April 1, 2013

Liquidnet To Trade Private Shares

By Tom Steinert-Threlkeld

Liquidnet told Traders Magazine last month that the platform it has been working on for more than a year to allow trading of shares between privately held companies and institutional investors is now "substantially complete." The first activity on it should take place before this year is out.

"Our hopes are that you will see activity this year," said chief operating officer John Kelly. "We would expect the story to tell itself."

More recently, Nasdaq announced it was partnering with SharesPost to create what it said would be the "preeminent marketplace for private growth companies."

John Kelly

The deal is an attempt by Nasdaq to fend off the New York Stock Exchange, as that firm adds more technology and Internet-related companies, according to one report, by building business with companies that are about to go public.

The new exchange, dubbed Nasdaq Private Market, will provide private companies more flexibility as they plan for their future.

"The NASDAQ Private Market will provide private companies additional flexibility as they plan for their future and, at the same time, bring the investment community unique opportunities," said Bruce Aust, executive vice president at Nasdaq. "By combining our resources, expertise and reach with SharesPost's established technology, we will bring scale, efficiency and transparency to this marketplace."

The private venue will join the Nasdaq's market and operational skills with SharesPost's online platform.

The San Francisco-based venture will launch later this year, pending regulatory approvals. Greg Brogger, SharesPost's founder and president, will become president of the new exchange. SharesPost's broker-dealer and registered investment advisor businesses will continue to operate separately from the joint venture.

Terms of the Nasdaq deal weren't disclosed.

Liquidnet, which is known for allowing institutional investors to anonymously arrange trades in large blocks of public stock, will be entering a market that has been pioneered by start-ups such as SecondMarket and SharesPost. The exchanges try to provide an outlet for emerging companies such as Twitter, Groupon or BuzzFeed to let employees or early investors cash out part or all of their stakes when there is not a public market for their shares.

Kelly would not say which or how many companies might use its mechanism for trading shares with its base of mutual fund and other institutional customers. But, he told Traders Magazine, there is "a substantial list of prominent emerging companies that are actively interested" in the technical platform Liquidnet has developed to facilitate such pre-initial public offering trading.

Under Liquidnet's approach, the privately held company would control the trading, aggregating the shares of initial or new employees as well as investors and then arranging sales to institutions.

The company announced the creation of its Private Shares Group in late 2011. The company hired Lou Kerner, a former managing director of Wedbush Securities, to head the group.