US regulator the Securities and Exchange Commission last week approved the launch of Nasdaq’s Portal Market Trading System for Rule 144a securities, despite concerns raised by industry association the Securities Industry and Financial Markets Association over the impact of data dissemination from the system.
The Portal, which goes live on Aug. 15, will provide a Web-based service for trading and displaying transactional activity in 144a securities between broker dealers deemed eligible by Nasdaq and investors meeting the requirements for Qualified Institutional Buyers (institutional investors with assets of at least $100 million or broker-dealers with assets of at least $10 million).
Data on trades executed via the system will be disseminated to all trading participants via the Web-based Portal, but will not include the identity of the parties and cannot be made public.
Rule 144a allows for the immediate resale of private placement securities without requiring public registration, provided sales are made only to QIBs. Nasdaq has estimated that the amount of equity and debt capital raised by Rule 144a worldwide exceeded $1 trillion in 2006.
Liquidity Fears
SIFMA raised concerns that the immediate dissemination of trading information to all Portal participants threatened to reduce the potential liquidity of the system. Friedman Billing Ramsey, a real estate investment trust and investment bank, also objected to Nasdaq’s proposal for Portal, saying that the exchange’s refusal to distribute data from the system to non-participants was at odds with FBR’s obligations to provide its clients with access to the best price available, and could discourage participation in Portal.
But in an order issued last Tuesday, July 31, approving the Portal system, the SEC agreed with Nasdaq that prompt and complete dissemination of Portal trade data to the system’s participants should allow them to better evaluate their trading decisions and result in increased investor confidence and liquidity in the Portal market.
SIFMA’s concern was that Portal participants may be reluctant to trade if they know that information about their trades will be immediately available to other market participants, says Espen Robak, president of Pluris Valuation Advisors, a provider of valuations for illiquid securities. For example, a market participant may want to sell a large block of securities over time—but this strategy would not work if everyone can see their trading activity, as additional selling pressures might appear before the participant has sold its position, Robak says.
Nasdaq officials were unavailable for comment last week, while STFMA officials did not respond to requests for comments by press time.