Twitter (NYSE:TWTR) Runs Test IPO To Avoid Problems On First Day Of Trading

 @PReyMallen
on October 27 2013 12:30 PM
Twitter IPO
Twitter's trade will begin November 7. Reuters

The New York Stock Exchange ran a test of Twitter’s (NYSE:TWTR) eagerly awaited market debut on Saturday with an IPO simulation. The goal of the unusual procedure was to avoid the problems that plagued Facebook’s (NASDAQ:FB) initial public offering on the Nasdaq last year, Reuters reported.

The NYSE regularly does system testing on the weekends, but this was the first time it performed a test IPO. It did so at the request of its member firms, many of which were affected by the Facebook chaos in 2012.

The simulation followed the procedures of an actual IPO. At 7 a.m. on Saturday, more than 20 NYSE member firms began sending in their orders for the Twitter IPO. The market opened at 9:30 a.m., and used data from Friday to recreate a normal environment with 3,800 listed stocks trading.

Just before 10 a.m., the first of three test IPOs took place. A representative from Barclays, the designated market maker or DMM, ran the auction. This marked a major difference with the Nasdaq, which is fully electronic. Orders came in electronically on the screen and from brokers on the floor. Once a price was determined, the DMM froze the order book and hit the “DONE” button, making alerts go off on the brokers’ handheld devices.

The exercise was completed two more times, with KCG Holdings and Goldman Sachs as DMMs, and registered no glitches. “This morning’s systems test was successful, and we’re grateful to all the firms that chose to participate,” an NYSE spokesman told Reuters.

“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 market participants,” he added.

In the case of Facebook, the tremendous volume of orders on the first day of trading revealed a problem in the Nasdaq system. Many traders did not receive timely order confirmations, leaving them unsure for hours, and in some cases days, afterward. The losses were estimated to add up to $500 million.

Nasdaq was fined $10 million by the U.S. Securities and Exchange Commission, the largest fine ever for an exchange. On Friday, Nasdaq said $41.6 million of claims qualified for its compensation plan, which it had planned to be up to $62 million.

The debut contributed to a drop in Facebook’s stock, which hit a low of $17.55 in August – half of the initial price, marked at $38 per share.

Twitter intends to sell 70 million shares at between $17 and $20 each -- the biggest Internet IPO since Facebook. Trading will begin on Nov. 7.

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