## How to make $50 million trading Facebook shares

** Update**:

*Everything I had here originally is wrong! SecondMarket has just updated its infographic, changing “average transaction size” to “average amount sold”. It seems that the average seller sold to 4.9 buyers, which means that the average transaction size was not 454,565 shares, as SecondMarket originally said, but rather 93,186 shares. And so most of the SecondMarket numbers here need to be divided by 4.9. Here goes:*

SecondMarket has published a glossy 8-page horizontal-scrolling infographic, all about the history of Facebook on its platform; they also sent me an accompanying spreadsheet, with the data in slightly more tractable form. We now know that there were 689 transactions in all, at an average transaction size of ~~454,565~~ 93,186 shares — which means that since April 2008, SecondMarket has traded a total of ~~313,195,285~~ 64,205,154 shares of Facebook, adjusted for splits.

Those shares weren’t always worth as much as they are today. But if we make a few assumptions, we can start getting a first-order approximation for the amount of money that SecondMarket has made off Facebook over the past few years. ~~And it turns out to be significantly larger than the amount of money Facebook is paying its banks to go public.~~

We know how many transactions there were in each quarter from the second quarter of 2008 onwards, and we also know what the share price was in each month that Facebook shares traded. (In April 2009, it was as low as $1.11 per share.) If we assume that the average transaction size has been roughly constant in number-of-shares terms, and take the average of the three months in each quarter as the average price paid in that quarter, then the total volume of Facebook shares traded on SecondMarket comes to ~~$8.5~~ $1.75 billion.

SecondMarket is cagey about how much it charges in commission on Facebook trades, but in general for secondary-market operations it charges between 3% and 5% of the total transaction amount. Let’s be conservative and say that for Facebook, SecondMarket charged 3%. Then it seems SecondMarket’s total commission on Facebook trades, from April 2008 to date, will have come to roughly 3% of ~~$8.5~~ $1.75 billion, or somewhere on the order of ~~$250~~ $50 million.

~~That helps to put the $200 million valuation for SecondMarket into perspective: there’s a decent chance that SecondMarket is actually worth less than its total income from Facebook trading alone.~~

And it also puts into perspective the $177 million being shared between JP Morgan, Morgan Stanley, Goldman Sachs, and a smattering of other banks — they’re being paid 1.1% of the money that Facebook is raising today. This is the difference between public, transparent markets and private, over-the-counter markets: the latter are *much* more lucrative for brokers than the former are. Which is why investment banks don’t want derivatives moved to exchanges. And why SecondMarket is moving desperately into weird asset classes like wine, to make up for the fact that it’s not going to be trading Facebook shares any more.