Sunday, 27 October 2013

Twitter 'Test Float' To Avoid Facebook Flop - Sky News

Twitter has had a 'test run' of its flotation on the stock market – to help avoid a similar flop of Facebook last year.

The mock market launch by the New York Stock Exchange on Saturday was done to avoid a repeat of Facebook's launch on the rival Nasdaq exchange.

The NYSE regularly does systems testing on the weekends, but this was the first time it had run a simulated initial public offering (IPO).

The test was done at the request of its member firms - many of whom took part in Facebook's 2012 IPO on the Nasdaq.

The logo of the New York Stock Exchange
Twitter will be floated on the New York Stock Exchange in early November

The NYSE testing was done to see if its systems could handle the amount of message traffic that might be generated by the IPO and to make sure that transactions were executed correctly.

Industry experts also believe the operation was 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 favour.

Twitter, which intends to sell 70 million shares at between $17 and $20 each, will be holding the biggest Internet IPO since Facebook, which sold a much larger 421 million shares at $38 each.

Facebook Sets IPO Price At 38 Dollars A Share
Facebook was launched on the rival Nasdaq exchange

Twitter's initial price will be announced on November 6 and it is expected to start trading as early as the next day.

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.

They were left unsure about their exposure for hours, and in some cases for days afterwards and a collective loss of $500m occurred in the IPO.

Nasdaq was fined $10m by the US Securities and Exchange Commission - the largest fine ever for an exchange - and said it would voluntarily pay up to $62m to compensate firms that had been harmed.

Facebook founder Mark Zuckerberg remotely rings bell to open trade on Nasdaq
Facebook founder Mark Zuckerberg launched the float remotely in California

On Friday, Nasdaq said $41.6m of claims put forward qualified for the compensation plan.

The chaotic debut also contributed to a decline in Facebook's share price, which hit a low of $17.55 in August, though it has since more than recovered the losses, closing on Friday at $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, over 496,000 orders were placed before it opened, with around 82 million shares traded.

By the end of the day, more than 500 million shares had traded hands, a record for an IPO.

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