Heightened system testing and increased regulatory scrutiny will render a New York Stock Exchange (NYSE) glitch improbable as social media website Twitter lists on Thursday, two brokers believe.
Despite ongoing technical issues across US exchanges, including NYSE briefly mislabeling all trades on its data feed as sold on Monday and last year’s problematic Facebook listing on Nasdaq, the market is confident of an error-free Twitter listing.
“Participants are more prepared for the increase in message traffic because of the Facebook technology glitch, and brokers executing institutional orders will be well prepared,” Anthony Conroy, head trader at ConvergEx Execution Services, told theTRADEnews.com.
NYSE opened its trading systems to broker testing ahead of Thursday’s IPO and seeks to use Twitter to demonstrate the exchange’s ability to handle a high-profile, high-volume offering.
“NYSE is keenly aware that they won the Twitter mandate in part due to technical issues with Nasdaq’s handling of the Facebook IPO, so they’ve taken great pains to test their systems and ensure they will be ready,” commented one senior broker, speaking anonymously.
He added NYSE’s structure – whereby market makers maintain a physical presence on the trading floor – would reduce the impact of any error.
“The hybrid human-electronic system that NYSE uses will probably help the exchange handle the Twitter IPO better than Nasdaq did with Facebook, just as we saw during the 2010 flash crash when NYSE’s Liquidity Replenishment Points (LRP) stopped much of the mayhem we saw on other exchanges that day,” the source said.
NYSE’s LRPs stop automated quoting and execution in a security once it exceeds certain thresholds, temporarily converting the electronic market into an auction market.
According to the broker, retail demand in particular for Twitter will be lower than Facebook because Twitter is less well-known and many feel they were “burned” by Facebook’s offering, However, ConvergEx’s Conroy believes institutional investor demand will be very strong.
“The stock was originally priced at US$17.20 and that went up to US$23.25, and the valuations are getting very high. It’s going to be a very exciting deal,” Conroy said.
Listing under the TWTR tag on Thursday, Twitter will seek to raise US$1 billion on a valuation of around US$13 billion. Facebook, by comparison, raised US$5 billion on a valuation of around US$104 billion.
Facebook’s May 2012 IPO on Nasdaq was subject to a 30-minute delay before a surge in exchange message traffic resulted in participants not receiving trade confirmations and uncertainty over large positions.
The apparent increase in frequency of exchange errors led the Securities and Exchange Commission to meet with exchange leaders in September and has forced participants to shore up trading systems.