An unlisted security is a financial instrument that is not traded on a formal exchange because it does not meet listing requirements. Trading of unlisted securities is done on the over-the-counter (OTC) market and they are often called OTC securities. Market makers, or dealers, facilitate the buying and selling of unlisted securities on the OTC market.
Unlisted Shares are the shares of Companies which are not listed on any Stock Exchange, hence it is not traded publicly. Unlisted companies are acquired by private investors like founders, founders’ family and peers. However “not Listed” doesn’t mean the shares can’t be traded. Shares of few Unlisted companies are traded in off market transaction by the shareholders. But since there is no openly available market for shares therefore they are illiquid.
Since shares of unlisted companies are not listed on the stock markets, there is no market price. Instead, a fair value of the share is arrived at by investors and the promoters. Unlisted shares enter trading circles when employees dilute their stock options or through private placements by promoters or general shareholders.
No formal market exists for unlisted equities. Promoters, especially of startups, use this route to raise small amounts of working capital without higher levels of stock dilution, and get a valuation reference point for further fundraising. While raising equity from private equity/strategic investors, the company is valued by these companies and can be used as a reference point.
Investors may seize an opportunity to gain money by finding stocks on the market that are undervalued or sold below where they are worth depending on specific metrics.
An investor can lose out on an opportunity to cash in on investment and profit without realising when a stock is too richly priced, or overvalued. Worse, a buyer might end up buying a stock with a price that’s not going anywhere but going down.
The market value of a stock fluctuates during a trading day, depending on the availability of shares combined with the demand of buyers. The stock valuation lets an investor know if the shares are affordable at present. The interest is significant as trading techniques are used too.
If you are looking for more information on unlisted shares, our team at Unlisted Deal provides analysis reports on select companies and their securities of investments from well-known venture capitalists and significant private equity firms.