Given the buy-side's interest in finding liquidity under the radar, here's a new twist on 'dark pools..'

On Friday the Wall Street Journal reported that Goldman Sachs is creating its own private system to trade the stocks of companies that want to avoid the glare of U.S. regulation. The new system —GS TRuE— short for Goldman Sachs Tradable Unregistered Equity, made its debut last week with the sale of a 15 percent stake in Oaktree Capital Management LLC, an alternative asset manager.

Robert Greifeld, CEO of the Nasdaq Stock Market, speaking at the SIFMA Market Structure Conference last month, said the electronic stock exchange had filed for regulatory approval to enter the private placement 144a marketplace, with a system called Portal. There are over $4 trillion of 144 securities, noted Greifeld, who said that companies raised more capital there than on NYSE and Nasdaq combined. The private placement market would be available to qualified institutional dealers or QIDS. "If you are an issuer, you are not subject to SOX or GAAP," Greifeld noted, citing the criticisms about the U.S. market that have deterred foreign companies from issuing.

At a time when many companies are tapping the private equity markets to raise capital or restructure their operations (think Chrysler), it's not surprising that two of Wall Street's major players are establishing trading platforms for unregistered securities to grow their new issue volumes. Is this a new type of dark pool looming on the horizon?

But if companies are going into the private placement market, they could be subject to less disclosure, the WSJ points out. So is this a good thing for mutual funds and pension funds that are investing on behalf of retirement plans?

On the other hand, private equity deals are removing major companies from the public securities markets, (i.e. last week Alltel, the nation's largest cell phone provider by geographic region agreed to go private in a $27.5 billion buyout with TPG, formerly Texas Pacific Group and GS Capital, a unit of Goldman Sachs Group Inc.) And since pension funds are seeking higher returns in private equity and hedge funds, institutional demand for this type of paper could rise.

I'll be covering this topic for the August issue of Advanced Trading, delving into what these new private equity platforms mean for the capital markets and institutional trading, so I welcome your feedback and suggestions.

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