Whether private exchanges like GS TrUE are good for investors, issuers and U.S. capital markets, however, is a matter subject to debate. While one can question the fairness of Oaktree making its shares available only to institutions and investors who can afford to be in private equity and hedge funds, while leaving out retail investors, I would argue that the issue of fairness is a red herring. Oaktree shaped an offering to be sold exclusively to accredited investors. Private deals targeting this same client base are floated every day. The rules exist and the market opportunity was there.

The emergence of alternate private exchanges, much like the rise of "dark pools" such as Liquidnet, is a function of market opportunity. GS TrUE is an outgrowth of the accredited investor rules, Sarbanes-Oxley, institutional investors’ abundance of cash and a scarcity of new blue-chip supply. Clearly, Oaktree benefited by avoiding SEC oversight and public disclosures by issuing on GS TrUE, but the company played within the accredited investor rules and in no way pushed the boundaries as they exist. It simply took advantage of its track record, reputation and investor demand to float shares at an attractive valuation without providing more information than was required. This is smart and opportunistic corporate governance, nothing more.

The harder question is what impact this will have on U.S. capital markets in general. The success of private exchanges allows a pool of the most desirable public IPO candidates to opt out of the public markets. Not every company can succeed in the private market. A viable company is one with a strong track record and seasoned managers who can clearly demonstrate leadership abilities and favorable growth potential to investors performing due diligence.

If Congress and the SEC want to see a robust public market, they have some work to do.

Oaktree, for example, has a 12-year history as a blue-chip institutional asset manager, a product set squarely in the growing alternative asset management space and a team of senior managers who are respected veterans from Trust Company of the West. An emerging company, or a firm with a product subject to consumer whims or government regulation, would hold less obvious appeal to investors in lightly regulated private placements, as it would be difficult to forecast earnings and assess risk without the data available for publicly traded companies.

This does not mean every blue-chip IPO candidate will choose a private exchange. Some will want a broader shareholder base than the limit of 500 on the private exchanges; others may feel that, because of their consumer appeal, they could command a premium valuation in the public markets. In the case of Oaktree, the company did not have to become listed anywhere, but the GS TrUE structure gave it the best of both worlds: the liquidity it desired and the high-quality product investors wanted. In the absence of material changes to Sarbanes-Oxley and the rules by which public companies disclose their activities, private exchanges facilitate issuance by blue-chip companies that might not happen otherwise. This is good for the financial system, issuers and investors because it facilitates capital formation and liquidity.

But if Congress and the SEC want to see a robust, inclusive public market that is attractive to all issuers, they have some work to do. Disclosure requirements need to be clarified and simplified. The costs of compliance, particularly for small- and medium-size firms, have to come down. While confidence in a firm’s financial statements and disclosures is absolutely critical, the burden of compliance shouldn’t impede the ability to deliver goods and services and to create value for customers, employees and shareholders. Until this happens, private exchanges will continue to play an important role in the capital formation process.

Art by Matt Mahurin.

Roger Ehrenberg is president and chief operating officer of Monitor110, a New York–based financial intelligence firm, and author of the business blog Information Arbitrage.