Trading the untradable pays off

An online platform hopes to profit from the bank relief plan.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Telis Demos, writer-reporter

SecondMarket's CEO Barry Silbert

(Fortune Magazine) -- Kevin O'Connor lost his job trading auction-rate securities last June when J.P. Morgan shuttered its desk. Within weeks he'd landed a gig trading those same assets alongside ex-traders of mortgage-backed securities, collateralized debt obligations (CDOs), and other toxic stuff.

His new employer? SecondMarket, a fast-growing online trading platform for illiquid assets. Since 2004 the company has been trading everything from bankruptcy claims to restricted stock to shares of Facebook. By creating an exchange for these typically opaque, hard-to-value assets, SecondMarket lets the trading determine their price.

Of course, no assets these days are as opaque and hard to value as the toxic assets clogging up banks' balance sheets. Now SecondMarket's 32-year-old CEO, Barry Silbert, has an ambitious new plan to create a transparent trading platform for the banks' junk.

Earlier this month SecondMarket began listing CDOs, unsecuritized loans, and nonagency mortgage-backed securities - the very assets the government is trying to coax investors into buying. On SecondMarket's platform, those assets are exposed to clear daylight: All the pieces of a CDO, for instance, are spelled out on a single web page, with default rates published alongside each tranche.

Silbert, a former adviser to distressed companies for investment bank Houlihan Lokey, started SecondMarket in 2004. In 2007, FirstMark Capital, the spun-off venture arm of Pequot Capital, bought a 25% stake for $3.8 million. Last year's revenues were $20 million, the company says.

So far, the toxic-trading markets are in their infancy; the bulk of SecondMarket's business is still trading the more benign assets like restricted stock. Its total inventory is tiny, just over $2 billion in securities out of a universe of $52 trillion of illiquid assets. And Silbert is competing with the prime brokerages of the major banks, which can trade those same assets for their big customers.

But Silbert thinks in the current climate customers will flock to the transparent model SecondMarket offers - and may see value in avoiding the banks that created the mess in the first place. "It takes a crisis to snap things into focus," he says.  To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.