Can't Anyone Stage an IPO?
May 25, 2012
Maybe all the high-frequency trading that now dominates electronic exchanges wears out national market system servers as the week draws to a close.
On March 23 (a Friday), it was BATS Global Markets that couldn't get its shares launched on its own listing market because of a self-inflicted, freak "software bug."
On April 19 (a Thursday), it was Splunk's IPO that got disrupted because a volatility halt interrupted trading on the Nasdaq Stock Market from 11:20 a.m. to 11:25 a.m.
On May 18 (a Friday), all eyes were on Nasdaq, again, because of the most-anticipated IPO of the year, if not the last decade: Facebook. Nasdaq had wooed the listing away from its archrival in listings, the New York Stock Exchange. Among the signs of the blandishments: Facebook CEO Mark Zuckerberg got to ring the opening bell from Menlo Park, Calif., and not at the Nasdaq Market Site in Times Square.
Nasdaq had made a point of having its members and interested trading parties test its IPO Cross system, using a fake symbol. The tests took place a week in advance, at the start of the week and the afternoon before the launch.
And the shares failed to open on time. Instead of 11:00 a.m., the first trading took place at 11:30 a.m. and by noon Nasdaq said it was investigating a trade messaging problem. Execution orders were not getting delivered from the IPO Cross.
That took another two hours to resolve. And, when "back to normal,'' Nasdaq delivered the orders and got what looks like an unintended consequence: A record amount of trading in a single stock in a single second. A total of 12,285 trades, by Nanex.net count, at shortly after 1:50 p.m. Enough to technically crowd out trading in a range of other stocks.
This clearly is not how the launch of a big name stock should be carried out. Or any stock, for that matter.
Too many investors have lost confidence in the markets, because the best financiers in the world almost brought capital markets crashing down in the past three years. And they got another reminder of that this month, courtesy J.P. Morgan Chase. What if investors begin to lose confidence in the technology and the technologists as well?