Investment banks setting up private exchanges

Goldman Takes ‘Private’ Equity To a New Level

Firm’s Trading System
Lets Unregistered Stock
Reach Exclusive Market

By RANDALL SMITH
May 24, 2007

Goldman Sachs Group Inc. ranks as the most profitable securities firm on Wall Street — reflecting its mastery of trading on the world’s public markets.

Now Goldman is turning that franchise on its head, creating its own private system to trade the stocks of companies that don’t want the scrutiny and regulatory burdens of going public.

The new system, GS TRuE — short for Goldman Sachs Tradable Unregistered Equity — was announced two weeks ago and made its debut on Monday with an $880 million sale of a 15% stake in Oaktree Capital Management LLC, an alternative-investment manager.

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This is interesting in that (a) the banks are further segmenting their audiences and offering yet another “product” in which to charge fees (presumably for the exclusivity), (b) avoids alot of the current sarbox and other reg fd disclosures, (c) provides additional liquidity to the market as it helps select companies raise capital and (d) further reduces the reliance on public exchanges.

 

Does this bode well for NYSE or Nasdaq?  Is it a threat to the public listing of companies in the future?  Do public investors get shortshrift as the vehicles/companies in which they can invest in decrease?  I wonder if this makes the US capital market’s system more or less competitive?  Does it also create a cabal in which select investors (large pools of capital) have opportunities in a clubby atmosphere?    Overall, and for the long term, this is innovation at its finest and will benefit everyone as ideas, capital and opportunity cycle through, causing new and other idea generation for raising funds.

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