Tuesday, August 14, 2007

Citibank, Others, Plan Private Stock Platform

NEW YORK (Reuters) - Five of Wall Street's biggest banks, including Citigroup (C.N: Quote, Profile, Research), Lehman Brothers Holdings Inc. (LEH.N: Quote, Profile, Research) and Merrill Lynch & Co. Inc. (MER.N: Quote, Profile, Research), said on Tuesday they were setting up a system to trade privately placed stocks.

The group, which also includes underwriter Morgan Stanley (MS.N: Quote, Profile, Research) and Bank of New York Mellon (BK.N: Quote, Profile, Research), said the new platform would be designed to ease trading for privately sold securities. It will target companies looking to raise capital while avoiding the scrutiny and rules imposed on publicly listed shares.

The Open Platform for Unregistered Securities, or OPUS-5, would also offer an alternative to proprietary platforms introduced by Goldman Sachs Group (GS.N: Quote, Profile, Research), which led the underwriting of a private stock offering for Oaktree Capital Management, and JPMorgan Chase & Co. (JPM.N: Quote, Profile, Research), a lead underwriter for buyout shop Apollo Management.

The group of five expects to launch OPUS-5 system in September. The JPMorgan platform is dubbed "144A Plus."

Separately, Bear Stearns Cos. Inc. (BSC.N: Quote, Profile, Research) on Tuesday announced it has launched Best Markets, a private placement platform, in connection with its role as initial purchaser of a $140 million private placement by J.G. Wentworth, a buyer of illiquid insurance products.

All of these platforms are accessible only to "qualified institutional buyers" -- big money managers that currently participate in private stock and debt transactions.

The news comes a day before Nasdaq Stock Market Inc. (NDAQ.O: Quote, Profile, Research) launches its own platform for private securities called Portal, which has the potential to supersede the bank-run systems.


Last year, some $162 billion of unregistered equity shares were sold through 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.

Oaktree in May sold 15 percent of itself for $880 million on the Goldman Sachs Tradable Unregistered Equity system, or GSTrUE. Private equity firm Apollo Management sold a 12.5 percent stake, and its shares can now be exchange on the Goldman and JPMorgan platforms.

The five-bank group said OPUS-5 would facilitate trading of equities issued under the U.S. Securities and Exchange Commission's 144a rule, which govern private placements.

Nasdaq said it'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 August 1 that 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 says.

John Jacobs, a Nasdaq Executive Vice President, said that Portal complements the bank-run networks, which track 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 currently does not track the number of shareholders. Jacobs said tracking should be in place in about six months, paving the way for closer links among the various platforms.

Jacobs said Nasdaq is in talks with the leading investment banks on the matter.

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