Going Private

Goldman Sachs was the first to launch a 144A securities trading platform, Goldman Sachs TrUE–Goldman Sachs Tradable Unregistered Equity–with its May 21 debut in which Oaktree Capital Management offered 15% of its equity to QIBs for $880 million.

GS TrUE is the brainchild of a “collaborative effort” at Goldman that included Rob Pace, managing director, equity capital markets, and Gregg Weinstein, managing director, equity trading division, as well as the firm’s technology, and compliance groups, Canaday says. About a year ago this group was “looking at the current 144A market and it was clear to them from their review of the market,” and what they’d heard from “institutional investor clients as well as issuer clients, the private companies” that want to offer their equity for sale, was that there was a need for “more transparency, more liquidity, and a more electronic marketplace for 144A,” explains Canaday. The idea was “that we could use existing Goldman Sachs trading systems, as well as building in some new functionality, to come up with a platform for trading 144A offerings underwritten by Goldman Sachs.”

Although it has yet to trade one 144A unit, another newsmaker in the 144A securities space is Nasdaq’s Portal, which has been around “since 1990″ in another form, in which it “provides review to ensure eligibility for the clearance and settlement of securities through DTC,” Nasdaq says in a presentation, “Engine for Global Capital Formation, Nasdaq & Portal.” Now Nasdaq has developed an electronic “market system” that will allow QIBs to trade 144A units with each other in a secondary market. Unlike GS TrUE or any other system that will trade only a firm’s own corporate clients’ 144A units, Portal will trade any Portal-eligible 144A units, with market makers to help price these private securities just as they do for publicly traded securities, according to John Jacobs, an executive VP at Nasdaq. Jacobs asserts that companies like to test the securities issuance waters with a 144A offering because it helps them decide whether to proceed with a public offering. Nasdaq is planning to launch an index on Portal, and it is possible that an ETF product will be developed based on that index that could allow smaller investors to indirectly participate in 144A offerings.

Portal is in the comment period of its SEC review. The Securities Industry and Financial Markets Association (SIFMA) filed a letter May 30 calling the Portal proposal “vague and incomplete in a number of significant areas.” One has to wonder whether SIFMA is protesting on behalf of members who want to launch proprietary 144A trading platforms, or want to simply maintain the status quo, and are feeling threatened.

For the B/Ds that are creating these exchanges for private equity–and at some point privately issued 144A debt–it would seem that there will be market efficiencies to be had that will be attractive to QIBs and issuers alike, though it will be interesting to see whether the private model of an in-house exchange like GS TrUE will beat the more open Nasdaq Portal model.

E-mail Senior Editor Kathleen M. McBride at [email protected].