The New York Stock Exchange on Saturday did a test run of Twitter’s highly anticipated market debut, as it seeks to avoid the types of problems that plagued Facebook’s initial public offering on rival NASDAQ.
The Big Board, run by NYSE Euronext, regularly does systems testing on the weekends, but this was the first time it had run a simulated IPO, and it did so at the request of its member firms — many of whom took part in Facebook’s IPO last year on NASDAQ OMX Group’s main exchange.
The NYSE was testing mainly for two things: To see if its systems could handle the amount of message traffic that might be generated by the IPO; and to make sure that once the IPO took place any firms that placed orders would promptly receive the reports telling them that their orders had been executed.
It can also be seen as part of NYSE’s struggle with NASDAQ for supremacy in technology listings. Both exchanges vied to be home to Twitter’s stock, and many analysts said the trading disruptions that occurred on Facebook’s NASDAQ debut likely played to NYSE’s favor, as it tries to become the destination of choice for technology listings, something NASDAQ once dominated.
Twitter, which intends to sell 70 million shares at between US$17 and US$20 each, will be holding the biggest Internet IPO since Facebook, which sold a much larger 421 million shares at US$38 each. Twitter is expected to start trading as early as Nov. 7.
In the case of Facebook, the tremendous volume of orders on the first day of trading exposed a glitch in NASDAQ’s system, ultimately preventing timely order confirmations for many traders, leaving them unsure about their exposure for hours, and in some cases for days afterwards. Major market makers estimated they lost collectively up to US$500 million in the IPO.
The absence of NASDAQ CEO Robert Greifeld while the meltdown was occurring magnified the criticism toward the exchange — he had been celebrating the debut at Facebook’s California headquarters before jumping on a plane back to New York.
NASDAQ was fined US$10 million by the US Securities and Exchange Commission — the largest fine ever for an exchange — and said it would voluntarily pay up to US$62 million to compensate firms that had been harmed. On Friday, NASDAQ said US$41.6 million of claims put forward qualified for the compensation plan.
The chaotic debut also contributed to a decline in Facebook’s stock. The stock hit a low of US$17.55 in August, though it has since more than recovered the losses, closing on Friday at US$51.95, well above its IPO price.
While NASDAQ had tested its systems in the lead-up to the IPO, allowing member firms to place dummy orders to a test symbol over a specific period, it limited the total number of orders that could be received in the simulation to 40,000.
On the day of the IPO, more than 496,000 orders were placed before the IPO opened, with about 82 million shares traded. By the end of the day, more than 500 million shares had traded hands, a record for an IPO.
NYSE’s tests on Saturday ran hundreds of thousands of orders, with one single firm placing an order at one point for nearly 81 million shares.
“This morning’s systems test was successful, and we’re grateful to all the firms that chose to participate,” an NYSE spokesman said.