“An illiquid asset is an asset which is not readily saleable due to uncertainty about its value, or lacking a market in which it is regularly traded. The mortgage related assets that resulted in the sub-prime mortgage crisis are examples of illiquid assets as their value is not readily determinable despite being secured by real property. Another example is an asset such as large block of stock, the sale of which affects the market value.”

The latter case of illiquid assets has come to the forefront of market commentary as “uncertainty” (the keyword in the definition) has turned many massively liquid markets suddenly the other way (including inter-bank lending, commercial paper, and more). In many cases, the assets considered are still investment-grade, and present opportunities for buyer and seller, but the problems caused by heuristics, framing and inefficiencies in these less liquid markets, prevent the structured trading necessary to create efficient operations.

 

 

 

 

SecondMarket is an independent marketplace for illiquid assets including, but not limited to, auction rate securities to CDO’s, mortgage backed securities and private company stocks. The key word is “independent”, SecondMarket is not owned by major buyers or sellers of any of the assets they market, nor do they take principal positions to buy or sell assets. They simply provide a market for them to meet. 

One of the biggest problems in the ‘toxic-asset’ market is that the market-makers and the marketplace act as the same entity.  The banks that connected you with the buyer would buy the asset from you at a discount and sell to the other party. This provides near instant liquidity, but the problem is for the seller who gets an artificially lowered price. The second problem is more systemic. What happens when the market-makers who are the marketplace go out of business or pull back on their balance sheets? When that happens, the marketplace disappears too. This is a structural flaw where the market-makers and marketplace are the same. 

 

 

>Learn more about SecondMarket at their website