The creation of widespread secondary capital markets is essential for securities issuers to enable the distribution of their security assets. However, several challenges often hinder the necessary distribution. In this article, we will discuss these challenges, risks associated with the current over-the-counter (OTC) market, and the price to performance ratio of trading shares on single exchanges.
Challenges in Distribution for Securities Issuers
Regulatory hurdles: Securities issuers face strict regulations in different jurisdictions, which can limit distribution opportunities. Regulatory churn is one of the key themes that firms need to consider, as approaches toward emerging technology, outdated rules, and progressive topics are constantly evolving. Adhering to these regulations and ensuring compliance can be a cumbersome process for issuers.
Globalization: As securities markets become increasingly global, issuers need to navigate the complexities of different regulatory frameworks and market practices. This presents additional challenges in terms of understanding and complying with diverse rules and standards.
Enforcement difficulties: Weaknesses in the enforcement of regulations have been identified as a priority concern for reform by the G-20. These enforcement efforts in securities markets have proven difficult and uneven, creating uncertainty for issuers.
OTC Market Risks:
The over-the-counter (OTC) market presents several risks for securities issuers and investors, including naked shorting of shares. Naked shorting occurs when a trader sells shares short without borrowing the underlying security, leading to potential market manipulation and volatility. The lack of transparency and regulation in the OTC market can exacerbate these risks.
Price to Performance Ratio and Shareholder Value
Trading shares on single exchanges can diminish shareholder value without having alternative trading venues. This is because the price to performance ratio of shares may not accurately reflect the true value of the security, leading to potential mispricing and reduced liquidity. Having access to multiple trading venues can help alleviate these issues by providing more accurate pricing and increased market depth.
XDEX from 10XTS
XDEX provides a framework for global distribution of securities and assets across multiple marketplaces and trading venues. It aims to address the challenges faced by securities issuers by coordinating governance, risk, and compliance record data and trading settlement not only within a single market but also between global marketplaces.
By offering a comprehensive solution that adheres to regulatory requirements, streamlines compliance processes, and connects various trading venues, XDEX can help issuers overcome the obstacles that hinder the creation of widespread secondary capital markets.