Monark Markets Whitepaper

Ben Haber, Co-Founder, October 2023

Executive Summary

Monark Markets Inc is a technology company focused on developing the infrastructure and tools to standardize the distribution and secondary trading of securitized private real estate. More specifically, Monark has developed an alternative trading system and distribution technology that will enable private market issuers, broker dealers, RIAs and fintech platforms to distribute private placement securities and participate in a secondary market for those securities.

The Monark alternative trading system will also enable retail brokerage platforms, like Schwab or E*Trade, the ability to seamlessly offer liquid private real estate securities to accredited investors on their platforms. Monark will enable brokerage platforms the ability to provide clients with the same streamlined experience in trading private securities, as they have when investing in public equities. Monark will not operate its own retail or consumer facing interface, but instead will provide a standardized infrastructure and platform for b2b clients in private markets.?

Monark recently acquired the LEX Markets technology assets and IP, including a state-of-the-art alternative trading system, complete with a limit order matching system and order management systems, as well as regulatory reporting systems and access provided via FIX integration or Rest-API. Monark is currently in the process of receiving regulatory approval from FINRA and the SEC to operate the Monark ATS technology. Upon obtaining regulatory approval, Monark will launch the distribution and trading platform in partnership with a number of b2b platforms.?

While Monark is starting by focusing on private real estate securities, developing a standardized system for distribution and trading will allow the platform to expand into other private asset classes, like private credit, private equity and other alternatives. Similarly, while Monark will start by providing technology and infrastructure services for consumer facing platforms in private markets, developing a standardized approach and central distribution network will allow the platform to expand beyond consumer facing platforms, to service a broader market of more nascent private issuers, broker dealers and RIAs on the supply side.?

Market Problem/Existing Solutions?

Monark intends to solve a number of closely related market problems, with a marketplace infrastructure solution.?

1. Private market issuers, broker dealers, RIAs and platforms have an outsized demand from investors for better liquidity solutions, especially in illiquid real estate investments.
2. Private market issuers, broker dealers, RIAs and platforms are seeking increased distribution of their assets/securities in both the primary and secondary markets
3. Building an alternative trading system or distribution network is difficult and costly, and no existing solution provides b2b clients with broad distribution, and secondary trading solutions
4. Retail brokerage platforms want their accredited investors to be able to access and trade private market investments seamlessly, via their brokerage accounts

Today there are a number of private market alternative trading systems or bulletin boards providing infrastructure for the secondary trading of real estate assets, similarly some platforms/brokers offer distribution services in the primary markets as well. These platforms currently offer disparate “band aid" solutions to what is a broader systemic problem in private markets. The vast majority of these platforms, like SecondRE or the Cadre ATS, operate their own consumer facing interfaces, introducing the challenge of d2c customer acquisition as a constraint to the growth of the business. Platforms like NPM (NASDAQ Private Markets) offer infrastructure for b2b trading and distribution, but are focused primarily on trading Pre-IPO stock, an asset class that has exploded in secondary trading activity over the past few years.??

Simultaneously, Monark has identified demand from retail brokerages to offer accredited investors access to a broader range of asset classes. In the world of 0 commission trading, platforms like Schwab, E*Trade and others are seeking new asset classes to offer to retail clients and potentially re-introduce commissions on investment activity. Private markets offer trillions of dollars of high yielding assets and provide brokerages with new verticals to expand offerings to clients. However, maintaining a consistent user experience is critical to d2c brokerage platforms, hence why there needs to be increased development of private market infrastructure before adoption. Some important factors critical to user experience are data/price transparency, educational tools for new investment products, the ability to access liquidity and high yielding returns.?

Developing liquidity in restricted private securities involves the development of new entity/fund structures that can provide exposure to the underlying asset. This is due to the nature of private market issuers and the antiquated system currently used to sell ownership stakes in private assets. Private markets rely heavily on both a paper based, and relationship-oriented system. Paper based means the process of updating the offering documents or cap table for issuers is a burdensome process, that Monark avoids with the development of an SPV layer in which the SPV is the only new entrant to the cap table. The relationship-based nature of private markets means some issuers want to protect their right to control who their shareholders are, leading to the use of a ROFR restriction in many offering documents. ROFR refers to the right of first refusal of an issuer to determine if a secondary transaction can occur, at what price, and in some cases the issuer has the option to repurchase the securities first. By utilizing SPVs, Monark ensures that new investors never go through the ROFR process with issuers and have no obligation to deal with private issuers directly.??

Market Size

Three numbers define our expectation for private market growth relevant to the Monark platform.?

• $1-2 Trillion by 2030 (estimated annual size of the private secondaries market by 2030)
• $1.1 Trillion (estimated size of the global private real estate market in 2022)
• 40% increase in portfolio allocation (estimated increase in allocation of institutional portfolios to private real estate)?

1. According to SecondariesInvestor.com , the private secondaries market was worth $106B in 2022 and is expected to grow to $1-2T a year by 2030. While $1-2T is a large range, this growth represents 10-20x growth in private market secondaries activity by 2030. Today, most of this secondary activity occurs manually, with broker dealers or secondary buy-out funds leading most of the volume. With the introduction of trading, secondary market volume could accelerate even further than analysts projections.?

Could AI be the future of LP secondaries? ( secondariesinvestor.com )

1. McKinsey estimated the global private real estate market size at $1.1 trillion in 2022. Real estate has historically been a high alpha, low volatility asset, which makes it an exciting asset class for investors to diversify into.?

McKinsey Global Private Markets Review 2023 | McKinsey

1. According to a 2019 Blackrock report, institutional portfolio allocation is changing rapidly. 51% of investors surveyed by Blackrock expect to decrease portfolio allocation to public equities, while 40% of institutional investors expect to increase portfolio allocation to private real estate. This reflects a larger trend of investors seeking portfolio diversification into private asset classes. Private credit and private equity also expect massive growth of allocations.?

BII In Depth ( blackrock.com )

Our initial target market will be platforms that issue private real estate securities. There are currently about $15 billion in securitized real estate assets that have been issued through private market platforms like YieldStreet, Cadre and RealtyMogul. On the demand side, brokerage platforms like Schwab and WeBull have 40M and 13M customer accounts respectively, representing a massive distribution network for private real estate assets.??

Mission

Monark will enable private market issuers, broker dealers, RIAs, platforms and retail brokerages to develop a liquid investing experience in private assets for their clients. Monark will help consumer facing platforms grow their d2c businesses by increasing distribution and exposure to private assets.?

Monark’s long term mission for private markets are outlined below:

• Standardize the process of investing in private markets by creating a central trading network, similar in function to a public market exchange?
• Increase the distribution capabilities of private market issuers, broker dealers and RIAs
• Allow retail brokerage platforms the ability to diversify client funds into a wide variety of private investments?
• Develop a central protocol for investing in private markets and standardize the post-trade settlement process of trading private securities?

Product?

The Monark Markets platform combines proprietary technology, a unique entity structure for trading private placement securities, a robust post-trade settlement process and a custodial partnership. As an agency ATS, Monark will facilitate order matching, transfer of data between b2b platforms and direct the development of SPVs through an RIA or ERA. Monark has researched and developed a unique entity structure, whose units will trade on the ATS. A diagram of the process can be found at the top of the article. Monark will utilize a Series SPV 3c1 entity structure, managed by an RIA or ERA (exempt reporting advisor) to provide access/exposure to underlying private placement securities through a liquid entity. Monark will rely on SEC rules Section 4 a 1?, 7, and Rule 144 to facilitate free trading of SPV units.?

Monark acquired an ATS and brokerage platform technology from LEX Markets, in April of 2023. Monark subsequently hired the engineers who built the platform to re-configure the ATS to seamlessly trade private placement securities and SPVs with private placement securities as the underlying asset. The Monark ATS will connect retail brokerage platforms like Schwab and E*Trade to a network of private market issuers, broker dealers, RIAs and fintech platforms.?

Monark is currently in the process of acquiring a broker dealer entity and obtaining FINRA and SEC approval to operate the technology platform. Monark expects to launch an MVP product in Q1 of 2024.?

The process of settlement and transfer in private markets has been a large barrier to efficient solutions for secondary liquidity. Monark will partner with Brassica | API infrastructure | Alternative Asset Investments ( brassicafin.com ) , a fintech company focused specifically on streamlining the custody, settlement and transfer process of private market securities. As broker dealers subscribe to the Monark ATS, they will set-up Omnibus accounts with Brassica, which will custody their end users' securities and record transfers of ownership. As investors trade through their native brokerage accounts, Brassica will update books and records and direct the transfer of cash in conjunction with order execution occurring on the Monark ATS, effectively offering same day settlement.?

By standardizing the entity structure of trade-able units, and the custody, settlement and transfer processes, Monark allows broker dealers and their end users to interact seamlessly with the Monark ATS and private market investments.?

Why Now?

The private secondary market is just beginning a massive growth phase, as both retail and institutional dollars seek portfolio diversification and higher returns. On a macro level, we are at the beginning of the largest generational wealth transfer in global history, set against a backdrop where the majority of global assets are still held privately. On a micro level, overallocation to private markets exacerbated by the denominator effect, and a slowdown in public exits, has made private market secondaries a growing opportunity for players on both sides of the trade. The Pre-IPO asset class serves as a great example of what can occur when incentives align between buyers and sellers in private markets.?

In recent years, less and less companies have chosen to go public, instead raising increasing amounts of private capital. This is due to both a lack of enthusiasm around the value add of a public exit, as well as changes in regulations that have made raising private capital significantly easier and more cost effective than an IPO. Because of this, fewer venture backed companies are going public, limiting a venture investors ability to recognize returns on their investments. This has led to the development of the Pre-IPO company trading space, where a number of new ATS platforms have emerged to create liquidity venues for early-stage companies. Providing a liquid venue for company's employees, venture investors, and new investors looking to access company stock to trade.

The alignment of incentives for the development of a secondary market in the Pre-IPO space have led to the emergence and adoption of new trading technologies, built by platforms like NPM, Forge, EquityZen, Linqto, Caplight and more. With the introduction of new technologies and trading venues, brings the ability to track share prices in real time and make more accurate investment decisions. Innovative platforms like Caplight have created pricing indexes of private company stock by aggregating trade data from a network of broker dealers, providing price transparency in a previously fragmented market.?

We are seeing the same alignment of incentives today in the real estate market. Rising interest rates have made adding debt to the capital stack significantly less attractive for GPs/asset managers, turning the focus towards raising new equity. Securitizing a real estate asset allows issuers/GPs to distribute equity ownership to both retail and institutional investors at lower minimums, broadening their potential distribution network. Liquidity in private real estate has become increasingly important to investors and allows investors the ability to construct more diversified portfolios with transparent pricing. There is alignment today between existing real estate investors and opportunistic new investors looking to diversify into securitized real estate.

Key to creating liquidity in private real estate investments is a trade-able fund structure that works within existing regulations. Developing a standardized and trade-able fund structure has been a barrier to entry for many platforms looking to develop a secondary market for private real estate. Monark has solved this problem by developing a 3c1 SPV entity structure that can provide investors exposure to private real estate on an individual asset or curated fund level, without sacrificing the ability to access liquidity in your investment.?

Minimum Viable Product

Monark’s initial go-to-market strategy involves solving distribution and liquidity problems for a specific subset of private markets. Monark’s MVP will connect supply side securitized real estate platforms like Cadre, YieldStreet or CrowdStreet to demand side single brokerage platforms like Public.com or Schwab. This MVP will prove three things:?

• Demand from investors on retail brokerage platforms for private real estate investments
• Entity structure and ATS technology solve both regulatory and technological challenges
• The benefits for b2b platforms to work with Monark for both distribution and secondary trading

Once Monark launches our proof of concept, we will expand our network to include more supply side platforms and more brokerages. The advantage of working with b2b partners on both sides of the marketplace is exponential. On the demand side, retail brokerages have aggregated millions of accredited investors, eliminating the customer acquisition challenges of a d2c platform. On the supply side, asset management/fintech platforms are both aggregators of assets and have developed their own approach to standardizing and digitizing relevant asset data, which makes the process of transferring asset data to new investors significantly easier. Private market platforms are incentivized to only provide investors with high quality offerings work only with the best GPs, issuers and asset managers, as their platform brand relies almost entirely on quality assets and returns.?

Expansion?

As highlighted earlier, while Monark is starting by providing b2b infrastructure to platforms offering private real estate securities, we think about future product expansion both vertically and horizontally. On the horizontal plane, expanding our onboarding process beyond consumer -facing fintech platforms: to private broker dealers, issuers and RIAs, will help bring new categories of supply into the Monark network. Monark will work with these private market participants to develop a seamless asset onboarding infrastructure and a standardized approach to bringing new secondary offerings onto the platform. Monark will also support our existing b2b partners by directing primary issuers to our partner platforms to underwrite and distribute the deal as an introducing broker.?

Monark thinks about vertical expansion as an opportunity to move into new asset classes beyond private real estate. Passion assets, like sports teams, music rights, influencer led companies and collectables provide investors new opportunities to invest in assets that they believe in. Other private asset classes like private equity, credit or growth equity present new opportunities for investors to diversify portfolios and generate returns. Monark will develop SPV entity structures that enable liquid trading on an asset class agnostic basis.?

Ultimately, Monark will become the standard b2b technology platform for distribution and secondary trading of private market securities, developing a robust technology offering, building a network of market participants, and maintaining robust regulatory compliance.?