Secondary Markets

Secondary markets are fascinating.  And potentially a royal pain in the ass for the private company involved.  Simply stated, secondary markets are highly unregulated exchanges on which shares of private companies are traded.  Importantly, the given private company must consent to the trades so there is a self imposed regulatory function.  You have likely read about secondary market trading in Facebook, Twitter and Zynga.  Numerous companies are actually involved, but those are the 3 that get most of the press.

The most noted secondary markets are SecondMarket and SharesPost.  The innovation behind the creation of these sites and the services they provide is awesome.  The legal issues surrounding the exchanges are not fully fleshed out and many questions about liability (among other things) exist.  For example, even though Facebook, as a private company, does not publicly disclose its financial results, could the active secondary market trading in Facebook stock impose liability on Facebook or a Facebook stock seller for non-disclosed material information about Facebook?  Likely.

A short article today in the NYTimes is worth reading.

I hope that all of your companies get big enough and popular enough for you to have to worry about secondary market issues!

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s