The following commentary concerns an article published by the New York Times on Monday entitled, "Stock Trading in Private Companies Draws Scrutiny". At the heart of the issue, accredited investors and investment firms are given ease of entry into owning shares of private, but perhaps soon to be public, companies such as Facebook, Twitter and other leading social-media outfits. The author, Peter Lattman, writes:
The buyers in these so-called secondary trading markets are mostly wealthy speculators looking to snag a piece of the next Apple, Microsoft or Google before the rest of the investing public can.
One might argue that venture capitalists who initially fund tech start-ups should have the advantage of owning and trading shares of privately-held companies due to the inherent risk of their investments in the first place. However, increasing private-share transaction volume suggests that while the list of inclusive investors is growing, it may be at the expense of those left out in the dark. Public markets eliminate barriers to entry in that just about anyone with cash can open an investment account and trade at their discretion. Over the last decade a wave of discount online brokerages have taken down a barrier that once stood in the way of small retail investors: high broker commissions. Similarly, trading on secondary markets imposes a barrier, inviting only the elite and wealthy to profit from ownership of shares demanded but unavailable to the public. It's almost beginning to sound like supply lies at the hands of a few, who together, control the market for shares of a particular firm.
The implications of this emerging trend remain vague. It's difficult to tell where to draw the line to ensure 'fairness', for lack of a better word. But certainly, there is always the hope that with the S.E.C. looking into the matter the interests of society, as a whole, will be accounted for.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.