On the morning of October 27, Beijing time, the New York Stock Exchange conducted a mock test for the upcoming Twitter IPO on Saturday. The NYSE aimed to avoid the system failures that plagued its competitor, NASDAQ, during Facebook's IPO last year.
First Mock IPO
The "Big Board," operated by NYSE Euronext, usually conducts system tests over the weekend, but this was the first time the exchange simulated an IPO at the request of its member companies. These investment firms were largely involved in Facebook's IPO on NASDAQ last year.
The NYSE primarily tested two aspects: understanding if the system could handle the massive traffic from the IPO and ensuring that any company placing orders would promptly receive confirmation reports once the IPO began.
Industry insiders believe that the NYSE's actions are also aimed at competing with NASDAQ for opportunities to list tech companies. Both exchanges had previously hoped to attract Twitter for listing. Many analysts think that due to the system failures during Facebook's IPO, Twitter is more likely to choose the NYSE.
Twitter plans to sell 70 million shares at $17 to $20 each in its IPO. This will be the largest tech company IPO since Facebook's. In May last year, Facebook sold 421 million shares at $38 each. Twitter's stock is expected to start trading as early as November 7.
The Chaos of Facebook's IPO
During Facebook's IPO, the huge volume of orders caused NASDAQ's system to fail, resulting in many traders not receiving timely confirmation of whether their trades were successful. For hours or even days, they were completely unclear about the number of Facebook shares they held. Some major market makers estimated losses of up to $500 million from Facebook's IPO.
The departure of NASDAQ CEO Robert Greifeld at the time drew even more criticism. He went to celebrate at Facebook's headquarters in California and returned urgently to New York by plane after the failure occurred.
Due to this trading failure, NASDAQ was fined $10 million by the U.S. Securities and Exchange Commission (SEC). It was the largest fine ever imposed by the SEC on an exchange. Additionally, NASDAQ voluntarily allocated $62 million to compensate affected companies. As of Friday, NASDAQ confirmed $41.6 million under this compensation plan.
The chaos during the IPO also led to a drop in Facebook's stock price. In August last year, it hit a low of $17.55. However, in recent months, Facebook's stock has gradually rebounded, closing at $51.95 on Friday, surpassing its IPO price.
Before Facebook's IPO, NASDAQ also tested its system, asking member companies to place virtual orders within a specific timeframe using a test stock code. However, NASDAQ limited the order volume to 40,000 during the test. After Facebook's stock started trading, NASDAQ received over 496,000 orders involving transactions of 82 million shares. On the first day of Facebook's IPO, the stock turnover exceeded 500 million shares, setting a historical record for IPOs.
Testing Process
During Saturday's test, the NYSE triggered hundreds of thousands of orders, with one company requesting to trade 81 million shares in a single order. An NYSE spokesperson said: "Today's system test was successful, and we're glad all companies chose to participate. We've adopted a method to prepare for Twitter's IPO and worked with the entire industry to ensure a world-class experience for Twitter, retail investors, and all market participants."
On regular trading days, about 700 people dressed in uniforms appear in the NYSE hall, many wearing blue jackets printed with their company names. On Saturday, about 20 people participated in the test, including operators, technical experts, and designated market makers, focusing on controlling the flow of stock trading, completing trades, and ensuring fair and orderly markets.
Similar to an actual IPO, at 7 a.m. local time on Saturday, more than 20 member companies of the NYSE began sending simulated trading instructions for Twitter's IPO. Trading commenced at 9:30 a.m., using Friday's market trading data to simulate a real trading environment. IPO trading instructions continued to arrive, and the NYSE launched a hotline for key member companies to provide real-time updates and answer questions.
Around 10 a.m., the first round of the three-test IPO started, using the stock code "IPOA." A representative from Barclays served as the designated market maker responsible for the stock auction. Orders appeared electronically on screens, and traders in the hall sent trading instructions using handheld computers.
An important difference between the NYSE and NASDAQ systems is that NASDAQ's system is fully electronic, while the NYSE's normal IPO process requires manual intervention by a designated market maker. Once the price is determined based on incoming orders and communication with investment banks and brokers, the designated market maker freezes the orders and presses the "complete" button on their keyboard. Subsequently, prompts appear on the handheld devices of broker personnel, indicating that their orders have been completed.
During the test on Saturday, an NYSE employee wore a Bluetooth headset in the hall to notify all member companies of the start of the auction. Two additional rounds followed, using "IPOB" and "IPOC" as stock codes, with KCG Holdings and Goldman Sachs serving as designated market makers respectively.
Both the NYSE and NASDAQ stated that 2013 was the best year for IPOs in over five years. (Qiu Yue)