Secondary Market Trading for RegA+


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.

Shari Nooan

CEO and Co-Founder

Rialto Markets

Shari Nooan

CEO and Co-Founder

Shari Noonan is Rialto Markets CEO and has more than 20 years of experience in the financial services industry. Shari has extensive experience in building and scaling operations and products with Deutsche Bank, Goldman Sachs, and Instinet and was directly involved in the electronification of the Equities market. She worked to develop many of the initial products in equities electronic trading, including the first ATS’s, advanced algorithms, and electronic negotiations. She received a BS in Accounting from Marquette University and MBA from Columbia University and holds Series 3,7,24,55,63 registrations.

Andrew Stephenson

Chief Product Officer and Partner

CrowdCheck Law

Andrew Stephenson

Chief Product Officer and Partner

Andrew D. Stephenson, Chief Product Officer for CrowdCheck and Partner with CrowdCheck Law, is an entrepreneurial attorney focused on assisting small and early stage businesses with exempt offerings under the Securities Act, especially related to online securities offerings and crowdfunding. Prior to joining CrowdCheck, Andrew was involved with evaluating internal company communications and reports as part of complex civil litigation matters. Andrew has also worked for the United States Congress, handling a wide range of policy areas. Andrew received his B.A. from Claremont McKenna College and graduated, cum laude, from the University of California, Hastings College of the Law. Andrew is a member of the California and District of Columbia bars.

Shari Noonan  00:04

Hi, Oscar.


Oscar Jofre  00:08

Bonjour, madame. Okay, all right, so sorry, I was just getting things set up on YouTube Live. So we are here. Welcome, everyone. It’s a wonderful Friday. Welcome to the KoreSummit webinar series 2021. Once again, we have some great panelists this this morning for this great discussion. For those who are joining us for the very first time. The format is very simple. It’s just really there’s no PowerPoint presentation, no slides. Basically having these two great speakers and myself engage in a conversation, which will then just the last part of the webinar, we will give you an opportunity for 15 minutes of any questions you may have for them or for all of us. To to answer for you while we’re having this discussion. And today’s discussion is really exciting. It’s I’ve been waiting for this one, secondary market trading for RegA, I mean, this is this is it, we’re actually having the discussion, we were going to have it and so we’re going to start up first of all by having everyone introduce themselves so you have a better idea of who our panelists are here today. And Ladies first.


Shari Noonan  01:36

Thank you so much Oscar. My name is Shari Noonan and I’m the CEO and co founder of Rialto markets. Rialto is a FINRA registered broker dealer, and an alternative trading system or an ATS that really facilitates the entire private markets infrastructure from primary offering to secondary trading, which I’m very excited to talk about today. Andrew,


Andrew Stephenson  01:57

I’m Andrew Stephenson with CrowdCheck. The main notes on the invitation and the materials for this webinar, Sara Hanks with CrowdCheck was was originally billed to be be speaking but Sarah, it’s actually to this morning’s attending the meeting of the SEC’s Small Business capital formation advisory committee meeting which so on topically is has a is having a discussion about sort of small companies and small companies and public trading markets. So So there you go. But yeah, CrowdCheck we are a sort of two halves due diligence and disclosure firm as well as a law firm. And we assist companies with with getting Yes, we’re kind of getting, getting, getting prepared for Regulation A offerings undertaking Regulation A offerings and then kind of keeping compliance after the fact.


Oscar Jofre  02:53

All right, so I was wondering, you didn’t look like Sarah. So you know, clearly, I don’t know that you noticed that Shari, but I came right up me. I go, you’re not Sarah. Okay. So but you know what, it’s obviously having both of you here today. It’s so timely to your point, and rude that, at the same time, while we’re having this discussion, there’s one happening right now, Capitol Hill, regarding the state of affairs for all of us. And now, I think it’s only going to get better. So, you know, the whole discussion of secondary market, we’re now having it and we’re going to, you know, we’re going to break it down for people. So you you kind of get in bits and pieces not kind of scrambled around the way it’s been showcased before. And I think this will help everyone understand all the different parts to it. Because I think there there’s some bit of pieces that we’ve discovered people forget to mention. So let’s go through the legalese. First of all, obviously, Andrew, I’m gonna come to you on that, because you and I, we work very hard, and of course, Shari, but let’s start with that. Let’s talk about secondary market trading, RegA, the regulation, it clearly I mean, it’s sold as a free trading security, but, you know, what are the from a legal least practical point of view we need to be aware? Sure.


Andrew Stephenson  04:14

So so one of the kind of the great innovations from Regulation A from as far as as far as regulatory innovations can be, was that utilize when utilizing a tier two offering under regulation, as you’re providing audited financial statements, you have ongoing reporting requirements, that the initial sale of those securities is pre preempt state review and state laws. And, and then in those securities are freely tradable after after sale, and that’s under under federal law, so they’re so typically per the underlying principle for any securities transaction, the transaction, the sale, offer and sale the security seems to be registered or exempt and that applies to the secondary Sales as well so by. So under federal securities laws, the secondary sales of RegA securities are freely tradable. They are they have an exemption. So long as it’s not the issue of reselling or an affiliate of the issuer that’s reselling the chair. So anybody who buys securities in a Regulation A offering that’s not doesn’t have, it’s not an affiliate of the company, now has free trading freely tradable securities that don’t require any sort of additional permissions on the part under federal law to sell those securities. State laws, another issue, the preemption only applies to that initial sale by by the company, it doesn’t apply to secondary sales by investors. So when investors looked are looking to sell, it’s really, it’s kind of tough to find a market. If an investor kind of if you’re in touch, if you’re going to go into your friends and family, you could that’s a one, that’s one avenue, and that would likely be covered under state securities laws as being an isolated non issuer sale. But it’s really the but that’s not an effective, effective or efficient way to make those make those sales. You need to have your public if you do want to sell you need to go to a public platform or or do some sort of public solicitation. And to do that, actually, there are Yeah, then now you don’t really have that isolated non issuer exemption available at the state level. And so there needs to be additional seating, you rely on other exemptions that are available. The most commonly relied on exemption. It’s called the manual exemption, which is something that is a very kind of just antiquated concept. The the manual exemption was first written into kind of the uniform state securities laws in the 1960s. And it’s been there ever since in the eye, because the idea then was that, you know, what, when it made sense, at that time, that you know, we need to ensure that there is a uniform set of information available about a company that any investor can have, can have access to, to know what Yeah, to have current information about the company. And so there, so both sides of a transaction are fully informed. And so that was the purpose of the securities manual. So they’re published by private companies, so s&p merchant. And we’ve only kind of merged in really being the only one existing today, it would just add basic information, identifying information about the company about outstanding securities and financial snapshots, based on audited financial statements. And that just had to be published in the manual. And now you have a manual and now you’re eligible for the the sort of because the company has taken put in the effort to be in this manual. Now, investors can resell. They, some states have have updated their securities laws many have not. So that means so some states now say, Okay, if your current in your EDGAR being reports to the SEC, that are published on EDGAR, you can rely on the securities on the manual exemption, but not every but but most states haven’t gotten there. It’s it. This is an issue that I say it’s an issue that has to actually go to state legislators for them to change. And most state legislators are part time affairs that only mean like three months a year. And it’s just not an issue that’s high on their list of to do. So it often just just gets ignored, or just nobody brings it up to them. So, so so many. Yeah. So for blue, the law, the state level laws. Yeah, we’re kind of working in we’re working in the 1960s. Some have updated to the 1980s. Some have even updated to 2002, which is the most recent version of the the uniform, the uniform Securities Act, but even then, the manual exemption, it’s still even for those it’s still antiquated concept because they’re working off of a news. Yeah, 2002 update to the law that was really based on fact finding those done in the late 90s. In the communications tools, as we know have dramatically changed in the past 20 years. So that’s kind of the state of the kind of of the law, they’re freely tradable securities at the federal level, he don’t need resellers that are not an affiliate of the company don’t need an exemption federal level. But there still needs to be an exemption in the state law level. And the manual exemption is the one that covers most covers most states. You get a some that don’t have the manual exemption, you can kind of get you get through by through sales use utilizing a broker dealer. And then there’s also then there’s California and California is a complete outlier to all of this, who in California doesn’t have any sort of exemption. There’s it’s the only exemptions available are those are where the state law has been fully preempted for sales on national securities exchanges, or sales to accredited investors in that, and this is on resale, so the creditor, so you can sell to accredit investors as a resale, but those securities then become restricted at the federal level too. So it’s not not an ideal choice. But for California, you actually need to run the company itself needs to register for non issue or resales. So yeah, so that’s the state of the blue kind of blue sky. It’s Yeah, it’s not a pretty picture. That doesn’t it’s not great for resales, but it kind of leads to where the market is today on that.


Shari Noonan  10:49

So if I can jump in one thing we’ve worked with CrowdCheck, and, and others, and Oscar as well, is really building the infrastructure to cover that for an issuer. So that you know, an issuer is not having to download the d forms and figure out where to say, you know, so 


Oscar Jofre  11:08

I was flabbergasting there. 



Yeah. So really, you know, abstracting that, and, and taking that process, away from the issuer. And covering those requirements is really critical. So so if you are thinking about, you know, if you have done a regulation A raise, and you are thinking about, you know, enabling or engaging with liquidity but a secondary ATS or other one question you should ask is, how are the blue sky laws being taken care of? Are they automatically taken care of once they get on this platform? Or is there something else I need to do? Because unfortunately, you know, the issuer is responsible to make sure that, you know, this, this is all sort of dealt with. And so, you know, it’s really important to make sure to ask those questions. And you don’t need to know, you know, each of the 50 states individual levels of pain, just know that they range from not painful at all to incredibly painful.


Oscar Jofre  12:14

Yeah, that’s a that’s a great summary. I think the key element here for this particular this webinar is to make you aware that on the secondary there, the steps are more onerous. That doesn’t mean that there isn’t a way to do it all. And there is, but most important for everybody listening in whoever’s offering this to you, you’ve got to be asking the question, all 50 states, this is a trick question in the because we say, yeah, we cover some state. Now, it’s got to be all 50 states, because, as Andrew indicated, there are some states, there’s a different way of doing it. And they’re obviously the industry now is packaging all this up for you. So you say I do want secondary market and gloom that automatically does everything for you. And there’s still a lot of work behind the scenes, of course. But the benefits for you and your shareholders are that you’d never have to worry about, you know, how have I met my requirements, and have I given the my shareholders the free liquidity that I that I promised them during the capital raise element. So


Andrew Stephenson  13:26

That was really about the benefiting the investors when trying to create a trading market. If you’re not hitting all of the states, that it requires, every transaction will require sort of manual. So a kind of on paper analysis of is there an exemption available for that for that buyer? Is there an exemption available for the seller to to match with that buyer? And so it really drags down the whole process. And is in makes it that it’s really not an open market. It can’t you get back to much earlier. It’s just yeah, it’s you’re just limiting your your investors to selling to friends and family. Just just kind of Yeah, so just, you know, over over the kitchen table, not not, yeah, not over the counter just,


Oscar Jofre  14:13

well, it’s just not going to be possible. If we’re on one side, we’re trying to democratize where people are investing as low as $100. And then you want you know, they’re expecting to create it, and then all sudden to trade $100 it’s going to take six months, and it’s going to take x so the math doesn’t work. But obviously now, you know, I know Shari and I know CrowdCheck, all of us, the whole industry come together and said you know what we can do $100 trade, and there is a way to do it. That is cost effective for everybody around but we’re just making you aware what is going on in the background. We do know the problem with things sometimes is when somebody provides it to you, here it is, here’s a simple price and you have no appreciation, what’s happening behind so this is just as important. I don’t want to leave the Legals if you happy One of the things that I’ve discovered people forget I just want secondary market grading, or just go to the ATS, my listing fee, and I’m done. No, you’re not done. I mean, this is what this discussion is about. It requires them, the secondary market, which Shari will talk about what her requirements are, there’s the legal aspect as well from the company, that burden when nobody knew what to do when it’s been figured out. But you still need to make sure that whoever you’re speaking to, you’re asking all 50 states, right? All 50 states, right? Because otherwise, to Andrew’s point, you got a real mess coming down your way. So obviously will this will be more clear once you start seeing this information out there. So Shar, obviously coming back to you now. So we heard it from the legal obviously legals trickle down to Rialto, Rialto being the very first secondary market in the United States, for RegA, retail investors, the $100 trade. So your end you also have regulatory elements that are required.



Absolutely. So we have issuer requirements, usually, they line up pretty nicely with reporting requirements as required for tier two offerings. So there are however, there are disclosure requirements and other issuer minimums that that we do require before coming onto the platform. And so that’s really just to make sure that one, this is the right time in the company’s lifecycle, two you know, not just raise the money but to have their their shares on an ATS on a on a liquidity venue, and that the investors are getting the information that they need from a price discovery perspective, to be able to make that educated decision. So those that you know, if you want to think about it, and then there’s some governance items as well, but But broadly speaking, those are those are the items that are that are required. And you know that what we’ve done is we’ve really taken a very manual process that has a lot of friction in it, and, you know, automated and scaled as much as possible. So that if you think about, you know, the stock market back in the 60s, or 70s, you had runners on Wall Street, running tickets at the end of the day down to, to really classify everything, and that put a top on the ability to scale up the market. And as everything went electronic, it was able to scale much more easily and quickly. And that’s really what we’re trying to provide is that infrastructure for the private markets to allow issuers to reach as many investors as possible and provide their investors with a monetization mechanism at a cost effective way.


Oscar Jofre  17:47

Always cost effective. I know you and I keep using that word all the time. It goes to show you how sensitive we all are in the industry right now, to bring the cost down. We’re not trying to make it owners, we’re trying to reduce it. But in order to do that, all of you here need to be asking the right questions when you’re going through your offering. It’s no longer just, hey, give me the invest button and I’m off to the races. It isn’t it could have a consequence for you on secondary market. Because to Shari’s point, imagine onboarding 30,000 of your shareholders, if it’s done in an effective manner, even if she could offer you $100 trade. They they still the onboarding of you, that’s the easy part, the company, but the shareholders also need to be on boarded in a way that it makes sense for everyone. And, and that’s there today. It’s all 100% there for the for the market. But now I’m going to ask some very specific questions that I’ve been asked a lot. And I’ve never been able to answer and not because you haven’t taught me. I always feel comes better from you. So because your experience and so obviously people go I’m excited about secondary market. Does that work like an exchange? And what’s the difference? I mean, we didn’t we didn’t cover that. But we’re here at this stage. So what’s the difference between an exchange and a secondary market?


Shari Noonan  19:07

Andrew, do I take the first cut and then I can come in from from a legal perspective. I mean, I’m happy to take the I’ll take the opening crack and Andrew, you can get out right, missed?


Andrew Stephenson  19:17

Yeah. Yeah, that sounds great.



Okay, perfect. So exchange has as members and is a self regulatory organization. I’m getting a little technical here. And an alternative trading system is really, you know, has oversight from the SEC and FINRA, and is a broker dealer. So your first broker dealer not all broker dealers or ATSs, but all ATSs or broker dealers have all sort of put it that way. And really what an alternative trading system does is it facilitates the matching of, of trades, much in the same way as an exchange but but they don’t have their own rule sets. They don’t have their own membership. In the in the same sort of organizational way. So now, Andrew, I’ll turn it over to you from any legal perspectives that I’ve that I’ve missed on that definition. Yeah.


Andrew Stephenson  20:11

I think the important thing, one of the four things are legal side’s notice that I mean, there’s a lot of there’s that the creating a marketplace for securities is very regulated. We’ve worked with a number of companies that thought they found a thought they found a way around, they thought, you know, what we want to, we want to provide our investors liquidity, and we want to Yes, or trying to create this interface, where they’ll be able to communicate to to buy and sell. And in often, it comes right back, it says, Well, can you That sounds like you’re undertaking an activity that is wouldn’t requires registration as a as a Securities Exchange, I was tell us why not. And it’s always the only the only way to get to the How is it not, is that it really is a completely ineffective system for creating liquidity, it’s that it’s that you can create a communication that it can be a communications tool that only allows for people to talk, but they can’t, there’s no you can’t have any create any binding commitments, that then or they can kind of agree they can communicate to agree to terms and then then the final execution has to be done through a, through an unaffiliated broker dealer, if you get if you if they’re directly sent to a broker dealer, then now you have a Securities Exchange. So there are lots of ways that that get tripped. So that exchange definition is very broad, anytime anybody is creating a facility for bringing together multiple buyers and sellers, it’s a Securities Exchange that needs that require that for under the security under the Securities Exchange Act, that either needs to be registered as a national Securities Exchange, or can meet the or can be under the as a as an alternative trading system, sponsored by a broker dealer. So so in so because of the in so yeah, and so it is a really requires then having those entities one of those entities in the mix to actually make a trade happen. Otherwise, it just goes back to just a kind of paper process. That is just ineffectual for actually creating liquidity.


Oscar Jofre  22:30

Okay, so the the, obviously, because of the ambiguity, it’s new, right? We’re hearing the buzz words, everybody’s talking about secondary marketing. nobody’s seen it yet. I’ll be honest with you. I always ask tell Shari, that I, I’ve yet to see it. I keep hearing about it. I always say, can I? And the one thing that I know that I get questions a lot from people, okay. So, you know, how do I protect myself as now I’m talking from a company perspective, I don’t know the I don’t protect myself from somebody shorting my stock. So again, keeping in mind that the only education everybody’s had for the last 30, 40, 50 years is stock exchanges. And so that’s one. So I’ll Shari I’ll put that one on you right now.



Absolutely. I was going to say the only question I won’t take today is about GameStop. But so you know, when when you talk about shorting a security there, you know, there are certain infrastructure components that need to be in place. In terms of our alternative trading system, we do not allow trading on margin, or lending. So there’s not a there’s not a facility to that to provide a short view on on the security, you can sell it if you own it, and you don’t like it anymore, but everything is everything is, you know, there’s no lending facility, there’s no margin facility, that’s, that’s available. So I don’t think that there will be, you know, at least from a Rialto perspective, we’re not enabling that type of trading on the ATS. And you know, that’s really different.


Oscar Jofre  24:15

No, no, it just did you know, it’s positive for them to hear, obviously, these are a lot of these individuals and companies are raising capital, they’re concerned with their price. They want to stay private. You know, they got some people that came in early and they want to cash out, and how do they they’re all about wanting to protect that in order to do the next capital raise. So obviously, I don’t want to put words in your mouth, but you are working with the issuers up the entire journey. It’s not just your ATS and get out the door, right?


Shari Noonan  24:45

Absolutely not. In fact, you know, we work on different types of protocols and different price discovery mechanisms to make sure one, the investors have the appropriate information to make a decision but then choose That, that the type of trading provided on ATS meets the issuers needs. So for example, there are some issuers that you know, only need liquidity once a quarter, once a month, that’s, that’s perfectly fine. Others want it every day. So so it to me, it’s it’s really putting fitting in what the issue or profile and shape looks like and the needs of that specific issuer, into the protocol that’s most appropriate for them in a responsible way. response, that’s


Oscar Jofre  25:37

great, you know, that’s a great way to put it. And that’s a good carry on for everybody to understand that. This is not like we’re the stock exchange, you get listed, the exchange is sitting one in waiting for their fees, what you’re doing is you’re working with management, you’re understanding what their requirements are, maybe today, they’re not raising capital, but, you know, they come back and say, you know, Shari, we’re gonna do a capital raise in September, what should we be planning for, and that’s where you can come in and strategize with them. We’re gonna halt it when you go live, and then we’ll turn it back on or whatever mechanism they may want, right?



Absolutely, we don’t want to be in competition for that raise. And we also want to make sure that we have the maintain is orderly of a market as possible. That’s really critical. I mean, this is my fourth ATS that I’ve built and operated and our team has built and operated about nine. So we’re very familiar with, with the way that the markets work both on a on a liquid side, as well as an illiquid side. And I think that’s an important part to, to really touch on is, you know, when when you move your security on to a trading platform or secondary trading platform, it’s really important to understand the expectations of liquidity, simply by putting it on on on a trading platform. That doesn’t mean it’s going to be a liquid security that trades like IBM, or another type of very, very liquid security, that’s not sort of reality here. What we can do is we can work with you on each of the issuers on, you know, what they’re looking for, from from a liquidity perspective. And it might make sense or it might not make sense. So there are different options. Again, this is this is not just sort of one size fits all, because every companies are different in this space. But most of them are not very liquid. And so to temper expectations, putting it on it on a trading platform is not going to make it liquid. But what we do do is we reduce the friction for investors to monetize that and bring a larger audience of potential investors in to to see the security.


Oscar Jofre  27:46

And that’s a great touch point. And I’m not trying to skip you, Andrew, it’s just that this is a I’ve been, I’ve been putting all the questions that people have been throwing at us regarding there’s so much curiosity now from, you know, the legals are very important. Don’t get me wrong without the legals all of this is moot. But one thing that you touched on there that I, we’ve, we’ve spoken about this before, and it is, you know, it could change your path. So as you all know, when you’re doing a RegA, you’re getting, let’s say, 1000 people to invest button, and only, you know, let’s say, out of that 1000 100 invest, and obviously the other 900, you still have, and maybe you’re not taking them on because they’re coming from different countries, well, secondary market can play a role in that, right?


Shari Noonan  28:33

They can now, again, I’ll state that there’s a lot of infrastructure involved in this. So please don’t try this at home. You know, there’s a lot of infrastructure that’s involved from the regulatory perspective at bringing an investor base in to, to participate with a security. So we work with lots of different groups, and we work with lots of different partners to to facilitate a large audience. But again, I will stress there’s a lot of regulatory you know, overlay that’s placed on that, we’re just abstracting that from from the actual issuer.


Oscar Jofre  29:14

Okay, so the the one part that during the face of the, from the legals to the ATS and understanding, we talked a little bit about the liquidity and we’ll come back a little bit more on that just before we close out, but I want to cap off on this part, and I’m coming back to you on Andrew because, you know, okay, so we got this state, we got the ATS but there there is other components as well. We keep hearing about DTC, does that come into play, q sip, do I need that do I need to register that particular security? So, you know, they’re they’re still again, we’re staying private. Let’s just make sure we keep the conversation to private I know what the public role is. We’re, this is purely the state private, can you just walk us through a little bit of This is handled, while we’re doing all the backend components for the issuer, I’m sorry the company, what are those other additional pieces of registration that need to happen?


Shari Noonan  30:15

Do I need to take that? Or do you want me to kick it off?


Andrew Stephenson  30:19

Oh, sure, once you go ahead and kick it off, because I think, is a much more much more experience on



the practical side of feeling like I’m playing a football game with you guys.


Shari Noonan  30:30

So perfect. So So in terms of when, when a company comes to us or an issue or comes to us, you know, we feel very strongly that these, these securities need to fit within the, within the current infrastructure of the financial services or capital markets. So we will work to apply certain identifiers to the securities, and those are called q sips. You can also hear them as [uncertain]. But that’s really, you know, that helps, that helps, or as the market expands, and as more institutional players come into this market, it will facilitate that flow into their systems and their staff. Because we feel very strongly that, you know, we don’t, we don’t want people building new stacks they’ve just want. So we want these things to flow through the traditional capital markets, infrastructure, we’ll handle that with the issuer. But, you know, the issuer should just be aware of that component and some of the more technical components in terms of DTC eligibility, you know, you can apply, there’s really not a reason at this stage, you may want to hold the securities at a custodian if there are certain certain groups that need that type of infrastructure around the way that they invest. But those are usually investors that have more fiduciary responsibility, like our RIAs, or others, all of this is available to to an issuer, and it really just depends on you know, where, where they’re looking for the build out, and what type of you want to think about it, what type of buttons to push, and what types of optionality to put on their their security. Andrew, did you want to jump in and add anything?



I know nothing, I’m nothing to substitute, right? It’s a so there’s just just to reinforce that, especially on the for important in referencing kind of RIAs and other investors is important, because that’s likely going to be at a, if there aren’t too many investors who are just kind of sitting around in, unless somebody makes it onto Reddit and Wall Street Bets, you’re not going to have just lots of large numbers of retail investors who are going to be coming and going in a lot of movement is still is still dominated by investors and institutional investors who want to see that you are participating in those traditional illustrational stacks that you’re CUSIP in and using in use of a custodian. And so those are certainly aspects that need to be considered and accounted for when when moving on to an ATS that it’s Yeah, it’s not it’s not flip the switch and go there are there are steps in the process.


Oscar Jofre  33:21

Perfect, I think we’ve, so I told you, we would come back to the liquidity. So we talked about, you kind of touched on its, Shari, price discovery, we’re going to get to that. But one of the things about price discovery that we’re now having a discussion on, and it’s good for everybody that’s here to listen to it. We’re starting to see a new market emerge of research. Now we’ve seen this in the public world. Now we’ve seen it in the private world. And I want to hear from a legal opinion, I’m not gonna stick you to it if you’re uncomfortable with it. I have my own opinion on these matters. But more importantly, obviously, it’s here. It’s finally here. We got to have that discussion. And we got to alert people to it. Because our what are the consequences? If it’s a particular type of research that’s been done? What should the company be doing to involve themselves in it? Or should they just stay away from it? And when can they be involved? And not? Because there’s a bit of a confusion in that, and I hope you agree with me, you and Shari, we’ve had this discussion before. So love to hear your comments on this, Andrew.


Andrew Stephenson  34:28

Yeah. The research reports are important because it’s just an it’s another mechanism of getting information about the company out into the standard international channels. And it’s going to be part of, in haven’t seen it yet. In regards to RegA. It’s nearly not an area that is getting touched on but there’s also because there’s not a secondary market for it. So you don’t have any reason for Investment analysts have to prepare research reports. So it’s a it’s a kind of a little bit of a chicken and egg right now. But it’s a I think it’s going to take in maybe maybe 2021 is going to be the year for that, as we start seeing companies that have done Regulation A offerings are maturing in ways that will gather interest on secondary for on secondary markets, which would then drive the interest of research analysts to to do their to do work and to publish. And to work with those issuers to to understand the information is there in the end, the risk of going in the risk is that you may get some kind of Initially, the ones that will want to enter the space are a bit unscrupulous they may. So write in a way that is not favorable to the company has it? Anytime a company participates in creating information about the company and its prospects and investment potential, that’s a communication from the company itself. their participation, while there may not be the in, and there’s a little bit of uncertainty right now in securities laws about who is the maker of the statement, is it just the maker that has liability, but you cannot, but kind of a bottom line principle, if the company was involved in the preparation of materials, it’s their statement. And, and so if so, want to make sure that you’re working with a research analyst who will publish accurately, will not use excessive flourish, and ensure that there’s not going to be anything that could come back to the company as being potentially misleading.


Oscar Jofre  36:49

That was so politically correct, I’m a little bit, I’m glad I’m not a lawyer, or a broker dealer, because I have to say, you know, I know Shari’s eager to step in, I’ll let you go first. And then I’ll go and go, 


Shari Noonan  37:01

Okay, this is, this is such a fascinating field to me, because again, this is one of those fields that you know, it traditionally has been very intensive to prepare research to get it out. So from a cost perspective, it was expensive, it was an expensive endeavor. And so if a company wanted to be covered, you know, either they had to be in an index or reach a certain threshold. And then below such a point, really, research did not make sense to be prepared, just because it was an expensive endeavor. Having said that, there are some really fascinating breakthroughs in terms of, you know, creating research in a scalable, cost effective way that provides both, you know, information as well as analysis in scale on companies. And so that’s, that’s an area of the market, I find really fascinating, because we know in terms of building a marketplace, one thing that we’re going to have to get better at and work on it are those areas of providing price discovery mechanisms to investors, because unless you are underrated, you know, subgroup, you’re not going to people are going to want fundamental analysis to back up why they’re, they’re buying you or selling you. So that’s that’s a really interesting area that I think is going to go through a lot of growth, especially as RegA expands, and we’re working with a number of different groups, Oscar, I think you’re familiar to to be able to provide that infrastructure and that availability to investors.


Oscar Jofre  38:41

Yes, and it’s true, it’s just starting. So what are we telling you, we’re telling you, what the lawyer is telling you is, you put your hand on it, you bought it. And when you buy it, that means anything that’s in it, it’s on you. So, so my rule of thumb is the following that I’m telling you from one CEO to the other, let them do their research independently view. And if it’s good, great, just let it be there on its own, unless, so there are those that are conducting research right now that I’m seeing using the First Amendment. There’s nothing wrong with that. But it is the first amendment. It’s not a registered broker dealer is not a registered analyst is using the first amendment in the United States, which allows him to gather public information and produce a report. You know, from that perspective, that you need to stay as far away from it as possible. Regardless if it’s as good or bad, just so you protect because you’re, you know, and you said it, it will be part of your offering the money you put your hand on it. If it’s done by a registered broker dealer, that’s different if you have a registration that’s there that can take the responsibility as an analyst, but always keeping in mind that it is a new industry, everybody, you know, I think we’re all watching and we’re encouraging it. I I’m an entrepreneur, I’m encouraging This time, we’re going to see better, you know, elements of it coming out. But there has to be best practices, there needs to be standards to protect you. Because ultimately, we here is what it comes down to. Andrew will still have a job, and Andrew will still be a lawyer, Shari will still be a broker dealer. And you might end up in a nice, beautiful orange outfit. And we don’t want that. That’s the point. 


Shari Noonan  40:29

And I think that’s the that’s the real key here is that, you know, one, this market has evolved, where there are market participants that can provide the services that are needed, in a cost effective way. So there’s no need to do it yourself. There’s no need to try and do this yourself and two, it’s really complicated. It’s incredibly complicated. I’ve been in this industry for 25 years, and I’m still learning things. It’s a very, very complicated world, and marketplace, and there are lots of different rules and regulations and laws, and it’s just, it’s not worth the risk. It’s just it’s not worth it.


Oscar Jofre  41:09

Exactly, because it once this risk comes into your arena, it could deal with a number of things where you may need to refund everybody. I mean it and and, and the reason why we care is because if that refunds occur, it could affect us all it could. So we obviously want to make sure everyone is and if you’re unsure. The beauty of this ecosystem, whether it’s Andrew, Shari, or others, is that they’re going to share with you information to help you and to ask the right questions. We’re not saying don’t work with that. But make sure that you go in with your eyes wide open as to make sure what are the effects of going forward, because the SEC is paying attention and we want them to pay attention. We want them to embrace this. Just the same way. The SEC on November the second said, you know, we see that this is working. And we are going to increase the limits the same way we want them to embrace Sheri [uncertain] took what is it two and a half years to get the approval from FINRA, the SEC. It’s very easy, right? Two and a half years to be able to do this. So we need to do it right. And we want to work with you in that process. There’s going to be a lot of questions. Each of you will have individual kind of offerings, you’ll have a mix of investors in your deals, obviously working with we all do markets. Do you know whether you have accredited or RegCF investors with your RegA. They’re not excluded. You’ve just you know, this is all part of it. We’ve been talking about RegA, because that’s the big discussion on the primary. But we’re not excluding your ex investors out of there. Right? We This is everybody encompassing? Correct. So, um, all right. So normally what we do, I’m gonna ask Andrew, obviously, don’t ask you again. put you on the spot, man. Just gonna do it is I got that. I mean, any last remarks regarding secondary market? I mean, you’ve been at this since the beginning. its finally here. I know that we were talking about a lot of different models before but it’s finally here. So what are your thoughts on that for companies going forward? I think it just fundamentally it’s, it’s making sure that a secondary market is is something that that you want. It’s if you’re if you’re a company that’s into it, yeah. So if you’re if you’re RegA offering, what are your offer, or the are outstanding freely tradable securities and that you’re willing to take on sort of that even if not through RegA, but you then you have outstanding freely tradable securities and you’re willing to take on ongoing reporting requirements to provide information to a securities manual Yeah, so is think about what you have outstanding if it’s a type of preferred stock that because it’s really it’s really more about sort of hitting another milestone to convert into common stock maybe want to hold off until until you are it is sort of your your talk is just comment and so to have that single class out there here are anticipating lots of ongoing new new raises maybe you don’t want to be trading yet because that’s going to be your because it’s going to kind of conflict with your your see some a little bit more volatility in your trading price as you are kind of closing that for for new raises. So just it’s a but if you’re at the point where you know it’s this is this is where you want to be because it allows you to create liquidity for your investors without Yeah, without


Andrew Stephenson  44:52

yeah going going to a national Securities Exchange, then this may be the end this is the kind of the right thing for you.


Oscar Jofre  45:00

Sherry in your last?


Shari Noonan  45:02

Yeah, I mean, this is an area that’s very near and dear to our heart. So, you know, I would just say that if you’re an issuer, and you’ve you’ve completed a RegA or completed another private market security securities offering and you are interested in learning more, definitely reach out to us because I think sometimes there’s a misunderstanding about, you know, what the cost is, and what an issuer has to do to, to actually come on to to an alternative trading system. And so it’s important just to arm yourself with that education, for yourself and for your, your cap table for your investors.



That’s a great point, it’s like anything else, get the education, talk to the people figure out it, it’s, again, it’s your full cap table, not just the RegA’s, because you got to think of everybody. So obviously, we’re now at the part of the session where we want to hear from you ask Sherry, Andrew, any of the questions. So, Roland, I’m going to bring you into you can ask your question.



Hi, thanks for the conversation. How do you deal with international participants? So you talked a lot about US state laws? How do you deal with existing, you know, RegA plus shareholders,



I can take that. So through the lens of a regulatory, you know, really what, what we’ve done is, we work with international broker dealers, to make sure that all of the local laws for that jurisdiction are handled. Now, I know there are many, many platforms that only will work with US shareholders, however, we do have a network of international broker dealers, but I think it’s important to realize that you’re going to have to there are jurisdictional rules that that you need to make sure are being followed, if you are providing that infrastructure. And to Oscars point, if they aren’t followed, you could come into a situation where you have to actually get the money back to the investor. So so just be aware, it’s very, very complicated. On the other side, when you start going, both in the United States, but especially when you start going outside of the United States, some countries are, you know, fairly easy, some countries are really, really difficult. And, you know, our goal and accommodating that was really to involve a professional broker dealer at the other end of that, of that trade.


Oscar Jofre  47:41

Perfect, thank you. All right. krung, bringing you in, do you have some questions?



Hey, how’s it going? Um, can you actually walk us through a use case of I’m an issuer, and I want to list on the platform? Once it gets listed? How does a secondary investor discover it? And what do you do as an issue? Are you also promoting the offering, like the secondary offering with your network? Or is it the broker dealer that pushes it out to their network? And how is that process is it as simple as, as buying shares with core connects platformer and whatnot?



So excellent question. I will first say that, and I know this is a technical technicality. But on an alternative trading system, you’re not listed because we’re not a Securities Exchange, but it works. We admit you but that’s a minor point. I’ve been in this business for a little too long. But but that sort of technicality aside once once an issuer is admitted on to the alternative trading system, the way that it works is that the entire investor base on the alternative trading system is is allowed to purchase shares on on a system Oscar and we have worked with Oscar to allow to facilitate the trading directly from the core connects system and investors can also come in from sort of the front end of Rialto just log in directly to the system from the Rialto front end but probably the easiest way should you be an issue we’re utilizing the KCS system is to you know go into the system in the subscribers will see that the ambassadors will see on the dashboard and in and trade trade now is that it Oscar trade now button trade trade trade. From there they get launched into Rialto’s system, the way that it works and again, this really depends on the the issuer the conversation when we when we do set up set up of an issuer. Our normal protocol is Every day, three times a day, there’s a cross. And so we do not offer continuous matching, we’re not looking to facilitate volatility and trading, we’re not looking to facilitate, you know, people coming in and making big bets, what we’re looking to do is enable investors to monetize their investment and with the least friction possible. So the way that we do that is we gather interest for matching in a transaction at certain points in time. And then those those transactions, we are embedded or integrated with both the banking rails as well as the the cap table rails to then enable that to, to to be completed. And the beneficial ownership to be changed. Did I answer your question?


Oscar Jofre  50:53

I’m bringing him back. And he’s got another question here. So drunk.



Thanks, sorry. So okay, so I understand that you there’s a trade button in the backend and then you’re allowed to trade you’re not you’re not like a the exchange that fluctuates with a lot of volatility, whatnot. So I guess the follow up question is that how does a investor on the secondary market discover you are you are you the broker dealer doing marketing or just like a RegA in primary issuance, we’re also doing the marketing thing, hey, now we’re available here, if you want to buy the shares, as a secondary,



so So in terms of getting showing interest any anyone that’s on the ATS, any investor that’s on ATS or subs, we call them subscribers, on the ATS will have access to the security to your security to be able to purchase your security. And if you want to think of it, like sort of a Netflix, where you’ve got different securities that are available, and and you can find them through different filters, you know, sector, different filters like that. That’s really the the communication the ability to bring investors on the buy side. And I am going to, I am going to reserve the comment on EU advertising to your network for Andrew, because I think he’s better placed from a legal perspective to answer that.



Yeah. So I think there’s a certainly a from you’re certainly permitted as the issuer to to identify that you are making the strain that you have been admitted to the strength training facility, and that’s available to your investors into secondary purchasers. It’s Yeah, they just kind of that objective statement, absolutely fine. If you are entered in, then you can reference to your reported results that are in your annual reports and things of that nature, you can include any ongoing reports that you have this facility. So you so you are certainly allowed to kind of publicly advertise that this is the cases is happening. And just a matter, yeah, you still need to be cautious in your communications that you’re not using too many, too many adjectives that are that are sort of not supported. In while the ATS would be able to imagine would be able to identify sort of who’s admitted, they’re not going to do the public, they’re not going to do the solicitations on your, on your behalf, they’re not going to try it try to talk about how, how this is a great investment opportunity for but more just, these are, these are the these are the companies that are available and that have been admitted. And


Shari Noonan  53:42

I think very quickly, and to follow up on that we have a compliance department that reviews, communications. So if you’re unsure, you’re not on your own, to figure out what you should be saying and not saying and you should really lean on your lawyer and your broker dealer to make sure that any statements that are made are, you know, made in compliance.


Oscar Jofre  54:05

That’s good. I was gonna leave it up. I got one question that I don’t know if anybody has asked me. So let obviously being the primary capital race I’m, I’m working with these investor acquisition firms that helped me bring traffic to my primary race. Am I allowed to use them for the secondary to bring awareness? Am I able to do that? And of course in a compliant manner.


Andrew Stephenson  54:32

There’s a it certainly has to be done in a in the there’s the there’s nothing wrong. There’s nothing that is inherently prohibited about raising awareness of secondary trades and secondary market opportunities. So just the language has to be careful because it’s up there. And there’s a there are a lot of cases out there of companies trying to pump up their secondary market valuation In a way that sort of cross it crosses the line. And so that’s is what needs to be avoided. But generally, there’s no end. So it’s really more about, yeah, the the accuracy of the language and, and making sure that your public statements are consistent with, with information that any sort of all your other sort of official information that’s out there. But it’s, but there’s nothing inherently prohibited about it, it’s just a matter of doing it correctly.


Shari Noonan  55:33

That’s what I was gonna say, I was gonna say it’s not, it’s absolutely allowed, you just need to make sure that the firm that you’re working with that one, you include someone from the legal and or broker dealer perspective to make sure that it complies because a lot of investor acquisition firms or marketing firms just aren’t this isn’t their specialty, right? They securities law. So we need to make sure that those are all being made in, in compliance. Yeah, yeah, building a brand is what you want to be doing.



Yeah. And it always comes back, you have the resources to go to so it’s not like you don’t know where to go. You go to the ATS compliancy. Go to the legal counsel go to there. You should always be in your mind. I’m about to do this trigger that conversation piece. We got three. So Richard Ross, here we go.



Ask your way. Can you hear me? Okay? Yes, yes. Good. Thank you. I apologize if this is a completely misguided question. But can one use security tokens to offer one’s RegA plus?



company? to the community to the masses? And is there any problem? If that’s true? Is there any problem with secondary markets for security tokens?



Do you mind if I say something for sharing? Yes. So I figured after you you know this because you’ve read conferences? Well, no, it’s not that it just is. So first of all, um, look, I’ve seen the companies that have been trying to apply using that terminology. And quite often, the SEC is gonna put you in this long bucket list of, you’re not gonna get anywhere because you’re gonna explain yourself. But that is our digital securities being traded. So what we haven’t told you here in this discussion, if you haven’t figured it out yet, I’m going to tell you surely will as well, the only way reality will Croucher all of us can work with you, from the minute that somebody goes to your website, clicks a button, and says, I want to invest $100, I want you to pay attention to that $100. And then for Sherry, one day to trade that the only way it can happen, it is on a blockchain, it’s completely but it’s a permission based environment. But the end user is not buying it because it’s a digital security pilot, because they love your company, they want to invest, they want to put $100 into your company, it were the tokenization from my perspective is second out. In fact, all our clients don’t even realize that they’re already there, in where they were, the investor will ultimately benefit from digitization, in some tokenisation is that when you do that trade, and it’s so cost effective. You ever wonder how now you know, Sherry,



that’s exactly it. I mean, really, the digital, so the two and a half years that it took was really to get approval to facilitate the matching and choosing my words very carefully, to facilitate the matching of trades. And really, that’s facilitate this type of market in digital form. That’s what took two and a half years, we received our broker dealer license and alternative trading system licensed back in 2017. So that the expansion that we requested was took so long because it was in digital form. And I think it’s important when we start talking about digital securities, to think you know, first these are simply securities that are blockchain based, and, and that enables certain operational efficiencies, as well as very interesting things around the ability to fractionalize real assets. And so those are the two primary reasons there are other ones in terms of being able to completely change capital formation that I would love to talk about in another webinar. We have a minute left. But to answer your question, absolutely. That’s that’s the form in which we do it. We just don’t, we aren’t digital security forward. We were doing it to facilitate more of an operational efficiency on the back end and to be able to offer this out at the cost point that we can.



Yeah, that’s a great sign. closing off on that on that point is that we believe all All of us obviously believe that blockchain is going to transform the private markets, we believe. But we’re not going to make, we’re not going to be able to make the leap from here, over there just overnight, we’ve now realized, look how long it takes to get a license two and a half years. So just this is just to give you one perspective, two and a half years needs to go and just for the eight years to get registered, to be able to facilitate it. And then we’re not done yet. I mean, it requires all these other participants to also be connected to it. And that connectivity is the and it’s not just one connectivity. It’s all the connectivity points, because ultimately never forget that investor $100 has to be the most efficient way to trade. Okay, so when you compare it to others out there, there’s no they’re doing trade. Those are $250,000 trades half a million dollar trade. That’s a different ballgame altogether. You share you guys have done nine other ATS, as you know that world, but that’s a different ballgame. $100. Again, to extremes, but we’re finally here. That’s the exciting conversation, we we can have this conversation that I’m going to give one question to Andrew, because I want to know, because up until recently, I was made aware that a issuer could not say in their filing form when a finding that their shares could be available in secondary market because at the time, from the SEC point of view, none existed. Will that now change? We can say that or are is the SEC still going to keep coming back saying you can’t mention it in your body, the



SEC is going to be mostly they’re mostly concerned about are you are you overselling your if the because I insert the news for the inherent limitations and in difficulties of have establishing a secondary trading market for for RegA security is a serious hold under Regulation A and so, so if companies are sort of overselling that we are going to do this and you will benefit from it, but we don’t yet have an engagement for it. They’re going to take they take issue with that because it’s your because it’s not a you’re, it’s create you’re trying to create value that they’re going to look at and say that you’re trying to create value in it, but when there’s nothing there. And so now by saying but you know that there are these options we are in discussions with with Rialto, we were discussing this with her. I think that as so long as it’s still properly phrased that it’s not a guarantee until there is an agreement in place. There are gonna be ongoing ongoing costs and expenses for it. There’s no guarantee that a trading market will develop at all, even if admitted to the ATS, then they’ll they’ll be good with it.



Perfect, perfect. Well, we this was a great discussion, and it’s going to keep evolving, it’s going to become a lot of fun. And the next little while the conversation piece, we’re going to have a webinar on research. I know it’s dear to Shari, her and I have had many discussions on this because we see it such a critical piece. But of course, there’s so many other elements to the discussion as well. You know, the onboarding of a company, how is it specifically and you know, with your your feedback here, this is helping us understand what you want to know. So we can bring it to you, so you’re better prepared. So I just want to say thank you and my baby in the background Maximus wants to say thank you as well for spending the time with us this morning. And we hope you’ll make it to our next webinar at 3:30 this afternoon. Until then, thank you, Andrew cherry.


Shari Noonan  1:03:51

Have a great day. Thanks.


Oscar Jofre  1:03:53

Thank you everyone. Take care.




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