DBS

43 when the professional fund manager is being paid to pick out the projects, negotiate the rates and oversee the investment for its term, through to exit. SECONDARY MARKETS As already noted in this report, a number of secondary markets for online debt based securities are accessible. One investment provider which operates a resale market is Triple Point Advancr, which allows investors to transfer Advancr Bonds to other investors on the platform. Currently, though, in general, resale services across all the platforms tend to be based on a matched bargain system, with slightly disjointed interaction with the platform. This is a result of regulatory issues: Abundance, for example, gives clients access to a marketplace on which they can list their debentures. However, it cannot allow buyers and sellers to conclude their sale on the platform in order to avoid the potential categorisation as a Multi- Lateral Trading facility under MiFID, which would significantly increase the regulatory capital requirements of the firm 83 . Nevertheless, for investors buying debentures on the Abundance secondary market, there is debenture performance data for potential buyers to use – specific data is energy production against target and cash returned against target 84 . And in mid 2017, the platform reported that its secondary market had reached £750,000 traded since 2012 with the average trade taking seven days and with the largest single transaction of £22,000 traded within just two hours 85 . Another example, Ethex, offers an ethical marketplace for trading shares and bonds – a transparent mechanism for posting offers to buy and sell, also on a ‘matched bargain’ basis. Ethex will match the trade, complete the paperwork and then pass on the new details to the relevant registrar. s. The market is open to unlisted shares and transferable unlisted bonds in a number of the social business investments that it offers and Ethex estimates that this market is 3% of current business, and growing 86 . One of its goals is to improve liquidity in the secondary markets by providing clear information about price and availability of products. Accordingly, each product listed on the Ethex website has information on the product and on the business to give potential buyers a picture of what they are investing in. There is also information on trades that have been completed, offers that are open to sell, and prices that buyers are prepared to pay for shares. To place an order, each user of the site needs to decide how many DBS they want to buy or sell and the price at which they are willing to buy or sell. Their order will then be matched if there is someone looking to buy at that price, or close to it and Ethex will contact the buyer and seller direct to complete the transaction. There is a cost of 1.5% of the investment amount (minimum charge £15, maximum charge £300) for this service and it’s worth noting that Ethex is an Enterprise Scheme and not FCA authorised, which removes a significant layer of regulatory scrutiny from its activities and also eliminates any potential safety net of the FSCS for investors. In October 2015, Crowd2Fund also launched its online marketplace allowing investors to trade Crowd2Fund investments. One of the first trades on the platform was for a Hummus Bros bond investment, which sold at a 10% APR coupon; a 2% premium on the initial offer of 8% APR. Since Crowd2Fund operates a portfolio system whereby ownership details of each investors platform investments are held, the sale of an investment simply involves the site transferring ownership into the portfolio of the purchaser. Like Ethex, Crowd2Fund performs match trading on the Exchange, where a crowdfunded bond holder simply lists it for sale at their chosen price, which is far less complex than operating a full exchange and bidding system. However, the intention is to introduce this type of functionality in the future; sellers will be able to set a reserve, and potential investors will be able to bid on an item, with the highest price winning the bid 87 . UK Bond Network launched its new marketplace in early 2017, incorporating brand new functionality to enable investors to sell their holdings to other UK Bond Network members. Again, its investors can use the new marketplace to very simply place offers to buy and create offers to sell on existing bonds 88 . Then there is the Global Alternatives cross-border property trading exchange, which is due for launch this year. Since Property Crowd is part of Global Alternatives, the loan securities originated on the Property Crowd platform will be listed for trading, offering investors real-time access to an exchange order book. If the platform that sold a DBS does not have a secondary market, it’s unlikely crowdfunded bond, loan note and debenture holders wishing to sell before the end of the term will be able to list it on another platform Consequently, if there is any chance at all that liquidity may be required, choosing a platform with a secondary market could be paramount. “These instruments have existed for some time, but they can be viewed as “innovative” financing mechanisms for SMEs and entrepreneurs, to the extent that they have had until now been applied in a limited fashion to the SME sector.” – OECD, New Approaches to SME and Entrepreneurship Financing: Broadening the Range of Instruments