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    Although dealing in unquoted restricted securities in emerging companies has become popular with some startling results, Investors desiring to hold SME securities need to be mindful first and foremost that an Over-the-Counter  market (OTC) means, "where an qualified Investment Buyer, after such prudent due diligence of an investment opportunity, negotiates with the company directors to buy a parcel of unquoted securities at a specific price, providing the company remains within the exempt condition of the relevant provisions under the Corporations Law".

 In other words, although the company has exposure of its Offering, announcements and historical trade information via the OTC market, any real-time trades are conducted directly with the company itself, (irrespective of whom provides the settlement & clearance registry services) and then reported to the market, this is often called a Direct Private Placement "DPP". Unlike Stock Exchange quoted securities OTC shares are usually traded sporadically with wide value -v- volume swings depending on demand and supply ratio, thus there may not be a continuous market for the securities. Many SME companies may have tightly held shares with shareholder numbers between 10 to 50 for small ventures and from 50 to about 300 for medium size ventures. A large SME company would be 500 shareholders with about $50 mil in net tangible assets and up to 250 full time employees.

    Some shareholders find it exhilarating to negotiate their own investment, for many Investors this may be a new experience to negotiate rather than placing an order with a stock broker, since the Investor may be able to "cut" a their own deal on quantity and value of an investment opportunity due to the negotiation process. Hard bargaining may produce value for money.
    Negotiating unquoted securities can be straight forward or complex with solicitors, advisers involved. The simplest and easiest way is by telephoning or communicating to a company director and suggesting a parcel of shares at a pre-determined price, if the answer is no, then barter up or down depending on the situation. Its not uncommon for the Company to discount its offering or add in some option shares. 

Just remember that all markets rise and fall, and all companies are exposed to market forces, both internal and external, some succeed and others stagnate.

   Although a company cannot solicit or hawk its offering or securities, it negotiations should be on Investor initiated first contact basis, regardless of how much preening and cavorting the company may go through in its offering exposure program to stimulates the Investor's attention. Furthermore companies need to meet basic regulatory requirements preferably as an unlisted Public Company with an audit trail, timely lodging of Company Tax returns, a minimum level of compliance and 'good standing' in its affairs, plus have available a Disclosure Document that explains its business prospects, and lastly, sensitive management that is sympathetic to Investors.

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Choosing an investment opportunity is similar to prospecting for gold, namely digging through the market (ground) for 'worthy' ore body (companies) to assess,  the sampling period (due diligence) and then short list target companies for negotiation of a parcel of securities. Once this has been achieved then a Securities Application Form/Contract may be completed, filed and lodged with the company and OTC for certificate processing against funds first transfer to the company.

   Obviously this is not for the novice or unseasoned Investors, nor for lazy money, its hard work, since its takes time, effort, observation and study to find good investments and keep abreast of trends.

    Then there is the all time question of risk offsets. Risk is either a real or abstract issue that needs to be understood with the doctrine on the balance of probabilities. What does this mean, example, a portfolio of one investment of Enron shares could be seen as low risk or very risky?. A three investment portfolio of shares in One-Tel, Enron and HIH on the surface appears as a low risk portfolio, but in hind sight proved to be volatile. SME investments are no different,  you will need to assess and estimate the 'law of probabilities" of commercial gravity, namely, what is the likelihood of a 10 company portfolio of SMEs shares having a correction or adverse adjustment and impact on the company stock,  will the company weather the economic storms and which companies may suffer corporate shipwreck?

There are more SMEs than Exchange companies so there is lots to choose from, some are huge, such as A-111-ENV with over $100mil in gross assets, yet other are small. Assessing a SME portfolio should also entail, visualising what targets the company may or may not achieve, its intellectual assets, revenue potential, growth curve, skill sets of its executives, growth of its shareholder base, increase or decrease of its issued shares, how top heavy is the share block stacked, when dividends may start to flow, accountability of its management, communicative pattern of the directors to shareholders, timely reports and announcements, and just good old fashion business sense and courtesy. Directors skills are critical, anyone can run a milk bar, but can they operate a company or even a larger corporation?

    Mature professional and sophisticated Investors know that the "law of averages" will be taking a financial loss from time to time, equally with taking a margin. Re-trading of unquoted securities can re-offered via the OTC market for exposure where the Seller will need to be patient for the next qualified Investment Buyer to come along, similar to the trading of the Exchange penny stocks where the trade movement may spasmodic with wide fluctuations or sluggish since the company is in a trough. There may be certain capital gains relief for Investors who hold securities more than a year, hence a Tax expert should be consulted.

    If you are not a qualified Investment Buyer  with sufficient experience and adequate capital reserves then you will need to contact a licensed Securities Dealer/Broker to purchase the unquoted shares for you. Re-offering (re-sales) of shares can be effected by lodging with the OTC market a Reservation SELL form so that other potential Buyers can see what stocks are available for negotiation. Usually SME investments are likely to be long term holdings as the company grows to a larger size before the securities reach maturity or the company transfers to an Stock Exchange. Interestingly some companies never will seek an Exchange listing, such as VW who reputedly remains on the USA OTC market (no connection with Australia) apparently due to compliance cost effectiveness.

   The main documentary  Forms for Investors/Company use are a SME Securities Application Form for new issue under an current Offering or a OTC Transfer Form for any re-trades of seasoned securities, providing you hold a Disclosure Document to hand onto the next Buyer. Companies will need to file with ASIC and change in shareholders on a Form 484.

   Although the Australian Unlisted Capital Market role is non advisory, its executives may be able to help by sending out available company material and use of the prescribed forms prior to any negotiations.