Nasdaq, SharesPost to set up market for unlisted stocks
Nasdaq OMX Group Inc will form a marketplace for trading in shares of unlisted companies in a joint venture with small trading platform SharesPost Inc, tapping into increasing investor interest in private firms.
The new venture, Nasdaq Private Market, will help the exchange rebuild its reputation as the exchange of choice for unlisted companies, after it was criticized for its role in the botched Facebook Inc IPO last May.
"NYSE was taking a lot of share away from the Nasdaq even in tech listings, so I think it's kind of an opportunistic move for Nasdaq," said Josef Schuster, founder of Chicago-based financial services firm IPOX Schuster LLC.
Major market makers and broker dealers say they lost upward of $500 million because of technical glitches on the Nasdaq during Facebook's May 18 stock market debut.
Nasdaq will own most of the new venture, to be based in San Francisco and led by SharesPost founder Greg Brogger. They hope to launch the new market later this year.
San Bruno, California-based SharesPost began in 2009 and its fortunes rose in step with technology startups such as Facebook Inc and LinkedIn , which traded on the market before they went public.
But it ran into regulatory trouble when the Securities and Exchange Commission (SEC) stepped up scrutiny of Wall Street banks and electronic markets offering investors a chance to trade shares in hot technology companies before they went public.
Privately held SharesPost was charged by the SEC for failing to register as a broker-dealer before offering securities in its marketplace. It registered as a broker-dealer and paid $100,000 to settle the allegations.
The new venture gives SharesPost a leg up in the increasingly crowded market for trading unlisted stocks, said Jay Ritter, a finance professor at the University of Florida.
"Most young companies that go public in the U.S. go public on the Nasdaq and so the joint venture gives SharesPost a lot of credibility," he said.
SharesPost's broker dealer and investment advisory business will continue to operate separately from the joint venture.
Recent legislation, the Jumpstart Our Business Startups Act, has boosted opportunities for trading of unlisted companies. Under the act, an unlisted company can have 2,000 shareholders, up from 500.
(Additional reporting by Jochelle Mendonca; Editing by Saumyadeb Chakrabarty and Rodney Joyce)