SecondMarket is planning to hire additional professionals to build up its structured finance business, specifically in MBS and CDOs. Gugliada said that the company is looking for professionals to lead both groups, seasoned secondary traders or sales people for both markets, as well as junior level staff for both sectors. This is aside from the research or clearing employees the firm is looking for to support these businesses. “We are looking to initially hire anywhere from three to six people,” Gugliada said.

The firm is gearing up to launch its MBS and CDO businesses in the first quarter, although Gugliada does not expect real activity to happen until midyear. The firm already has a number of CDOs available for sale.

CMBS and whole loans are next in line. “When corporations go under, the CMBS gets in trouble as these firms are vacating their office space,” Gugliada said. “It’s not about saving homeowners and their mortgages anymore, but it is how the economy is going to do as a whole and we are in unprecedented territory here.”

Innovation and Data

 SecondMarket not only provides a free marketplace for securitization players to bid and sell on illiquid collateral, the firm also offers information that promotes transparency through its “ecosystem,” a platform where participants who are looking for information on these securities could go to for analysis and market research. “Some players just provide research, data and analytics and that’s something we are aggregating in this system, which anyone could access for free,” Smith said. “We’re saying come to all those with any knowledge and analytics, and we’ll provide you a platform where you could display the information. This is where the buyers and sellers come in because the ecosystem could give them the transparency and the brainpower that they need to get transactions done or buy what they want to.”

Gugliada added that the company also has a market data and research group that provides analytics to those who are interested. For instance, the firm has partnered with ABSNet to feed research and data into analytical models.

Aside from promoting market transparency, SecondMarket has pushed for innovation through the invention of the ManhattanAuction.

“That what’s needed when you have everything seized up, you need to start doing things differently, more of the same is not going to work,” Smith said. “One of the biggest hurdles to liquidity is attracting bidders, and that’s what the ManhattanAuction is designed to do.”

In this new auction format, sellers carve out a portion of the sale proceeds, which get paid out to the bidders at the end of the auction. The seller chooses how much of its proceeds it wants to allocate to bidders as well as the number of bidders to whom the proceeds go.

“Essentially you’re incenting buyers to do the legwork,” Smith said. “There’s a decent amount of work to be done to determine the value of these securities, so this auction is specifically geared toward helping incentivize buyers to bid on illiquid assets and enable price discovery on what are otherwise very difficult assets to value.”

A Trading Alternative

Gugliada said that what’s different about SecondMarket’s platform is that it offers an alternative to the traditional way of doing trades, which are usually made over the phone and by privately matching up buyers and sellers. Although the firm also conducts private auctions where only selected parties are allowed to bid, the unique alternative that SecondMarket offers to sellers is the public auction in which everybody can see what bids are being put in for what paper. Although specific names are not disclosed, the prices are.

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