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Shareholder liquidity - why should you care?
May 11, 2020

Liquidity is essentially the ease of dealing in assets, and being able to turn them into cash. Liquidity is important for investors, ensuring they are able to sell their shares or other investments when convenient, and for their anticipated value. Investors will often weigh up liquidity alongside risk and return when deciding whether to invest.

Small, private businesses with a low number of shareholders (and only a few, if any, who want to buy or sell at any one time) generally tend to have poor liquidity. Poor liquidity sometimes means unhappy investors, because it can be difficult to sell their shares, if they decide to. With no obvious buyers, investors can be forced to decrease the share price to tempt someone to buy - not a great outcome.

When there is high liquidity, it means more buyers and sellers are able to connect, resulting in more shares being traded. With more people trading at the same time, investors are more likely to get a fair price for their shares. That’s because anyone offering a poor price will likely be outbid by other investors.

How will Catalist help?

A market that periodically connects buyers and sellers offers many benefits for a small business. The market might include just the business’s existing shareholders, or any and all available investors, but by bringing them all together at one time it maximises the chance that willing buyers meet willing sellers. It maximises the liqudity - and that means happier shareholders.

Catalist can help small businesses set up their own private market, using our simple online platform to give shareholders regular trading opportunities. The Catalist platform works by holding regular auctions, rather than continuous trading. Using these auctions, trading can start off at just once a year, once every six months, or more frequently if that’s what shareholders want. These regular auctions improve liquidity, reassuring investors with the knowledge of when they’ll be able to trade, with fairer pricing for their investments as a result.

A private market will lower transaction costs, with simple administration and low fees – but if businesses want a wider investor pool, they can step up to the Catalist Public Market. The public market gives access to thousands of new investors, ranging from everyday New Zealanders looking to diversify their investments, through to professional investors looking to invest larger sums.

If fairer pricing, better liquidity and access to a larger pool of investors sounds interesting, contact us to find out more on how shareholder liquidity could be in your best interests.

By Michelle Polglase