SecondMarket
Encyclopedia
SecondMarket is an online marketplace for buying and selling illiquid assets, including auction‐rate securities
, bankruptcy claims
, limited partnership
interests, private company stock
, restricted securities
in public companies, structured product
s, and whole loans
.
SecondMarket's participants include global financial institutions, hedge funds, private equity firm
s, mutual fund
s, corporations and other institutional and accredited investor
s.
The website was created in 2004.
in public companies. Beginning in early 2008, SecondMarket expanded into a number of other asset classes - first auction‐rate securities
, then bankruptcy claims
, limited partnership
interests, structured product
s (MBS
, CDOs, ABS
), whole loans
, private company stock
, and lastly, government IOUs
.
In 2007, the company raised an undisclosed amount of Series A financing from venture capital firm Pequot Ventures.
In February 2010, the company raised US$15 million to aid its expansion into Asia.
On September 1, 2010, the World Economic Forum
announced the company as a Technology Pioneer for 2011.
, SecondMarket's initial market, utilizes privately negotiated transactions to provide access to liquidity in the trillion dollar restricted securities market. A privately negotiated sale allows buyers and sellers to trade registered and unregistered securities, pursuant to certain guidelines and conditions of the Securities Act of 1933. Several types of restricted securities trade on SecondMarket:
(ARS) experienced widespread auction failures that left hundreds of billions of dollars “frozen” in suddenly illiquid auction-rate securities. In response, SecondMarket (then Restricted Stock Partners) opened up its marketplace to the trading of all ARS types including:
in June 2008 by acquiring Trade Receivable Exchange, Inc. (T-REX) of Denver, at the time the largest online auction platform serving the bankruptcy trade claims market. A variety of different claim types trade over SecondMarket:
markets. The variety of collateral types that can trade over SecondMarket are:
facilitates transactions in a wide variety of residential, commercial and specialty loan types. SecondMarket transacts in both performing and non-performing individual loans as well as entire loan portfolios. SecondMarket facilitates trading in a wide variety of loan types including:
opened in April 2009 and facilitates transactions in both debt and equity securities in a wide variety of dynamic, high growth private companies. Through SecondMarket, private companies can opt-in to an organized, controlled private liquid environment that offers early investors and employee shareholders exit opportunity prior to an IPO or M&A event. Numerous high profile companies have traded over SecondMarket including Facebook, Tesla, Zynga and Twitter.
, but in March 2008, it was spun off as a separate business and renamed. Over the past dozen years, the venture firm has opened seven funds, and it currently has $1 billion in actively managed and unallocated capital. The fund focuses on emerging media and advertising, data and analytics and infrastructure startups.
Auction Rate Security
An auction rate security typically refers to a debt instrument with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. Since February 2008, most such auctions have failed, and the auction market has been largely frozen...
, bankruptcy claims
Claim in bankruptcy
A claim in bankruptcy, in United States bankruptcy law, is a document filed with the Court so as to register a claim against the assets of the bankruptcy estate. The claim sets out the amount that is owed to the creditor as of the date of the bankruptcy filing and, if relevant, any priority status...
, limited partnership
Limited partnership
A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...
interests, private company stock
Privately held company
A privately held company or close corporation is a business company owned either by non-governmental organizations or by a relatively small number of shareholders or company members which does not offer or trade its company stock to the general public on the stock market exchanges, but rather the...
, restricted securities
Restricted stock
Restricted stock, also known as letter stock or restricted securities, refers to stock of a company that is not fully transferable until certain conditions have been met. Upon satisfaction of those conditions, the stock becomes transferable by the person holding the award.One type of restricted...
in public companies, structured product
Structured product
In finance, a structured product, also known as a market linked investment, is generally a pre-packaged investment strategy based on derivatives, such as a single security, a basket of securities, options, indices, commodities, debt issuance and/or foreign currencies, and to a lesser extent, swaps...
s, and whole loans
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
.
SecondMarket's participants include global financial institutions, hedge funds, private equity firm
Private equity firm
A private equity firm is an investment manager that makes investments in the private equity of operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital...
s, mutual fund
Mutual fund
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
s, corporations and other institutional and accredited investor
Accredited investor
Accredited investor is a term defined by various securities laws that delineates investors permitted to invest in certain types of higher risk investments including seed money, limited partnerships, hedge funds, and angel investor networks...
s.
The website was created in 2004.
History
SecondMarket was founded in 2004 by Barry Silbert originally to address the growing need for liquidity for restricted securitiesRestricted stock
Restricted stock, also known as letter stock or restricted securities, refers to stock of a company that is not fully transferable until certain conditions have been met. Upon satisfaction of those conditions, the stock becomes transferable by the person holding the award.One type of restricted...
in public companies. Beginning in early 2008, SecondMarket expanded into a number of other asset classes - first auction‐rate securities
Auction Rate Security
An auction rate security typically refers to a debt instrument with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. Since February 2008, most such auctions have failed, and the auction market has been largely frozen...
, then bankruptcy claims
Claim in bankruptcy
A claim in bankruptcy, in United States bankruptcy law, is a document filed with the Court so as to register a claim against the assets of the bankruptcy estate. The claim sets out the amount that is owed to the creditor as of the date of the bankruptcy filing and, if relevant, any priority status...
, limited partnership
Limited partnership
A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...
interests, structured product
Structured product
In finance, a structured product, also known as a market linked investment, is generally a pre-packaged investment strategy based on derivatives, such as a single security, a basket of securities, options, indices, commodities, debt issuance and/or foreign currencies, and to a lesser extent, swaps...
s (MBS
Mortgage-backed security
A mortgage-backed security is an asset-backed security that represents a claim on the cash flows from mortgage loans through a process known as securitization.-Securitization:...
, CDOs, ABS
Asset-backed security
An asset-backed security is a security whose value and income payments are derived from and collateralized by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually...
), whole loans
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
, private company stock
Privately held company
A privately held company or close corporation is a business company owned either by non-governmental organizations or by a relatively small number of shareholders or company members which does not offer or trade its company stock to the general public on the stock market exchanges, but rather the...
, and lastly, government IOUs
IOU
An IOU or I.O.U. is an acknowledgment of debt. The term may also refer to:*I.O.U. , by jazz fusion guitarist Allan Holdsworth*"I.O.U." , by jazz-funk group Freeez*I.O.U in Western Australia...
.
In 2007, the company raised an undisclosed amount of Series A financing from venture capital firm Pequot Ventures.
In February 2010, the company raised US$15 million to aid its expansion into Asia.
On September 1, 2010, the World Economic Forum
World Economic Forum
The World Economic Forum is a Swiss non-profit foundation, based in Cologny, Geneva, best known for its annual meeting in Davos, a mountain resort in Graubünden, in the eastern Alps region of Switzerland....
announced the company as a Technology Pioneer for 2011.
Restricted Securities in Public Companies
Restricted securitiesRestricted stock
Restricted stock, also known as letter stock or restricted securities, refers to stock of a company that is not fully transferable until certain conditions have been met. Upon satisfaction of those conditions, the stock becomes transferable by the person holding the award.One type of restricted...
, SecondMarket's initial market, utilizes privately negotiated transactions to provide access to liquidity in the trillion dollar restricted securities market. A privately negotiated sale allows buyers and sellers to trade registered and unregistered securities, pursuant to certain guidelines and conditions of the Securities Act of 1933. Several types of restricted securities trade on SecondMarket:
- Registered and Unregistered Stock
- Affiliate and Control Stock
- Convertible and Preferred Securities
- Public Debt Instruments
- Registered and Unregistered Warrants
- Block Trades (Small- and Micro Cap)
- Portfolio of Securities
- Warrant Management
Auction-Rate Securities Market
As a result of the economic crisis, in February 2008, auction-rate securitiesAuction Rate Security
An auction rate security typically refers to a debt instrument with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. Since February 2008, most such auctions have failed, and the auction market has been largely frozen...
(ARS) experienced widespread auction failures that left hundreds of billions of dollars “frozen” in suddenly illiquid auction-rate securities. In response, SecondMarket (then Restricted Stock Partners) opened up its marketplace to the trading of all ARS types including:
- Auction-rate CDOs
- Auction-rate preferred securities (ARPS)
- Municipal auction-rate securities (MARS)
- Student-loan auction-rate securities (SLARS)
Bankruptcy Claims Market
SecondMarket entered into the bankruptcy claims marketClaim in bankruptcy
A claim in bankruptcy, in United States bankruptcy law, is a document filed with the Court so as to register a claim against the assets of the bankruptcy estate. The claim sets out the amount that is owed to the creditor as of the date of the bankruptcy filing and, if relevant, any priority status...
in June 2008 by acquiring Trade Receivable Exchange, Inc. (T-REX) of Denver, at the time the largest online auction platform serving the bankruptcy trade claims market. A variety of different claim types trade over SecondMarket:
- Administrative Claims
- Lease and Contract Rejection Claims
- Secured Claims
- General Unsecured Claims
- Scheduled and Unscheduled Claims
- Scheduled Priority Claims
Limited Partnership Interests Market
In February 2009, SecondMarket opened its marketplace to limited partnership (LP) interests, which are ownership rights in investment entities such as private equity funds, real estate funds, hedge funds, and fund of funds. Through this market, current limited partners are able to transfer future capital commitments to other investors who are better suited to satisfy the obligations.Structured Products
In April 2009, Secondmarket opened the collateralized debt obligations (CDO) and mortgage-backed securities(MBS)Mortgage-backed security
A mortgage-backed security is an asset-backed security that represents a claim on the cash flows from mortgage loans through a process known as securitization.-Securitization:...
markets. The variety of collateral types that can trade over SecondMarket are:
- Residential Mortgage-Backed Securities
- Corporate Mortgage-Backed Securities
- Other Asset Back Securities
- Corporate bonds (these structures are also known as Collateralized Bond Obligations or CBOs)
- Banks loans (the structures are also known as Collateralized Loan Obligations or CLOs)
- Credit derivatives
- Other CDOs (these structures are also known as CDO-squared)
- Other specialized debt types
Whole Loans
Launched in April 2009, SecondMarket's whole loans marketLoan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
facilitates transactions in a wide variety of residential, commercial and specialty loan types. SecondMarket transacts in both performing and non-performing individual loans as well as entire loan portfolios. SecondMarket facilitates trading in a wide variety of loan types including:
- Residential mortgages
- Commercial loans
- Construction loans
- Consumer loans
- Industrial Loans
- Loan Portfolios
Private Company Stock Market
SecondMarket's market for stock in private companiesPrivately held company
A privately held company or close corporation is a business company owned either by non-governmental organizations or by a relatively small number of shareholders or company members which does not offer or trade its company stock to the general public on the stock market exchanges, but rather the...
opened in April 2009 and facilitates transactions in both debt and equity securities in a wide variety of dynamic, high growth private companies. Through SecondMarket, private companies can opt-in to an organized, controlled private liquid environment that offers early investors and employee shareholders exit opportunity prior to an IPO or M&A event. Numerous high profile companies have traded over SecondMarket including Facebook, Tesla, Zynga and Twitter.
Government IOUs
SecondMarket’s government warrant market facilitates transactions in registered warrants (IOUs) issued by state governments. When the state of California issued warrants to its creditors in mid-2009, SecondMarket opened up a market place to facilitate the trading of government IOUs.FirstMark Capital
SecondMarket closed a series A round from FirstMark Capital (previously named Pequot Ventures) in late 2007. Pequot was the $2 billion venture arm of hedge fund Pequot Capital ManagementPequot Capital Management
Pequot Capital Management was a multi-billion dollar hedge fund sponsor founded in 1998 by Arthur J. Samberg that was forcibly terminated by order of the Securities and Exchange Commission in 2010. The firm's investment funds invested in a range of markets through a variety of strategies...
, but in March 2008, it was spun off as a separate business and renamed. Over the past dozen years, the venture firm has opened seven funds, and it currently has $1 billion in actively managed and unallocated capital. The fund focuses on emerging media and advertising, data and analytics and infrastructure startups.
SVB Financial Group
SecondMarket's acquisition of InsideVenture led SVB to become an investor in SecondMarket in October 2009. SVB Financial Group provides financial services to emerging, growth and established technology companies in the life science, venture capital/private equity, and premium wine markets.New Enterprise Association
SecondMarket's acquisition of InsideVenture also led NEA to become an investor in SecondMarket in October 2009. New Enterprise Associates (NEA) is a venture capital firm specializing in investments in venture growth equity at all points of developments, with a 60 percent focus on seed and start-up stage companies.Horizons Ventures
SecondMarket secured a series B round from Horizons, the investment arm of Li Ka-shing, in January 2010.Competitors
- Campbell LutyensCampbell LutyensCampbell Lutyens is an independent private equity advisory firm exclusively focused on primary fundraising and secondary transactions in the private equity and infrastructure markets...
- Cogent PartnersCogent PartnersCogent Partners is a boutique, private equity-focused investment bank and advisory firm and was one of the first advisory firms dedicated to transactions in the private equity secondary market . The firm, which was founded in 2002, provides an array of sell-side advisory services such as secondary...
- GS TRuE
- GATE Technologies
- NASDAQ Portal Alliance
- NYPPEX
- Probitas PartnersProbitas PartnersProbitas Partners is a global investment bank focused on raising capital as a placement agent for private equity fund sponsors as well as providing portfolio management and liquidity solutions, through the private equity secondary market, for investors in private equity. The firm operates through...
- SharesPost.com
- TriagoTriagoTriago is a leading global placement agent, specializing in raising capital for private equity investment firms from a range of institutional investors...
- Zealous ATS
Key Board Members/Advisors
- Barry E. Silbert is the Founder and CEO
- Bill Seidman was a Senior Advisor to SecondMarket from 2008 until his death on May 13, 2009.
- Larry D. Lenihan, Jr. is the Founder, CEO, and Managing Director of FirstMark CapitalFirstmark CapitalFirstMark Capital is a private equity firm focusing on venture capital transactions in the United States. With approximately $2 billion of capital under management, FirstMark invests in technology companies early in a company’s lifecycle, frequently as the first institutional investor.Among the...
. - John McKenna
- Charles Almond
- Sir Ka-shing Li
Further reading
- SecondMarket Providing A Platform For Frozen CDOs. Business Insider, September 3, 2009
- Wall Street Betrayal Seen in $4.8 Billion Company Debt Losses. Bloomberg, August 28, 2009.
- Auction-Rate Yard Sale. The Wall Street Journal, August 22, 2009.
- Restless Workers in Silicon Valley Seek Ways to Cash In Early. The Wall Street Journal, August 21, 2009.
- No IPO? Seek an Exit on SecondMarket. MarketWatch, July 30, 2009.
- Websites give buyers chance to invest in a company before IPO. USAToday, July 21, 2009.
- Investing in Startups. Business Week, July 16, 2009.
- California IOUs set for trade. Financial Times, July 15, 2009.
- Investors eye IOUs. San Francisco Chronicle, July 7, 2009.
- Waiting for IPO: SecondMarket in the meantime. The Deal, June 30, 2009.
- Market for illiquid assets. CNNMoney, May 5, 2009.
- How Can Twitter And Facebook Employees Cash Out Now; SecondMarket Offers New Marketplace. The Washington Post, April 23, 2009.
- With Private Trades, Venture Capital Seeks a New Way Out. The New York Times, April 23, 2009.
- SecondMarket Launches Private Company Marketplace. Reuters, April 23, 2009.
- Trading the untradable pays off. Fortune, April 14, 2009.
- SecondMarket Launches QMS Practice. DowJones, February 25, 2009.
- PE fund sales get their own market. Reuters, February 24, 2009.
- Madoff investors may be able to trade their claims. Reuters, February 24, 2009.
- After Reversal of Fortunes, City Takes a New Look at Wall Street. New York Times, February 22, 2009.
- Out of the Rubble, a New Market. Institutional Investor, February 13, 2009.
- SecondMarket Enters New Territory. Financial Times, December 11, 2008.
- Seidman Returns to Toxic Asset Business. IDD Magazine, December 15, 2008.
- Illiquid securities to get new market. Pensions & Investments, November 24, 2008.
- Bankruptcy bucks. Denver Business Journal, June 13, 2008.
- Holders of Auction-Rate Debt Have Choices, but Few Solutions. The Wall Street Journal, June 12, 2008.
- New exchange offers trading of bankruptcy claims. Reuters, June 9, 2008.
- Auction-Rate Securities: Out of Luck. BusinessWeek, May 27, 2008.
- Secondary bids value auction debt 5-25 pct below par. Reuters, April 2, 2008.
- Electronic trade to start for auction-rate market. Reuters, February 25, 2008.
- Pequot Takes Minority Stake in Restricted Stock Partners. alarm:clock, September 19. 2007.
- Restricted Stock Finds its Market. Investment Dealers' Digest, January 1, 2007.
- Seeking Unlimited Success From Providing a Market for Restricted Stock . The Wall Street Journal, September 28, 2005.