Forget The Public Market...”SecondMarket” Gains Ground


Today Closing Bell kicks off its “2011 Trading Floor Series” at SecondMarket in New York.

You may ask yourself, who is SecondMarket?

SecondMarket didn’t even exist ten years ago, Barry Silbert founded the company in 2004. For investors not familiar with SecondMarket, it is the largest secondary market for trading shares of privately-held companies. Among its top trades in 2010, Facebook.

Take a look at the numbers. Facebook accounted for 39% of completed trades during the last three months of 2010 on SecondMarket. Based on implied valuation of $50 billion for the company, at most something like 12% of the social network's stock moved on SecondMarket during that time. And the growing appeal of SecondMarket seems to be unstoppable. Get this -- the monthly average of trades in 2010 for SecondMarket was $862 million. The total dollar amount of trades jumped to $10.3 billion in 2010 from $2.2 billion in 2009.

Why the appeal of the 'second market' versus the public market? CEO Barry Silbert told us 'there's a confluence of events making it less attractive for private companies to go public.' This trend, according to Silbert, began over 10 years ago. First, Silbert said “the cost and requirements to go public is increasing making it difficult to be a small company getting attention on Wall Street...Then you 'had the introduction of Sarbanes-Oxley.”

As far as market structure, Silbert said the holding period of stocks has changed. With high frequency traders accounting for 60% of trading, the “days of holding stocks for the long-term seem to be getting ever shorter.” Silbert said the average time a stock is held in public market dating back to 1970 was 5 years. Today, Silbert said the average investor holding on to stocks is for 2.8 months. So the “public market more and more caters to traders and does not favor investors.” As a result, Silbert believes more companies prefer to stay private.

Tune into CNBC's Closing Bell at 3PM ET, Maria Bartiromo reports live from SecondMarket trading floor

Donna Burton contributed to this article.



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