While much investor attention has focused on commodities throughout 2010, Xpert Financial recently received approval from the Securities and Exchange Commission (SEC) to establish the first electronic alternative trading system (ATS) to trade private company stock.
As an asset class, private company stock has grown in popularity over the last couple of years as Internet companies such as Facebook, Twitter and Groupon have attracted considerable attention.
Currently, most private company stock is traded through brokers or Internet bulletin boards. Xpert will be the first to bring an electronic trading system to private stocks.
The asset class has come under scrutiny recently from the SEC because as a company’s investor base grows past 500, more financial information must be made publicly available. Often, it can be difficult to find financial information on private companies.
"What we found working with the institutions and companies, is you really need company involvement. There is a certain amount of information you need for people to feel comfortable making investment decisions," says Thomas Foley, chief executive at Xpert Financial.
Foley plans for Xpert to give a company the ability to offer an XPO (Xpert private offering) and to then manage the secondary market for those private shares. "We protect investors by giving them the information they need about a company, and protect companies by giving them control over the process," he says.
While Xpert will be the first to offer a fully automated electronic trading system for private stocks, its competitors don’t see that necessarily as an advantage. "An ATS does not mean SEC endorsement. It’s just a different way of doing business and a different regulatory designation. The SEC doesn’t approve the way someone does business. It’s just a designation that means all your transactions are conducted in an automated sense vs. our transactions at SecondMarket which are conducted through a hybrid model," says a spokesman for SecondMarket.
Xpert is not intended for retail investors; instead it is targeted to accredited investors (those with more than $1 million in net worth or more than $200,000 annual salary), private equity firms, hedge funds, family offices and institutional investors.
The company is currently in stealth mode as it attracts investors and companies.