Nasdaq's EVP launches a new 'Portal'
An interview with John Jacobs, 48, Executive Vice President, Nasdaq.
(Fortune Magazine) -- As the creator of the Nasdaq 100 exchange-traded fund, John Jacobs already has one smash hit under his belt. Since debuting in 1999, the shares, known as the QQQs, have become the most widely traded security in the world.
For his next trick he will be bringing private-equity and debt markets to the people (okay, institutional investors) with Portal, a new trading platform Nasdaq hopes to launch this summer. If the SEC gives Portal the thumbs-up, it will be the first electronic marketplace for buying and selling private securities known as 144A's.
Named for the SEC rule that governs the private sales of securities to institutions, this little-known market has seen heightened interest lately. Goldman Sachs is developing a private market of its own and has already landed a plum listing in Oaktree Capital Management. Jacobs, a 24-year Nasdaq veteran, recently spoke to Fortune senior writer Jon Birger about Portal and his plans to make this venue more user-friendly.
Why has the 144A market become so popular lately?
Many companies are saying the cost of going public far exceeds the benefits. The amount of capital raised last year through the 144A market - $162 billion - was bigger than all the IPOs and secondary offerings on Nasdaq, the NYSE and Amex put together.
You think Portal will be revolutionary. Why?
Put yourself in the shoes of the institutional buyer. Say I'm an underwriter and I sell you a 144A offering. A year later you want to sell it. Your only recourse is to call me, the underwriter, and ask me to find someone to buy it from you. But that market is dark and fragmented. Well, what if I were to put that in a Web-based system instead, whereby all qualified investors could look at it? There will be more transparency and more liquidity - and better pricing.
Individual investors can't invest in 144A securities. But will Portal open a back door, creating a niche market for new mutual funds and ETFs that can own 144A securities?
I think you'll see some funds specialize in this, though they'd need to have $100 million to participate. I think we'll have some ETFs as well. Portal will also have a market-cap-weighted index, and fund families could easily propose to the SEC that they want to have an ETF based on the Portal index.
What's stopping someone else from building its own 144A marketplace, as Goldman Sachs is doing?
There are no barriers to entry. But while Goldman Sachs may create a proprietary system, no other firm will participate in it. Merrill Lynch (Charts, Fortune 500) isn't going to send its customers to Goldman Sachs (Charts, Fortune 500), just as Goldman Sachs won't send its customers to Merrill Lynch. In equities we're the neutral platform; the same thing will be true with Portal. I expect the competition to come from another exchange.
From the June 11, 2007 issue