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Bombay Stock Exchange (BSE), National Stock Exchange (NSE), New York Stock Exchange (NYSE), NASDAQ - we all must have heard these names, but PORTAL, Goldman Sachs Tradable Unregistered Equity OTC Market (GS TruE) - probably majority of us might not have heard these names because these are exchanges which are out of bounds for retail investors,
i.e., they are private exchanges.

Traditionally, whenever companies are in need of funds, they hit the public markets and get listed on public exchanges. But recently, there has been a trend of private exchanges being set-up by big investment banks and other public exchanges as well. Goldman Sachs started its private trading platform in May this year and was followed by NASDAQ, which launched its own version, PORTAL. Many other big investment banks like Citigroup Inc., Lehman Brohers and Merrill Lynch have also established their own private exchanges.

In recent times, one of the big names in financial markets which decided to float on private exchange rather than on a public exchange is the alternative asset management firm Oaktree Capital Management LLC, which raised $ 800 million by selling a 15% stake through GS TRuE. Furthermore, Apollo Management, a private equity firm, has expressed its desire to sell its shares on Goldman Sachs' private exchange. American companies raised $ 221 billion last year by listing on private exchanges, which for the first time exceeded the amount raised through traditional exchanges. Globally, this segment of securities market has touched $ 1 trillion.

Individual or retail investors are not qualified to trade on these exchanges, and are open only to large institutional investors. For example, Goldman Sachs' exchange is open only to institutional investors with assets of more than $ 100 million. Similarly, NASDAQ's portal is open to banks and insurance companies with at least $ 100 million in assets and brokers with at least $ 10 million in assets.

It's easy to understand why there is a rush towards private exchanges. Stocks of companies that trade in public exchanges need to be registered with Securities and Exchange Commission (SEC) and so are subjected to SEC regulations designed to protect individual investors. Additionally, such companies are open to a lot of scrutiny from regulators along with strict compliance with laws like Sarbanes-Oaxley Act (SOX), which requires numerous disclosures and adherence to other such regulations.

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* Contributed by: -
Vijay Singh Poonia,
PGDM 2007-09,
IIM Calcutta,
Has work experience of 3 years with Indian Oil Corp Ltd.