Just as the Securities and Exchange Commission is starting to take a closer look at the increasing amount of trading in private company stock, a new startup that’s been in stealth mode since August, 2009 is preparing to launch another way to trade private shares. The company is Xpert Financial which, through its registered subsidiary, Xpert Securities, brings to the table a tacit stamp of approval from the SEC and the Financial Industry Regulatory Authority (FINRA), or at least approval to begin operations as an alternative trading system (ATS). Existing secondary markets for private shares such as SharesPost and SecondMarket do not have the same standing in the eyes of the SEC, although it is not clear how much that matters at this point.
Xpert Financial will operate an electronic trading platform for private company shares. It is a registered broker-dealer with FINRA and it recently got approval from the SEC to run an alternative trading platform. Xpert Financial will be the first ATS approved for private stock sales. More common alternative trading systems are ECNs, or Electronic Communication Networks, for publicly traded securities. As an ATS, Expert Financial cannot call itself an exchange, which is why it changed its name from Xchange.
In contrast to “bulletin boards and phone-bank brokerages that have positioned themselves as stock exchanges,” as the company calls its competitors, Xpert Financial will be a completely automated, electronic trading system. It will also work with the companies whose shares trade on its ATS to solicit their approval (SecondMarket and SharesPost work with shareholders, not necessarily with the companies). Xpert will also provide a way for companies to share financial information with prospective investors. More disclosure would certainly be welcome in this opaque corner or the financial markets. The company is backed by angel investors including Tim Draper, who invested personally.
Of course, just because Xpert Financial has permission to operate as an ATS by the SEC that doesn’t mean that companies whose shares trade there wil be immune from SEC scrutiny. As these private trading systems bring more liquidity to secondary markets, the number of shareholders for any given company will increase and the greater chance there will be that a company will gain more than 500 shareholders. Once that happens, the SEC can require full financial disclosure just like a publicly traded company.
Update: A SecondMarket spokesperson notes: “SecondMarket is a registered broker-dealer, and we are fully regulated by both FINRA and the SEC. Also, working with the private companies is a critical aspect of our business model.” The difference is that it is not an ATS, and Xpert Financial is already trying to use that distinction in its marketing against the established players.
From its inception in 2009, Xpert Financial has focused its efforts on creating an electronic platform that benefits both companies and investors in the private securities market. The company’s core product, Xpert ATS, is a fully-electronic capital raising and trading platform built exclusively for private company securities. It is operated by Xpert Securities, Inc., a broker-dealer subsidiary of Xpert Financial and a FINRA member. Xpert ATS supports both private offerings and secondary trading of private company securities through its...
SecondMarket is a reinvented stock market. We provide products and services that enable companies, community banks, student loan issuers and funds to manage liquidity, raise capital and communicate with key stakeholders. A Better Market… We’re empowering entrepreneurs by reinventing the modern stock market and redefining the modern company. We’re enabling companies to manage liquidity, communicate with key stakeholders and raise capital through products that give control to companies, not to Wall Street. We’re changing the market,...
SharesPost is the market for today’s fast-growing private companies, their shareholders and qualified investors. SharesPost enables companies to manage liquidity and raise primary capital online; provides investors access to private companies through direct investments and managed funds; offers shareholders liquidity options; and empowers option holders to exercise their options. With a listing of over 200 fast-growing companies, an extensive network of investors assembled in one place online, and a broad offering of independent, third-party research and customized products and...
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