SEC Releases Guidance Jeopardizing the Viability of Certain Pre-IPO Liquidity Products

After a spate of pre-IPO focused security-based swap enforcement actions around 2015, the US Securities and Exchange Commission (SEC) has largely sat on the sidelines as the pre-IPO liquidity market has enjoyed significant growth and innovation. The SEC broke its silence on June 9th, releasing Compliance and Disclosure Interpretations (C&DIs) that question the continued commercial viability of secondary market forward contracts (Forward Contracts).

Often targeted to early investors and existing or former employees holding private stock (Private Securities) of late-stage technology companies, Forward Contracts are one of most popular types of pre-IPO liquidity solutions. Numerous brokerdealers and online platforms are estimated to have facilitated hundreds of millions, if not billions of dollars’ worth of Forward Contracts over the last several years.