NYSE runs Twitter IPO tests, works to avoid Facebook NASDAQ IPO repeat

Oct 27, 2013
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NYSE runs Twitter IPO tests, works to avoid Facebook NASDAQ IPO repeat

The New York Stock Exchange ran a series of tests this weekend to prepare for Twitter's impending IPO, which could occur as soon as Nov. 7. The tests were to ensure the NYSE will be ready to handle the high speed and volume of the high-profile IPO. Systems were checked three times in real-time simulations with real member firms.

Participating in the IPO test were KCG Holdings, Goldman Sachs, and 18 other member firms. Collectively they placed hundreds of thousands of orders in the mock IPO, according to CNBC. Twitter's real IPO will offer 70 million shares at $17-20 per share.

The Twitter IPO tests were a response to last year's Facebook IPO, which essentially crashed NASDAQ's systems. Member firms were prevented from receiving confirmation of their placed orders, leaving them in the dark for hours or days in some cases. NASDAQ ended up paying a $10 million dollar fine to the SEC for causing firms to lose an estimated $500 million in the Facebook IPO SNAFU, as well as pay out $41.6 million in damage claims.

The real Twitter IPO on the NYSE is not likely to be heavier than the simulated IPO. This differs greatly from Facebook's IPO process on NASDAQ last year. While that stock exchange did run tests before the real IPO, the tests only accounted for tens of thousands of trades. When hundreds of thousands of transactions came through on opening day, the system clogged up.

One institutional difference between the NYSE and NASDAQ is that the NYSE has a human designated market maker (DMM), a sort of air traffic controller or umpire who verifies that all trading sequences are fair and equitable. NASDAQ does not have such a position. This may help ensure against unforeseen communication breakdowns and overloads, which is likely one reason Twitter chose the NYSE for its IPO.

SOURCE: CNBC


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