? What’s the exact question? Just what was the exact question? I’m asking Joffrey? You forgot who I am? No, I

James Row  36:02

know. There was there was about three questions in that one question. Yeah, it

Oscar Jofre  36:06

was it. I mean, sometimes it Listen, this subject, I kid you not the more we tell people, we now have secondary market trading, the amount of questions that come out of them, it’s it’s all related to, you know, the stock exchange market, right, because that’s what you know, and you apply. So my question is, under the First Amendment, from what I’ve seen, is that the companies who provide these reports are doing so utilizing public information that guard filings, you know, things are on the company website available to them by scraping, and then they compile the story. My question is, do we foresee that that same report could include information that is not available in the general public? Right? So I mean, bread games, we know everything’s there. Reg CF, we know about, let’s say, 50%. Reg DS would say, so how does that fit in? When with a report? I’m just curious to hear your thoughts on this. Because it well, first of all, if it’s even possible, do you think it’s even possible to create a non recommendation report with with the information not available to everyone?

Lee Saba  37:23

Yeah, so I would say, you know, I think I think this ecosystem will will evolve, kind of similarly to what Jimmy said, it’s going to take a lot of time. But I think as the market matures, we’re going to, we’re going to see more influence from from institutions, possibly, you know, getting into the CF, maybe the A’s, or the A’s and the C apps. You know, obviously, they’re already into the DS, but they do their own independent research, there’s going to be shops are going to say, Well, I want what, you know, the trillion dollar asset manager has, and there will be services starting to be provided, I’ve already heard, you know, like Bloomberg, and some of these other folks are starting to really develop teams to focus on some of this will be what I’ll call, I guess, subscription based, you know, you might have an independent analyst, that that covers a whole wide spectrum of, you know, certain companies and certain genres. But, you know, I’d be hesitant to say non public, you know, I’m not sure what that would mean, but you might have an independent analyst, or, or an analyst from a large firm, be able to do on site research, do some interviews, and actually come back with with a more structured in deeper dive ability on that particular company that you could pay for. Again, that wouldn’t be reality. Oh, that would be something

Oscar Jofre  38:48

No, no, I thought would be Jim. So okay, I’ll put you Jim, I’m a private company. Obviously, this public stuff, but I have other stuff. Do you include that or you exclude it? Maybe that’s better question.

James Row  39:03

Well, look, it depends on a couple things. One is the issuer and then what they want to provide, etc. Right. And what they’re disclosing or not disclosing. I mean, if it’s, if it’s in a report that I mean, I’m not sure how much I mean, if it’s in a RegA, it’s, it’s pretty much already disclosed. For the most part, it’s already disclosed, probably I’m not sure what wouldn’t be disclosed already in a RegA. I’m not quite sure what it would matter in a reg CF. It’s so small, then we’re going to get into issues whether or not it’s a subscription type service, etc. I think what we’re going to see to Lee brought up a good point is who’s going to start asking for it now? We’re getting approached because, you know, back to why we don’t have it in Entoro. So Oscar we now understand why it’s not in total that’s doing the research. It’s actually a separate subsidiary.

Oscar Jofre  40:01

Can you hear me okay? Or did?

James Row  40:03

Did my volume go?

Oscar Jofre  40:04

No, no, I’m sorry, I knew myself because I have so many comments

James Row  40:08

to come back. So so. So now you understand why it’s in a separate subsidiary. So it’s also not. So exactly the reason why you asked all the questions. So the so it’s also a subscription issue to size issue. We, we have, obviously from our broker dealer and our primary broker, our primary offerings, issues, and the way we do distribution and also through our ri, a, and our relationships with our distribution partners, we’re getting from some of the bigger ri A’s requests from how does it work, right, some of these issues on and they want to know, for their for their advisors, because the advisor starts starting to ask a couple things. How does crypto work? How do we get into doing some of the some of the things what why do you you know, how do these? How do these things work? How does the digitization work, all of these types of things? So we’re sitting there at that crossroad. So we’re getting it from the RA community. And that’s where you’re going to see the biggest change my my, my belief, and that’s what we’re focusing on is educating those educating, not the individual buyers, guys that are going to buy, you know, 1000, or 2000, or 5000, I’m looking for the RA guy that’s looking to make a 2500 $250,000 buy, it really does want to say, okay, where is that piece of research when he’s looking at a million dollar buys, Hey, you know what, I really do like that whether, you know, what is it that and they want more than just a, you know, a publisher’s comment, and you know, what, I know, a monthly publication or something, maybe they do want something more than that. They do want somebody that’s kind of a third party. And they want, they’re looking for somebody that has a little bit of a pedigree, right? So this is where we stand in our world is that, you know, because in our shop, we’ve got attorneys, and CPAs, and CFOs. And, you know, Ty and designations that basically create these reports. And actually, that’s where we get. So that’s what that’s the space we’re going to play. And I think that’s where you’re going to get the biggest bang is on the RegA, interfacing with that that ra community, because they’re looking at it in the same way you get those third party reports that have to be done for the compliance officers at those bigger ri A’s. And you don’t go anywhere until you get get over that hurdle. I mean, Leno’s that spot, I mean, it’s the same, you know, you can do a lot for the little guys. But if you really want to make this market, more, you know, liquid and quasi institutional, you’ve got to get into the you got to get into that ra space. That’s, it’s it’s imperative. And

Oscar Jofre  42:45

I agree with that. I’m going to throw in an interesting little wrench in here. That me so as you know, a company and we purchased a 409 report 409 a report. You’re familiar with those? How does that? Well, one, with that report being included in your analysis, not analysis in your storytelling? Or would that be independent of it, given that that has other implications in its own? So that’s my first question to you, and then I’ll come back to you with that. Okay, well, well,

James Row  43:28

409 a report is, is is very different report for nine days, really, when you’re, it’s at the beginning of an organization where you’re really trying to get to the very early basis for stock options and allocations of shares, for tax purposes. And you do a 409 a four for that. And there’s a couple of reasons why you want a third party, you can do it yourself. But you, if you if you do, you’re subject to the IRS, and you don’t have safe harbor, if you have a third party do it you have safe harbor, and then it’s up to the IRS to prove which evaluations now, we do do those on occasion. We don’t like to do them because there are a lot of work for kind of a lot of for very little money. There’s a very large organization in this in the United States. starts with the C five letters, they do it for like $3,000 Okay, it’s hard for anybody to compete with them. They do 10,000 of them a year. It’s hard to to not use them as a 409. You know, outsourcing model, but that’s a very different thing. That’s a lot different than a research report. That’s just, that’s just kind of a valuation of your entity for stock options, and everything has really nothing to do. In fact, a 409409 A is the inverse of what you want to call your valuation because you want your 409 a valuation to be $10,000. I’m being flippant to be $10,000. But if you’re going to raise money, you want it to be 10 million dollars because you want to turn you want to tell the IRS in the United States, you’re worth $10,000, which you want your investor to you want your investor returned? Oh,

Oscar Jofre  45:09

wait a minute. Isn’t that what? What’s going on right now on the Supreme Court regarding some asset? Okay, I get it. I just wanted to, and I do understand the differences. And there is another company even bigger than that one, just so you know, for the smaller guys. And they’re called scholar out of Utah, they do a great job, and so a lot less they do. And I but I just wanted to know how you can combine the two if it makes sense. You

James Row  45:39

can, but it’s just it’s just you just take it you do the reverse? It’s the story. Yeah, no, I, by the way, it’s not the end of it. It’s the I mean, a 409. A is literally 20% of what evaluation reporters. It’s just the start.

Oscar Jofre  45:55

Yes, and some people treat it as the Holy Grail. Right, again, how people are presenting it is the key and part of this education is to, you know, take away the myth and say, Okay, this is what secondary market is, this is what the research report is. So Lee coming to you now, you’re the operator of this. So you got the 409 A out there that you can’t restrict me from putting it in publishing it in whatever form I want. And then, of course, I have this independent third party non recommendation report. If it’s out there, are you going? Is that something you place alongside with the issuer for the new buyer to purchase to give them some information? Or those, again, like what Jim said, they’re distinctively different, and you just let the buyer find it on their own?

Lee Saba  46:42

Yeah, I mean, I think, you know, we’re in the early stages of this game, right? You know, I use this analogy quite a bit, but you know, we’re in that we’re probably just ending batting practice. For an extra inning game, you know, we haven’t even taken the field yet. So I, you know, we’re gonna, we’re, we’re very early, I think things will evolve, you know, to providing a certain level of information in a standardized format. But I also think that, you know, if you’re going to issue or be placed on, on, on our ATS, or any ATS, for that matter, you’re going to want a certain level of information for folks to do some research on you. That’s, that’s consistent. So, you know, if there’s one issue where that’s, you know, placed on on our, on our ATS, and they have, you know, not a lot of open information out there, you know, that that may restrict, you know, some of their trading or ability to be liquid, versus, you know, somebody who’s, you know, an open book and is, you know, demonstrated a lot of access to the, to their, to their company and their, in their ability to to be the strongest market fit in their category. You know, it’s, I think they’re, they’re in a better position. So basically, you know, I think, you know, the right data coming in and being presented is better than less data. In the long run, and I think we’ll see, we’ll eventually gravitate towards that, because people are going to demand it.

Oscar Jofre  48:14

No, I agree. And I think it will get better. So here, here, here’s what I’m going to maybe a bit biased in either way, but obviously, I’m going to start with you, Lee. So if our report has been January, because we’re gonna see others, I mean, there is, okay, there’s a broker dealer who created an entity, likely a rating, so you kind of they’re a broker dealer. So you kind of know, there’s some ethical components to it. Somebody said it at the beginning, it’ll depend on the firm creating it. So we have others that are younger, into the market. They’re using technology, and they figure by aggregating, how are you going to? Are you going to moderate, which reports you bring into this picture? Because that’s what we’re telling people with first rating on first amendment report, when what we heard from the lawyers is that companies have to be very careful with it, because if you didn’t engage with it, so with clear rating, from what I understand, I’m engaging with the other ones I’ve seen, they’re doing it on their own, and it could be good and bad. And if a company gets involved in it, it could be part of their entire capital race. So how are you going to? Are you going to review the front that’s actually creating it? And what are the things that you’re going to be looking forward to give you comfort that even though it’s a non recommendation report, that this thing isn’t some shiny, new rainbow, like the report that could just go go haywire? What are your thoughts on that, Jim? I mean, Lee, sorry, leader. Um,

Lee Saba  49:47

so before you get placed on the ATS, there’s obviously you know, a bunch of homework that has to happen by our compliance team and everybody else, you know, when within the reality and there may be, you know, some folks that don’t quite Add up and won’t make the cut. So, you know, I think I think we have to be crystal clear that, you know, we’re, we’re working with quality issuers here. As far as you know, where we’re going to be, you know, in the future, as far as you know, providing any information about those companies, you know, I think it remains to be seen, you know, there, there are certainly some questions there about what, what we want to provide and what we can provide. But I also, you know, I think about it, again, I came from the traditional market space, not not so much that the private marketplace, and, you know, you don’t go to some of the large exchanges, looking for Intel on the company you’re looking to buy, you’ve already kind of, you know, you know where to go to buy it, or sell it, and you’ve already done your research independently, you know, we’re the ATS is very similar in that in that function. So, you know, you would use somebody like Jim’s company, or you know, or others plus your own, you know, methodologies that maybe subscribe to another firm to, to provide some of that independent voice to make your decisions once you’ve made that decision. Okay, now, you’re a subscriber on the ATS, and you want to get involved. I mean, it’s, I know, I’m kind of simplifying this a little bit. But you know, we’re not in the business right now of really focused on on the on the data piece of it. You know, those buy and sell decisions are independent. And, you know, folks like Jim and Entoro, and in his in his other companies provide that level of data, I think that we need, and I think it’s just going to get better over time. But there is going to, I think there is going to be that top down pressure, as these asset classes grow, we’re going to get that that pressure to be better and provide more data. And the issuers themselves will be pressured to probably do that a little bit more. I mean, I’m assuming this actually, but I can’t I can’t even imagine a world where the heat and doesn’t get better.

Oscar Jofre  52:09

You know, this conversation is praying, I have to tell you, all the ones that I’ve done regarding research, this is the one that I really, and you know why I’m digging them more deeper into it is because I’m getting a much deeper understanding no different than when I first heard the word ATS, I thought it was this. Now I know which buckets to bring it into. It’s just like breaking it down. So Jim, I mean, what is going to be differentiated? I mean, I know clear reading the fact that you guys have a PD background, and you have this. It? Do you think that that I guess what I’m trying to help the audience understand is, there are going to be different providers saying I provide this, how are they going to be able to decipher between one or the other? What are the things they should be looking for? So the report that comes out? Obviously, with no recommendation that that’s already needs to be that’s already flat out?

James Row  53:07

So the I think, yeah, I think it’s gonna end up being kind of style and substance and all the materials in it. And I think if you look at it, it’s just like s&p or Moody’s or Duffin, Phelps, or Fitch, or any of the other type of, you know, similar services. I mean, some people have one, like over another, I mean, it’s gonna be that type of thing, summer subscription, summer, whatever, it’s just like, once we have a pretty good sized library, you’ll be able to go to clear writing calm and be able to pull off all the, you know, the materials there. You know, it all depends on how some of these models end up rolling out. And, you know, it’s going to be kind of let them let let the market determine how it ends up, determining what we’re going to do is focus on a quality work product, done by people that are, you know, industry experts, we, you know, I’m not gonna stick up healthcare person on a software deal, right, it’s somebody that’s going to really kind of be knowledgeable on our space. So we’re gonna, we’re gonna focus on that, that, that, you know, that top 50% of the reports that like, that makes sense. Just like that, like Wall Street does, right? We’re going to focus on the companies that people have an interest in and look like they’re going to be substantial and players in, you know, at the end of the day, somebody can look at a company and say, you know, this is clear rating, even following it. And if we don’t, it’s probably not something somebody wants to look at, you know, it may be just end up being that you don’t know how this is gonna end up. It may be the kiss of death, you don’t know what some of this is going to look like. So I we just feel like

Oscar Jofre  54:45

Jim, give us a really good word there. And thank you for that the kiss of death. I mean, this is the when I speak to some of the lawyers that go oh my god, you know, if they don’t have an idea what they’re doing this could be the worst thing for any company. We’ve seen it. We saw it firsthand by A company good as using the First Amendment, and one of their staff send out a message about a company that’s doing a RegA and to you know, to entice them to come watch a webinar. And the language was coming, see how this new multi billion dollar opportunity. And it came from our rain company, right? So immediately we all got together and we want to help this company and make sure that you understand. So it seems like they’re still, for those who are new to it, they need a lot of guidance. You shouldn’t be doing this without legal side. Obviously, being a FINRA broker dealer, your head is already twisted around.

James Row  55:43

You can’t do this, you can’t do that. With that, well, they Yeah, but if you’re not, if you’re not licensed in a form or fashion, you can kind of you get away a little bit more. Right. And but I think the market, if you’re a serious investor, like I said, if you’re, if you’re just pop $1,000, here or there, you’re you’re maybe not less, and that’s not my target market. My target markets can be the guy that’s going to be writing or investing a substantial check, whatever that may be 5000 10,000 100,000, whatever that number, those million dollars, whatever. Those are the kind of, you know, those investors that I want to make sure that we take care of because that’s who we want to take care of it. If it’s the guy that’s there to put $500 in it, it’s a gamble and a crapshoot. He’s not reading the research anyway, he’s trying to figure out whether or not this thing is that, you know, it’s a it’s a gamble. It’s a it’s it’s, it’s he’s betting on black. Okay? It he’s, that’s not investing, that’s gambling. What we’re trying to research is for somebody that’s looking to find intelligence under the word investing. Okay, let me underline bold, italicize the word. Okay. That’s what it’s designed for. I’m not there to provide somebody, you know, insight into the word gambling. That’s not I mean, that’s, that’s a different concept here.

Oscar Jofre  57:12

Okay, no, that’s fair. I, I think I’ve got a I got a better I have to tell you of all the conversations I’ve had. Now I got a better idea. I, I obviously, there’s still more questions, as you said, we were evolving this into the secondary market, we’re early on. But it’s interesting enough that people are already asking about it, you know what I mean? So that it should, okay, I mean, they should, and look, I

James Row  57:39

mean, it really made a very good point. Look, even if we put materials on it, let’s say there’s four groups similar to mine, okay, there’s three others plus mine, okay. And you don’t go that you don’t go to the site to get information, or you don’t go to reality, to find the research, you usually have done it before. It’s just like, you don’t go to to do research on, you know, whatever stock you’re gonna, you got to look at, okay, you’ve kind of done that, before you’ve done broken report, you’ve done all kinds of other research, you’ve, you’ve, you’ve done DuckDuckGo, or whatever, your browser, search engine, whatever, you’ve done all kinds of other stuff you’ve done, public, you’ve done, you’ve gone and done that before, right? You’re going to go to clear radio comm or you’re going to go to other things, you’re not necessarily going to go to his site to pull it. He’s your his site is going to be available, because you’re going to be able to execute, and he may have links and all these kinds of things. And I may have I you know,

Oscar Jofre  58:40

right? I’m assuming I’m going to tell you something really scary. So I are we already known now that on a on a particular RegA offering. More than 90% of people do not review the form one. And it’s right there. Right. So we know and then afterwards, I know, I know, you’re I get a gym I do. I just been looking for the flashy stuff, the video and all that I just, I I can see how someone could take advantage of this. And, and I’m glad that you’ve taken the time as well, you leave today. And we’re discussing we need I feel like I need to do more of a deep dive more specific, because the questions are coming at in and I do know people are doing the comparison between public research, you know, public company research, which tells them clearly a definition of buy and sell where this is not. So we got that. And then of course, the differences, you know, if you want to, if you want a webinar where I break down how to build a research report. Hey, that’s

James Row  59:41

a good webinar. Sign me up.

Oscar Jofre  59:46

Well, thank you. And actually, you know, Jim, you’ve given me two topics already, you know, I’ve created you know what we’re doing this, we’re

James Row  59:55

doing the structuring one, how to structure a deal. That’s what I’m doing next week.

Oscar Jofre  1:00:00

How to do a deal. Exactly. If this is the whole idea of us, we’re agile we need to be because look, during the discussion you put to people that know the spacing said, Oh, just by having a discussion, it’s no different than having a meeting. The only difference now is that now everybody gets to share in that discussion and learn from it that way, they’re better prepared. And I love that how to build the research report. That is a great, great topic because it will itemize it well, it’s an art not a science, it is a absolute art not a science, unlike that, unlike that, um,

James Row  1:00:37

alright, not easy either.

Oscar Jofre  1:00:40

No, no, I and and I,

James Row  1:00:43

particularly in the particularly doing private securities, but no, no, no disrespect to the to the individuals that do private securities or public securities. But anymore, a monkey can do a public securities valuation, right, because you have all the materials, it’s, it’s thrown in there to do it. The art of the deal is to do a private security.

Oscar Jofre  1:01:05

Yeah. Better. That’s what we are today. What a great discussion. Lee, it was good seeing you as always, you and I got a lot of work to do. Yes. You know, Jim, a pleasure. As always. I know you missed our webinar. Yes, about it. Shawn. And I had a wicked time. By the way. We had analogize

James Row  1:01:23

I I’m, I’m actually not in Houston. I’m actually in Miami. And I appreciate my colleagues stepping in for me. I understand. You guys had a good, good

Oscar Jofre  1:01:32

dialogue. Well, so your man isn’t? Did you want to hear that leak? I mean, I’m in the freezing cold. You know, haven’t gone outside no sound Well,

James Row  1:01:42

don’t don’t feel don’t don’t don’t feel too sorry for me. Last week, I didn’t have heat or, you know, power, food or water. So last week,

Oscar Jofre  1:01:51

I was worried about you. I’m glad you listen. Lee, Jim, great to have you on board. And we are. So I’m going to set that up. I love that topic. That was a great topic to have. And now that we’re really digging into secondary market, it’s going to make a big difference. So thank you again, to both of you to everyone. And again, if you want to watch the videos, they’re going to be available at our or our YouTube channel our KoreConX. And thank you, Lee Jim, and I look forward to seeing you both again soon. Take care

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