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A new private stock market created by NASDAQ for mega-rich investors may be considered one of most significant developments on Wall Street in decades, but it’s not such a great idea, according to Vanderbilt international trade and investment expert Chris Brummer.
Companies involved in the Portal Market will be private and not have to make their financial statements public or submit to federal regulation, such as the Sarbanes-Oxley corporate accountability law.
“From a business perspective, I am a bit skeptical as to whether this market takes off, at least in the short term, with the problems affecting both the sub-prime market and, more importantly, private equity,” said Brummer. “This is because most of the securities that would be traded on the exchange are not stocks, but high yield junk bonds tied to private equity deals. Also, less formal information will be available on investments, creating ‘dark pools of liquidity’ that could lead to fraud or poor investment decisions.”
How will this impact the average investor?
“That’s the $152 billion question,” said Brummer. “The fact is that normal retail investors aren’t really allowed or permitted on these very special markets. However, the fact is that many of us invest in mutual funds and retirement accounts that do invest in theses markets. So we indirectly can face a good deal of risk. ”
Is this a good idea? Brummer says it’s a good experiment.
“I think at least, in the short run, it’s a good experimental idea to see whether or not you can increase the degree of transparency for these risky securities so that investors can have a better feeling of the value of these securities. I do think though that the SEC and Congress should begin to contemplate how to better protect investors who are caught indirectly in these markets.”
Vanderbilt University assistant professor of law Chris Brummer is an expert on international trade and investment and regulation of international securities. He can also talk about the laws and issues surrounding Sarbanes-Oxley.
Vanderbilt University assistant professor of law Chris Brummer is an expert on international trade and investment and regulation of international securities. He can also talk about the laws and issues surrounding Sarbanes-Oxley.
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