Phillip Securities, PrimePartners, RHT Capital join startup Fundnel to test exchange for private investments

A CONSORTIUM of traditional and new-age brokers is coming together to test a market to trade private-company shares, and is awaiting approval from the Monetary Authority of Singapore (MAS) to begin its experiment.

The proposed exchange, known as Hg Exchange, counts Phillip Securities, PrimePartners, RHT Capital and Fundnel as its founding members.

Hg Exchange has applied to enter the fintech regulatory sandbox, which allows for trials by both start-ups and large financial companies.

This sandbox is created by limiting the scale and reach of the experiment. With a sandbox, MAS will assess applications and relax specific regulatory requirements for the duration of the testing. Examples of such requirements include credit rating, minimum paid-up capital, track record, and fund solvency.

Kelvin Lee, co-founder and CEO of Fundnel, told The Business Times that HG Exchange, aimed at investors in South-east Asia, hopes for sandbox approval in about 120 days.

He said the proposed market would help to promote transparency by sharing transaction data among market makers and private companies. The aim is to get 20 members in Hg Exchange at a start, and he is in talks with regional and international brokerages to sign on.

This proposed experiment joins that of CapBridge's 1exchange (1X), which has already been approved to operate as a private securities exchange. CapBridge is deemed a recognised market operator in Singapore, holding a specific class of licence needed to operate such a securities exchange.

Similar to Hg Exchange, the 1X private exchange structure is meant to bring more liquidity to private companies, prior to an exit event such as an initial public offering (IPO) or a merger and acquisition deal.

These proposed marketplaces are increasingly in vogue as aging unicorns and startups overall are delaying their IPO plans, a trend that makes it difficult for startup employees who have vested stock options in these startups, or early investors in these startups, to get a return on their investments on their respectively held stock.

A previous attempt by FundedX to create a private stock exchange for trading start-up equity and privately held companies in South-east Asia was shelved in August 2018 because FundedX failed to get the correct licence from MAS.