Technology has been transforming the market since the Bloomberg Terminal was invented in 1982.
To say that it has a strong impact on the economy today would be an understatement. In fact, history demonstrates how periods of sustained growth can be attributed to technological innovation and gains in productivity.
As investors increasingly turn to the secondary market — where stocks, bonds, and other previously issued securities can be purchased — understanding the role of technology in transactions can potentially lead to strong gains in this prominent sector.
Here’s a roadmap for the present and future.
Computing capabilities are becoming much more powerful and affordable, completely transforming trading in secondary markets.
The shift to electronic systems for order delivery has streamlined once-tedious tasks in the stock market, including sharing transaction and quote info, managing specialists' limit order books, and comparing trades before a settlement. Automated trading systems and algorithms have made the execution of secondary market transactions faster and more efficient while reducing human error and minimizing transaction costs.
On the institutional side, broker-dealers and investors are utilizing powerful computer systems and sophisticated applications, too. Technology has streamlined inventory management and order flow while enabling these busy professionals to receive market data, research reports, and company information electronically. New technologies have created more exit options, helping investors address liquidity challenges quickly.
In addition, technology has enabled the creation of efficient electronic systems that facilitate trading securities beyond traditional markets. That includes the private secondary market, where investors can purchase stock in companies not traded on public exchanges.
The secondary private equity market has soared to new heights in recent years. In 2023, transaction volume hit a record $134 billion, a huge jump from $58 billion in 2018. New platforms like Augment* have redefined access to private markets by facilitating trades in pre-IPO companies. Built for technology enthusiasts, the innovative platform gives investors and institutions access to private companies, connects buyers and sellers, and executes trades from start to finish.
It's like the Bloomberg terminal but for pre-IPO trading.
Technology increases productivity, which in turn allows us to do more with less effort. Online platforms and digital exchanges have enhanced real-time access to market data, improving pricing availability and efficiency for investors.
With technological advancements have come new regulations that aim to ensure market transparency, fairness, and oversight. The U.S. Securities and Exchange Commission has adopted rules to enable market participants to successfully make use of technology. Additionally, the agency has modified other rules or interpretive positions that might conflict with technological innovations.
The secondary market plays a crucial role in the market’s liquidity — and digital platforms for secondary transactions have made work much easier for investors. Now, they can easily find opportunities, compare offers, and wrap up deals more efficiently.
By providing the ability to buy and sell assets quickly, technology has increased the flow of activity in the secondary market, allowing investors to access cash quickly. And more developments are on the horizon.
Artificial intelligence (AI) and advanced data analysis are starting to play a bigger role in investment strategies. These tools can sift through massive amounts of data to spot trends, review past fund performance, and predict future returns. AI can also help assess risks in complex transactions, a boon for complicated GP-led secondaries.
*Securities transactions are executed on Augment Capital, LLC's ATS and offered through Augment Capital, LLC (member FINRA/SIPC).
Technology’s role in secondary market transactions will continue to shift with time. Understanding its capabilities will be key to developing successful strategies moving forward.
Important Disclosures: Investing in private securities involves substantial risk, including the potential loss of principal. Private securities are typically illiquid, have limited pricing transparency, and often require longer holding periods. These investments are available exclusively to qualified accredited investors and offer no guarantee of returns. Additionally, past performance of private securities does not indicate or predict future results.