It has been a dicey few years for initial public offerings (IPOs) in the US cash equities markets, but the first day of trading for Alibaba Group on the New York Stock Exchange (NYSE), presumed to be on 19 September, will demonstrate how far the overall market has improved itself since Facebook’s May 2012 IPO fiasco on Nasdaq OMX.
With Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase and Morgan Stanley listed as Alibaba’s lead underwriters for its IPO, the first day of trading will present a challenge, according to Nick Colas, head of market strategy at agency brokerage ConvergEx. “There is going to be a healthy tension between the underwriters that want to price the offering and those that want to stabilise the price.”
Colas sees this as the perfect balance for equities market microstructure and knows that the buy-side will be watching closely.
“The market’s microstructure has been a buy-side concern for the last five years,” he said. “The concern usually was how easy of difficult it would be get their trades done, until the publishing of Michael Lewis’ ‘Flash Boys.’ That brought their concerns to a higher level than ever before and the concerns have not come down from that level since.”
To get a sense of how prepared the market is for the Chinese Internet company’s IPO, ConvergEx polled 322 market participants, 46% of whom identified themselves as buy-side employees, in the last week of June.
Those polled were very bullish on the IPO with a vast majority of respondents, 69%, expecting Alibaba’s price to appreciate by up to 20% and another 19% of the survey respondents believe that it could go even higher than that.
However, only 49% of them plan to invest in the IPO. Of those who plan to invest, 38% expect to purchase the stock at the IPO with 20% continuing to invest in Alibaba afterwards. Only 11% of respondents said that that they would wait to invest until after the IPO.
All of the time and resources that the U.S. Securities and Exchange Commission, Exchange operators and broker dealers have invested in improving the resiliency of the cash equities markets since the May 2010 ‘Flash Crash’ has paid off as 77% of those polled are confident or very confident that the current market structure will support the high level of trading the IPO is expected to bring. Only 8% of them responded that they were not confident and 15% remained neutral on the subject.
ConvergEx plans to conduct a follow-up survey later this week, which will be published prior to the IPO, according to Colas. “We would like to compare the new numbers to the existing ones to see if anything has changed,” he added.