Secondary trading

4 questions for Nasdaq's private share market

March 6, 2013: 1:25 PM ET

nasdaqNASDAQ is putting its imprimatur on private shares trading, but several questions remain.

FORTUNE -- The NASDAQ OMX Group this morning announced that it has formed a joint venture with SharesPost, in order to "establish the preeminent marketplace for private growth companies."

Neither side is disclosing financial details, except that NASDAQ (NDAQ) will be majority shareholder. SharesPost founder and CEO Greg Brogger will serve as president, with the platform to launch sometime later in 2013 (pending regulatory approvals).

In short, this is a major vote of confidence for private trading markets -- and one that should help bring new participants to the table (both traders and issuers). It also is a much-needed reputational boost for SharesPost, which last May was charged by the SEC with engaging in securities transactions without first registering for the required broker-dealer license (the two sides later settled for $100,000).

Today's announcement, however, was more of a marketing exercise than an actual explanation of the new platform. Here are some questions that we don't yet know the answers to:

1. How will the joint venture make money? I'd assume that there will be commissions charged to traders, but will companies also be required to pay listing fees? Moreover, what types of services (data, advisory, etc.) might the platform offer that aren't currently offered by SharesPost? Does it plan to conduct primary capital raises and, if so, how much will it charge? Also would be interested to know if NASDAQ expects this platform to become a significant revenue generator, or if it's primarily a way for the exchange to ingratiate itself with future clients of its public market business.

2. How much automation? Right now, the market for private shares is largely a relationship business that involves a lot of human touch. Is NASDAQ seeking to change that and, if so, by how much? For example, could we end up seeing high-frequency trading of Pinterest shares?

3. How much info? NASDAQ is promising that the new market will be "transparent," but doesn't explain what that means. I'd assume that trading prices and volumes won't be available on, for example -- after all, this will be a closed private market -- but is NASDAQ saying that traders will get more underlying company information than currently do on private secondary markets?

4. Why SharesPost? NASDAQ seems to have chosen the private market's number two player in SharesPost, without exploring a similar deal with top dog SecondMarket. It says the decision was based on an affinity for SharesPost's technology platform, but there also are whispers from multiple folks that financial considerations also played a role. In short, SecondMarket would have driven a harder bargain.

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