Nasdaq to Launch "Private" Exchange
Tuesday August 14, 4:14 pm ET
Nasdaq to Launch PORTAL Exchange for Banks and Dealers to Trade "Private" Stocks and Bonds
NEW YORK (AP) -- Nasdaq Stock Market Inc. on Wednesday morning will launch an exclusive Internet exchange for banks and dealers to trade "private" stocks and bonds unavailable to retail investors.
The New York-based electronic exchange will open its PORTAL market to users over the Web Wednesday morning. This market will host and clear trading of stocks and debt that have not been registered with the Securities and Exchange Commission.
Stocks or bonds unregistered with the SEC cannot trade on public exchanges. Under a 1990 law called Rule 144A, they may trade privately among investors who presumably do not need the protection of securities laws.
Nasdaq has operated a trading system for 17 years to host buying and selling of this type of unregistered security.
The Securities and Exchange Commission quietly approved the trading platform's move to the Internet July 31. An SEC spokesman declined to comment.
The SEC said in its approval order that it believes Nasdaq's Portal will "enhance the efficiency of the market" for private securities traded among institutional investors.
The PORTAL Web exchange is open to banks and insurance companies with at least $100 million in assets and brokers with at least $10 million in assets. Trades on the exchange will be cleared by Depository Trust Co.
The new platform is opening as the market for private stock and debt expands. This segment of the securities market has tripled since 2002 and now tops $1 trillion globally.
American companies raised $221 billion by selling unregistered securities last year, for the first time exceeding the amount raised in public offerings.
Nasdaq said companies like to issue these unregistered securities because they are cheaper than public offerings, which require numerous disclosures and approvals under regulations like Sarbanes-Oxley.
The PORTAL will provide a centralized place for investors to trade this type of security, Nasdaq said. Investors have long wanted to buy and sell private securities but often could not find people to trade with, Nasdaq said.
John Coffee, a securities law professor at Columbia University, said the Nasdaq is likely upgrading PORTAL in response to the creation of private trading platforms by investment banks such as Goldman Sachs Group Inc.
Goldman Sachs set up its platform, GS TRuE, in May.
Separately, a group of Wall Street heavyweights, including Citigroup Inc., Lehman Brothers Holdings Inc. and Merrill Lynch & Co., on Tuesday said they have established their own private trading system.
The proliferation of private trading systems may increase the incentives for companies to raise money privately, rather than offer shares to the public, Coffee said. But such private listing opportunities have existed before and PORTAL is unlikely to cause "a rush from the public markets," he said.
AP Business Writer Chris Rugaber in Washington contributed to this report.
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