As the New York Stock Exchange prepares for the launch of Chinese e-commerce giant Alibabas initial public offering tomorrow, industry observers will be looking on to see if the 222 year-old exchanges technology is ready for this high-profile launch.
Several exchanges and investment firms have had embarrassing technology outages during typical trading days and even on launches of new equity shares. Last summer, Goldman Sachs had a trading outage in the same month when Nasdaq stopped trading for more than three hours with little explanation from the market maker. In 2012, BATS technology flubbed the launch of its own IPO and forced the trading venue to put its stock offering on hold until the technology snares were fixed.
But the granddaddy of all trading snafus remains Nasdaqs problematic offering of the Facebook IPO in 201X. Not only did the market maker, known for its state-of-the-art technology infrastructure, flub the debut of the social media giant, it had to pay a $10 million fine to the SEC and $42 million to investors for lost revenue.
While no one knows how NYSEs systems will react for tomorrows Alibaba launch – its ticker symbol will be BABA – industry observers note that exchanges routinely test their systems before a major IPO.
I am sure there have been test runs for days and weeks now. You can assume there will be people working very late tonight and early tomorrow morning to continuously check and make sure the capacity is there for the volume they are expecting, said Kevin McPartland, senior analyst with Greenwich Associates of Stamford, Conn.
And its not just the systems at NYSE but at other financial firms that are being checked as well. You can expect volume the market will be pretty high so its not just the NYSE that has to be prepared but all the other U.S. equity exchanges as well.
According to Bloomberg, NYSE held two tests in July and early September to allow brokers to check their and the exchanges systems.
We gave all the participants the opportunity to test us in a robust way, David Ethridge, the senior vice president at NYSE Group and head of the IPO unit, told Bloomberg.
Lessons have been learned from Nasdaqs Facebook faceplant, which industry observers note helped NYSE win the Twitter IPO in October 2013. It was a wake-up call for everyone, McPartland told Traders. Nobody wants that to happen again. And now under the ICE umbrella which is a company and a CEO known for their innovation, we can be confident that they will be ready for Friday morning.
By and large, McPartland said that Nasdaq has recovered from the Facebook embarrassment and the trading outage of last summer. That was an unfortunate situation and I dont think it reflects on the broader technology of the company. Despite all of the talk of the vast number of liquidity venues there are in the U.S. equities space, there are still only a small number of major exchanges in the U.S. and its bigger than ever.
He added, There is no room for error any longer.
Unless there is a major glitch tomorrow, McPartland thinks the renewed focus inside the NYSE thanks to its new ownership has helped the exchange.
The ICE acquisition was a big positive with a focus on technology and innovation. Its amazing what they have been able to accomplish from essentially a start-up to what the firm has become now, he said. The NYSE was incredible before but the ICE and NYSE combination is certainly a tremendously credible technology company that has grown beyond being a typical exchange.
