More and more transactions are taking place on OTC platforms
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Since the beginning of the year, the volume of transactions on Russian over-the-counter platforms working with financial instruments (OTS) has reached RUB 1.3 billion. Participants in this market, some of which only launched in June, see the potential for multiple growth over the next few years. OTC platforms give investors freedom in choosing assets, which allows “in theory to receive greater profitability,” experts admit, but it is associated with significantly higher risks than in exchange transactions.
According to the investment platform Rounds, since the beginning of the year the volume of OTC transactions on it amounted to 683 million rubles, which is significantly more than over the previous two years (396 million rubles). The head of Rounds, Anton Utekhin, notes growing interest from business in the OTC segment, in particular pre-IPO transactions, over the past three years.
“The latest examples of CarMoney and RBT companies show that the tool can be an opportunity to build a track on the company’s movement from private-equity transactions to public offering,” explains Mr. Utekhin. According to his information, the total amount of transactions on all Russian OTC platforms amounted to 1.3 billion rubles.
OTC-deal – an over-the-counter transaction with a financial instrument (shares, bonds, depositary receipts), concluded by the parties directly or through an intermediary. In the over-the-counter market, the organizer is not liable in the event of failure to fulfill obligations by one of the participants in the transaction.
OTC platforms provide the opportunity to conduct transactions with shares of private and non-public companies, notes Alexander Tsyganov, director of the investment and corporate business department at Digital Broker. They operate within the framework of Federal Law 259, which allows investment platform operators (IOPs) to engage in both crowdlending and OTS. In the register of the Central Bank, IIPs are not divided by type.
“It’s hardly worth talking about competition between OTC and crowdfunding. Rather, they are links in a line of opportunities for small and medium-sized businesses to attract financing,” says Money Friends managing partner Yuri Kolesnikov. “These are different tools with different goals. Loans are mainly intended for replenishing working capital, and OTC for business development and scaling.”
Now, according to AOIP Executive Director Kirill Kosminsky, there are six players in the Central Bank OIP register operating in the OTC segment: Rounds, Finmuster, Zapusk, Zorko, Bizmall and Brainbox. But not all platforms have conducted real transactions yet. Among the largest projects of Rounds for 2023 is the pre-IPO of CarMoney in January for 230 million rubles. (in July the company held an IPO on the Moscow Exchange) and a private placement of RBT (Development of Biotechnologies, a structure of the Institute of Human Stem Cells group, renamed Artgen Biotech in July) in June for 155 million rubles.
Since June, Zapusk has conducted transactions worth 8 million rubles. Zorko also earned money in June, with one placement for RUB 127 million. The platform says that a number of placements are planned in the fall, each for more than 100 million rubles.
Meanwhile, experts and market participants themselves speak with caution about the prospects of over-the-counter platforms. “DFA and shares of startups are very promising, but also risky assets,” admits Kirill Kosminsky. “It will become widespread when brokers and banks build such tools into their applications.” There are already examples, Anton Utekhin emphasizes: Alfa Investments and IFC Solid allowed clients to make transactions with over-the-counter securities through their services.
The restraining factor for the development of the segment is the risks associated with OTC. For investors, this segment looks even riskier than crowdlending, since we are usually talking about longer-term investments – three to five years, as opposed to about six months for loans. “In essence, OTC is venture financing with all the associated risks: funds are invested in capital, there may be a profit or not, and if there is, it is not a fact that there will be a payment of dividends, the question of growth in the value of the acquired asset always remains open,”— Yuri Kolesnikov explains.
Managing partner of the Veta expert group, Ilya Zharsky, also lists the disadvantages of OTS as “non-transparent conditions of various levels of agreements, the inability to obtain maximum protection of investor interests in the legal field of the Russian Federation due to the lack of proper market regulation measures.”
“There is always a risk when investing, and we cannot say that all companies in the OTC market are definitely more risky than in crowdlending,” argues the founder of the Zorko platform, Vladislav Panteleev. “In a broad sense, the clients of both crowdinvesting and crowdlending are quite advanced and with a high degree of risk taking.”
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