When the asset-backed - and especially the mortgage-backed - securities markets came screeching to a halt over the summer, market participants were afraid to post bids and offers on the often highly illiquid securities because no one knew their values and there was no forum for adequate price discovery.
New York-based UnifiedMarket Worldwide aims to provide that forum. Following initiatives earlier this year by several major Wall Street firms to offer venues to trade unregistered securities, the closely held independent firm financed by high-net-worth individuals plans to launch by year-end an online forum to exchange indications of interest (IOI) for illiquid securities and other assets. It will also provide the ability to negotiate terms anonymously and in detail, allowing for more substantial price discovery when the assets are highly illiquid or market interruptions occur.
UnifiedMarket sent a report last week to its investors alerting them about its plans to launch by the end of October its UnifiedMarket portal to a limited group by "invitation only." It plans to roll out the service to all market participants by year-end.
UnifiedMarket will not provide regulated services, and transactions are prohibited by member rules, so the information portal will not be required to register in any legal jurisdiction as a regulated financial services provider. Consequently, members will be able to post IOI for a wide range of assets, ranging from private placements of unregistered securities and secondary transactions for unregistered and registered securities, derivative products such as credit-default swaps, as well as businesses and business assets.
In addition, UnifiedMarket services will extend cross-border, permitting a worldwide membership to post IOI and negotiate terms.
"UnifiedMarket offers a financial information exchange network that facilitates postings of IOI to buy and sell financial assets and business assets, with no regulated brokerage, trading or advisory services. This will be the first time ever for establishing a truly global marketplace for virtually all assets," said William M. Owens, CEO and chairman of UnifiedMarket Worldwide.
Goldman Sachs Tradable Unregistered Equity and the Open Platform for Unregistered Securities, an effort by seven major brokerages, were launched earlier this year to trade unregistered equity securities.
Those systems, however, tend to be limited to the largest investors-to use Goldman's service, for example, investors must have assets of at least $100 million and a relationship with the investment bank. However, they benefit from the order flow the brokerages inherently bring to the table.
Larry Tabb, founder of Tabb Group, a Westborough, Mass.-headquartered consultancy that has tracked the emergence of new matching engines, said the biggest challenge to such an initiative is finding parties to "put up the bids and offers and then stand behind them." He said that brokerages have a vested interest in limiting the distribution of such information because market transparency tends to narrow spreads, and "they are the most likely people to put up a bid or offer."
Owens and Bill Rivoire, president of UnifiedMarket Worldwide, said that regional brokerages, along with a range of institutional investors including hedge funds, have expressed strong interest in the UnifiedMarket as a place to exchange information about assets for which today there is limited transparency and distribution potential. Rivoire, who since 1970 has held leadership posts at numerous brokerages including Weeden & Co., Sutro & Co. and Gruntal & Co., said he anticipates that the portal will be especially useful to brokerages below the bulge bracket as well as midsize and smaller institutional investors, accredited investors and family offices. "They've told us, We never get calls from Goldman or Merrill and we're always third on the totem pole, so the paper we see is something nobody else wants'," Rivoire said.
Rivoire added that access to UnifiedMarket will provide the broker-dealer community with inventory from which they can create new businesses that didn't exist before. "They're the ones we've targeted, and we've gotten a very positive response."
The two executives declined to name potential participants before the website is launched, although Rivoire said the firm has received more than 100 written confirmations of interest for membership.
UnifiedMarket Worldwide, formed in 2004, has not sought investment through broker-dealers or venture capitalists and instead has been financed by high-net-worth individuals, to avoid perceived operational conflicts of interest.
The service, as an information exchange hub that charges subscription fees rather than commissions, will be offered for free over the first month or two, said Owens, formerly chairman and CEO of SGI International, when it was a publicly-held energy technology company. After that, membership fees are currently slated to start at $10,000 annually for full access to the site, including unregistered securities postings, and the ability to post unlimited IOI, and fees will tier down to $1,000 for more limited services.
Members logging onto the site will first arrive at an activity page where they will see a summary of their activities, including recent postings, related messages, and listed inquiries from other members. From there, members can search IOI for specific types of assets posted by other members, or they can post IOI and respond to inquiries, setting up encrypted chat rooms for price discovery and negotiations. A posting member responding to multiple inquires can carry on several simultaneous discussions, each one color-coded differently; the inquiring party, however, is privy only to his or her dialogue with the IOI-posting Member.
When discussion room negotiations are concluded, if the counterparties wish to proceed to an agreement, they will leave the UnifiedMarket to complete the transaction, either through the participants' brokers or attorneys or directly with licensed clearing and settlement agents, such as trust companies, banks and escrow companies.
Similar to the dark book matching engines that have emerged in the registered equities world, UnifiedMarket gives a member control over the types of users it wants to interact with. So it can send IOIs out to a broad category of users, such as broker-dealers or qualified institutional investors, it can further refine those lists to send out or receive IOIs from very specific "affinity groups" comprising other members.
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