Nasdaq to form private market

[DarkWaters]

According to an article in the Washington Post, Nasdaq is set to christen a private market tomorrow (8/15/07) that will be free of regulation. To participate in this market requires a minimum of $100 million in assets. Evidently, the motivation for this private market is to avoid the costly fees required to comply with the accounting regulations of Sarbanes-Oxley.

This is exciting!

[KendallJ]

According to an article in the Washington Post, Nasdaq is set to christen a private market tomorrow (8/15/07) that will be free of regulation.

Nothing is technically free of regulation as long as govt has the right to regulate it. It is only free, until...

[D'kian]

Have you ever dealt with the practical aspects of a "free" trade agreement? Once you do, you realize it's more like a regulated trade agreement. But since tariffs, quotas and other obstacles are removed, the trade is more free than it was before the agreement. That's good, but it isn't free.

[DarkWaters]

Needless to say, I agree with what you guys have said. I just chose my words hastily.

This market will just have less regulations than the others.

[softwareNerd]

According to the article, this is going to be a market for stocks of "privately-held" companies. So, these are companies that already have less regulation than publicly-traded ones. What Nasdaq is doing is enabling a market where none existed -- where trades are done via private negotiation today. I figure that the bigger story here is summed up by this line from the quoted article:

For the first time last year, corporate America raised more money -- $162 billion -- from private investors than from initial public offerings, which raised $154 billion from the three major U.S. stock markets -- Nasdaq, the New York Stock Exchange and the American Stock Exchange.

Increasingly, the laws penalize management risk-taking. In trying to protect the supposedly ignorant small investor from the predations of bad managers, the laws have penalized good managers too. (Aside: This is not surprising; it happens all the time when the authorities create rules that do not allow individuals to exercise their judgement.) The net result is that the small investor ends up with fewer options. In effect, the government is stopping this person from taking on risks "directly"; he has to do so through an intermediary. This is a good thing if the individual decides that's what he wants; a bad thing if the government restricts his choice.

Added: Nasdas isn't the only one tapping into the growing "private company" market. Others have similar plans.

Edited August 14, 2007 by softwareNerd

[Qwertz]

I had this very idea while taking Corporations this Summer. My idea was more of a "market by invitation only" rather than a minimum assets sort of thing, but we hadn't covered Rule 144A at the time. Of course, if any economically significant amount of money starts diverting through such a market, the SEC will just rewrite its rules to call such markets "public" securities markets for the purpose of SEC regulation and that'll put the kibosh on that. And as Sarb-Ox, IIRC, applies to publicly traded securities subject to SEC regulation, so there goes that, too.

But it is nifty what they're trying to do. They've taken an exemption (Rule 144A) and tailored an over-the-counter market around it. Basically, it's just a means of facilitating activities that QIBs used to have to do on their own.

Furthermore, I think Rule 144A status only applies to institutional investors: retirement and pension plans, for example. Because the real advantage of this kind of market inures in the companies (not so much in the investors), what we're likely to see out of this is an increase in government investment in private companies. Specifically, huge State employee retirement funds will now be able to invest, much more easily than they could in the past, in companies that are not "publicly traded" in the traditional sense. The possibility of higher investment rates without increased onerous regulation will lure privately held companies to be listed on Portal, and then they'll find themselves at least partially dominated by government interests.

So I think it's a mixed bag. It might go okay, it might not. Let's watch and find out!

-Q

[y_feldblum]

There is little difference in kind or in degree between government control of a corporate board by shareholder vote or government control of a corporate board by regulatory oversight.