Bengaluru-based startup Minance is looking to bring online trading in unlisted stocks by giving traders an experience similar to that of buying a phone or a book from an e-commerce company.
The bootstrapped startup is beta testing the platform and hopes to take it live within the next few days. The platform lists stocks that are available and can be bought just in a few steps.
“We have 21 stocks available currently. Users who have a demat account can make purchases of these stocks by just adding them onto the cart, the minimum threshold for purchase is of Rs 50, 000,” chief executive officer Anurag Bhatia said.
A demat account allows an investor to invest in securities such as stocks and bonds and these are held in a digital form. A demat account is a must to invest in the stock market.
Unlisted stocks are largely traded offline by brokers over the phone in an unorganised market. Set up in 2016, Minance is trying to leverage technology to make the process digital.
As present, it takes orders from customers over the phone and then gets in touch with brokers who would have access to the unlisted stocks and the entire process happens manually.
Now, the startup has automated the entire process. Customers place an order online and these automatically go to the brokers. This is followed by an online reverse auction and the one offering the cheapest price gets to sell. Stocks usually get credited to the demat account of the customer within seven days.
While the front-end of the process may look like an e-commerce transaction, trading in unlisted stocks is not easy.
The unlisted trading market depends on the availability of stocks of startups like Paytm, Swiggy, Oyo, Nykaa and even traditional companies that have not been listed in the markets like Carrier, HDB Financial Services, National Stock Exchange, HDFC Securities among others.
Liquidity is always a challenge since many startups have strict rules on buying and selling their shares. It is not always easy to sell these stocks since people hold on to these hoping to exit through a blockbuster IPO.
These shares are usually sold by staff who are given employee stock options. When they quit the company, many prefer to their sell stocks in the secondary market.
“For stocks that are not available at that moment, we enter into a forward contract with the trader who then waits for the allotment of the stock,” said Bhatia. This happens for companies such as Oyo and Swiggy, which only allow the exchange of their stocks during an external funding round.
Minance records around Rs 10 lakh worth of trades every day, but Bhatia expects a jump in volume once they go live with the full stack digital process.
Around Rs 4 crore worth of trading happens daily in the unlisted space. Several other platforms such as Unlistedzone engage in this business. Traders mostly rely on offline brokers to procure these shares.