Silicon Valley darlings like Facebook, Twitter, and LinkedIn have weathered periodic waves of speculation about whether they were poised to go public, but the rumors never bore fruit. None of the social networking sites are traded on a stock exchange.

That hasn't prevented traders from buying and selling shares in these and other privately held companies. Now the "secondary trading markets" that have sprouted up over the last year have attracted the scrutiny of the Securities and Exchange Commission, according to The New York Times. These private marketplaces, the Times reports, match former employees or venture capital investors looking to sell their corporate stock with "wealthy speculators looking to snag a piece of the next Apple, Microsoft or Google before the rest of the investing public can." As the number of transactions in these exchanges grows, so too does the worth of the private companies.

The Times notes that the investment pools Wall Street firms are establishing to purchase Facebook stock may drive the number of Facebook shareholders to 500 or more, the threshold at which SEC rules require companies to report financial information like a publicly traded company.

Why have these private exchanges emerged, and what should we make of the SEC's inquiry?

• IPO Landscape Has Shifted, note Pui-Wing Tam and Geoffrey A. Fowler at The Wall Street Journal: "The lackluster IPO market, along with the hassles of being a public company, have meant that some start-ups are staying private longer, creating a backlog of potential sellers. This, in turn, has lured institutional investors hoping to acquire chunks of promising start-ups."
  

• Facebook May Be Forced to Go Public, states Nicholas Carlson at Business Insider. Noting that the SEC's 500 shareholder rule compelled Google to go public in 2004, Carlson argues,

The 500 shareholder limit [is] just about the only way we'll see a Facebook IPO in 2011. The company has been taking steps to prevent crossing that limit. It stopped giving employees actual stock some time ago ...

Facebook really does not want to IPO. In fact, if the company turns profitable soon enough, there's a chance that the company could buy out investors and never go public.

• This Is A Case Study for Financial Regulation, says Matthew Yglesias at Think Progress, in reference to the loopholes private company are currently exploiting in the SEC's shareholder-count regulations:
  

Neither the SEC nor the financial press is really in the dark about what’s happening here and there may be a crackdown. This is ... one of the reasons that regulatory discretion, much bemoaned during the Dodd-Frank [financial reform] debate, is sometimes a very good thing ... Only an agency with some discretion at its disposal will be able to enforce the spirit of the 500 shareholder rule.

• It's All About Disclosure, says Erik Schonfeld at TechCrunch: "Nobody can really know what these companies are worth without knowing their true profits, losses, revenue growth, and other financial metrics. If it looks like a public company and trades like a public company then the SEC might just end up regulating it like a public company."
  

• SEC May Enact Stricter Disclosure Regulations, asserts Jackie Cohen at All Facebook. The regulatory agency might require companies on private exchanges to disclose more information about their earnings, she suggests: "That would blur the boundary between public and private markets, but that blurring has already begun with the ability [to] trade nonpublic shares more readily."
  

Want to add to this story? Let us know in comments or send an email to the author at ufriedman at theatlantic dot com. You can share ideas for stories on the Open Wire.
Uri Friedman