Taking No Chances, NYSE Holds Mock Twitter IPOs
The New York Stock Exchange is taking no chances with Twitter's initial public offering. Seeking to avoid a fiasco like the one that occurred during Facebook's launch on the Nasdaq last year, the NYSE ran three trial IPOs this past weekend to see how its systems would react to the huge trading volume Twitter's debut may inspire.
Twitter's IPO is expected November 7, and the company is planning to sell 70 million shares at between $17 and $20 each. The NYSE ran hundreds of thousands of pretend orders on Saturday to determine whether its systems were up to the task, according to an exclusive report published by Reuters.
Representatives of Barclays, KCG Holdings and Goldman Sachs took turns running the trial IPOs. Unlike Nasdaq, whose systems are fully automated, the NYSE uses human agents to facilitate IPOs.
Those tests preceded a road show this week in which Twitter will pitch its stock to institutional investors in eight cities around the United States.
"We are being very methodical in our planning for Twitter's IPO, and are working together with the industry to ensure a world-class experience for Twitter, retail investors and all market participants," an NYSE spokesman told Reuters.
It is thought by many observers that Nasdaq's bungled handling of Facebook's IPO helped convince Twitter's executives to take their business to the NYSE, a rival exchange. Although Nasdaq did test its systems prior to Facebook's IPO, it allowed no more than 40,000 dummy orders in total, Reuters says.
But on the day Facebook went public, nearly half a million orders were placed before the IPO even opened. Glitches in Nasdaq's system prevented many traders from knowing the result of their orders for hours or even days.
That foul-up proved costly: The Securities and Exchange Commission slapped Nasdaq with a $10 million fine, and the exchange said it would reimburse firms up to $62 million for their ostensible losses.
As Twitter prepares to become the biggest tech IPO since Facebook, a report released Monday reveals that Twitter is rapidly becoming a lucrative platform for advertisers. The report by Adobe measures revenue per visitor, which means the average amount spent by someone who visits a third-party retailer's website through a Twitter referral. Twitter's revenue per visitor is up 300 percent over 2012, from 11 cents to 44 cents per visit.
But Twitter still has some ground to make up against its biggest rivals. By comparison, Pinterest's RPV increased from 22 cents to 55 cents over the same period, while Facebook's grew from 67 cents to 93 cents.
Brian Patrick Eha is a freelance journalist and former assistant editor at Entrepreneur.com. He is writing a book about the global phenomenon of Bitcoin for Portfolio, an imprint of Penguin Random House. It will be published in 2015.