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Banks to start trading platform
Citigroup, Lehman Brothers, Merrill Lynch and others are setting up a private system to trade stocks of companies looking to avoid public scrutiny.
August 14 2007: 1:34 PM EDT
NEW YORK (Reuters) -- Five of Wall Street's biggest banks, including Citigroup (Charts, Fortune 500), Lehman Brothers (Charts, Fortune 500) and Merrill Lynch (Charts, Fortune 500), said on Tuesday they were setting up a private system to trade stocks of companies eager to avoid the scrutiny of public markets.
The group, which also includes underwriter Morgan Stanley (down $2.46 to $57.18, Charts, Fortune 500) and Bank of New York Mellon, said the new platform is designed to ease trading for privately sold securities. It will target companies looking to raise capital while avoiding the rules imposed on publicly listed shares.
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The Open Platform for Unregistered Securities, or OPUS-5, would also offer an alternative to platforms introduced earlier this year by Goldman Sachs Group (down $6.50 to $171.00, Charts, Fortune 500) and Bear Stearns Cos. Inc. (down $1.71 to $107.90, Charts, Fortune 500)
The group of five expects to launch their system in September.
The news comes a day before Nasdaq Stock Market (up $0.44 to $33.38, Charts) launches its own platform for private securities called Portal.
Last year, some $162 billion of unregistered equity shares were sold in U.S. private placements, outpacing the $154 billion raised in public offerings on U.S. exchanges, according to Nasdaq.
The trend has accelerated this year, with a number of closely held hedge and buyout firms choosing to issue shares to investors but to do so outside the public realm.
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Hedge fund firm Oaktree Capital Management in May sold 15 percent of itself for $880 million on the platform known as Goldman Sachs Tradable Unregistered Equity system, or GSTrUE. Private equity firm Apollo Management sold a 12.5 percent stake via GSTrUE earlier this month.
The five banks said OPUS-5 would allow participants to trade equities privately issued under the U.S. Securities and Exchange Commission's 144a rule.
Nasdaq's received more than 1,700 applications to register placements with Portal this year, about 27 percent ahead of last year's pace.
Nasdaq, which registers private debt and equity placements, said on Aug. 1 the SEC had approved its plans for Portal. The system will go live Wednesday with roughly 600 issuers, while dealers and qualified investors register to trade on the system.
Nasdaq Executive Vice President John Jacobs said that Portal complements the bank-run networks which track the shareholders to ensure private securities have fewer than 500 investors, a requirement under SEC rules.
Nasdaq's system handles companies that register shares with the Depository Trust and Clearing Corp., which cannot track the number of shareholders. Jacobs said tracking should be in place in about six months, paving the way for links between the various platforms.
Jacobs said Nasdaq is in talks with the banks on this matter.
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