Twelve Wall Street firms are in the early stages of developing a single trading portal alliance platform, operated by Nasdaq, for all 144a securities. The companies hope the platform will bring liquidity and transparency to the 144a market, which has been associated with unregistered, opaque trading.
"With the advent of a more transparent and efficient private placement market, Latin American and other companies considering a traditional IPO have an attractive new option to gain faster, simpler, less expensive access to the capital they require," says John Jacobs, an executive vice-president at Nasdaq.
"Any initiative that aims to put more liquidity into the market will be well received," says Stefan Alexander, CFO of Globo, a Brazilian conglomerate that has issued 144a securities in the past. But Antonio Neto, head of structured finance at Société Générale in Brazil, has doubts: "I think this will be an important initiative, as it will facilitate investors’ access to these securities. However, I don’t think that there will be a dramatic change in liquidity."
Bank of America, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, UBS and Wachovia will all join Nasdaq to form the new trading platform, called the Portal Alliance.
Since the Sarbanes-Oxley Act of 2002, emerging market issuers have opted for 144a listings in order to avoid the regulatory burden of a public offering in New York. "Since the new regulatory requirements came in there has been a clear trend away from listing on the New York Stock Exchange by Latin companies. But in many cases, what the NYSE has lost, the 144a market has gained," says Michael Fitzgerald, partner at law firm Milbank Tweed in New York.
Nasdaq data support this. In 2007, the private placement market reached $162 billion, outpacing the $154 billion value of public offerings. Among Latin American companies this move has been marked. Before Sarbanes-Oxley, they were a crucial emerging market group. In 2007, though, out of the 64 IPOs from Brazil, only two did public offerings in New York. The rest chose the 144a route.
The portal alliance is expected to be operational by the second quarter of 2008 and to attract domestic and foreign companies looking for US capital. Nasdaq hopes that companies listed on the portal will use its exchange if they do eventually file for a full public listing.
A senior equities banker in New York says: "The portal might be a good alternative for issuers from small, illiquid markets, or for some specific companies from, say, Brazil that might have a very specific US audience that had not bothered to set up trading accounts in Brazil." He adds, though, that this need has not been proved yet. In Brazil, Latin America’s biggest market, analysts believe the need for capital from the US is declining by the day.
But Jacobs at Nasdaq is confident Latin issuers need the US. "Despite [the markets’] challenge, it in no way diminishes the incredible potential and unequalled liquidity of the American marketplace."