Nasdaq and Banks Join to Allow Trading in Private Company Securities

Nasdaq has joined with several large banks to create Nasdaq Private Market, an independent company that will facilitate secondary trading in private securities. As the market for initial public offerings has slowed, largely due to the excessive cost and compliance demands, more and more companies are seeking to remain private. For early shareholders, this can create a liquidity challenge as investors typically want to cash in on their investment at some point in the future.

Recognizing this reality, Nasdaq has formed a joint venture with SVB Financial Group (parent company of Silicon Valley Bank), Citi, Goldman Sachs, and Morgan Stanley to launch an institutional-grade, secondary trading market. The platform will receive strategic investments from SVB, Citi, Goldman Sachs, and Morgan Stanley.

Nasdaq states that existing technology, client relationships, and regulatory infrastructure will provide a strong foundation for the joint venture. Private companies, brokers, and investors will be able to access, connect, manage and execute their private company stock transactions through a global marketplace and customized technology solutions. The platform will offer structures to manage and support private company share transactions including tender offers, auction programs, block trades, and continuous trading.

The list of features is similar to other institutional trading platforms including an end-to-end settlement process management and an inter-broker global marketplace alongside its existing alternative trading system. Established relationships should mitigate, to a degree,  any liquidity issues as private markets tend to create wider spreads on bids.

Nelson Griggs, President, Nasdaq Stock Exchange, said that since they launched Nasdaq Private Market in 2014 they have established a strong track record and robust pipeline of secondary transactions:

“This joint venture will accelerate our opportunities in the private company secondary trading market and establish the standard for technology-driven operational efficiencies, compliance and execution.”

Eric Folkemer, President, Nasdaq Private Market, added that private markets are more diverse than ever:

“Using the scale and distribution of our joint venture partners alongside our market leading technology and markets experience, Nasdaq Private Market will become the go-to marketplace that connects and manages the need of the entire private ecosystem through one platform.”

Greg Becker, CEO of SVB, noted that innovative firms are staying private longer and their needs to be a way to generate liquidity:

“Together with Nasdaq and this impressive consortium of leading banks, we are establishing a secondary trading venue for private company stock that will offer our clients a path to employee retention in an environment where access to talent is one of the biggest challenges.”

Typically, most private companies issue securities under Reg D, a securities exemption that is only available to accredited investors. Some industry observers have noted that as successful young firms remain private, l0nger, most returns are accrued to investors who are already wealthy. Some insiders believe that policymakers should democratize the definition of an accredited investor to allow any sophisticated individual to participate in private securities offerings. If this occurs, a greater segment of the population will have access to this asset class. If not, the vast majority of the population will remain disenfranchised.

Nasdaq Private Market currently reports relationships with more than 250 private companies worldwide, having facilitated 477 private company transactions serving 59,000 shareholders, and more than $30 billion in transaction volume.

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