Liquidity: What you Need to Know Before Jumping In

Reg. A+ allows companies an easier, more cost effective route to going public by providing investors with unrestricted, freely-tradable shares, similar to a fully SEC registered offering.   Reg. A+ closes the gap between being privately-held and doing a full-blown exchange listed IPO.  It can also function as an interim liquidity event for growing companies, benefiting founders and employees while providing the opportunity for individual, non-institutional and institutional investors to become early shareholders.

Before starting down this path it’s important to understand what it means to “go public” and have secondary market liquidity, especially if you end up with potentially thousands of new investors.

What is Liquidity?

Stock liquidity is the ability for investors to buy and sell stock at a fair price when they want to buy and sell. Liquidity isn’t a natural phenomenon, it is a function of various factors such as share structure, company disclosure, price transparency and the composition of the existing and new investor base.

These factors generally determine the supply and demand.  In structuring a deal, the issuer and their advisors must take into consideration how the security will trade on the secondary market following issuance.   For example, whether the offering price will deviate significantly from the public price and if there will be more sellers than buyers.  When assessing how liquid a stock is, evaluate whether the security can be easily bought and sold by their investors without causing drastic volatility in the share price.

Secondary Market Options

In the U.S., securities are publicly traded on national exchanges such as the NYSE or NASDAQ, and on the markets operated by OTC Markets Group, such as OTCQX and OTCQB. OTC Markets operate a dealer market, where broker-dealers electronically quote firm bid and ask prices that represent customer orders or the broker-dealer’s own proprietary risk.  Exchanges, on the other hand operate matching engines, where orders are funneled into a central order book.  While for great giant Blue Chips with lots of liquidity, the high-speed of exchange matching engines are not always well suited for stocks that don’t trade tens of thousands of times a day.

On both the exchanges and OTC Markets, investors may buy and sell through the broker-dealer of their choice.  This is important as it gives existing investors a valuation every day and provides easy access to millions of potential investors.

Conversely, private secondary markets operate closed networks for institutional and venture firms and employees who own private company stock.  These markets facilitate the transfers of those shares in the absence of a liquidity event.  Prices in private transaction are typically set directly by the buyer and seller or via “auction” like negotiations.

Choosing your Market

When it comes to choosing the right market for your securities – bigger is not always better.

Ask yourself:

  • What’s your anticipated market valuation?
  • How much trading activity do expect to see in your stock?
  • Will you need the help of the broker dealer community to help create liquidity?
  • How much are you willing to spend to trade on a given market?

Evaluating your company’s needs before you jump in will help ensure you find the right market for your needs.


Jason Paltrowitz is Executive Vice President, Corporate Services at OTC Markets Group, where he is responsible for managing the firm’s international and domestic Corporate Services business. Drawing upon his expertise in cross-border trading and as a recognized proponent of Reg A+ and small company capital raising, Jason is an advocate for small cap issuers, start-ups, and entrepreneurial innovators working to alleviate the cost, time and complexity associated with being a public company. Prior to joining OTC Markets in October 2013, Jason was Managing Director and Segment Head at JP Morgan Chase responsible for the custody, clearing and collateral management business in the Corporate and Investment Bank division. Jason also held multiple senior management positions at BNY Mellon, most notably, as Head of M&A for the Financial Markets and Treasury Services Sector and 11 years as the Head of the Global Capital Markets Group in the Depositary Receipt Division. Jason currently serves on the Board of Directors of the Crowdfunding Professional Association (CfPA) and also served as a member of the Board of Directors at OTC Markets Group from 2008 – 2011. Jason holds a Bachelor's degree in International Relations from Boston University and received his MBA from the NYU Stern School of Business.

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