A
funny thing happened on the way to the initial public offering of BATS Global
Markets, Inc.; a computerized stock exchange; it failed. A bug in their
own trading system disrupted trading within seconds of its debut and raised
concern the exchange didn’t work. By mid-day on IPO day BATS has fixed
the bug, but by then had lost the confidence of its IPO buyers, mostly hedge
funds and buy-side analysts. The fiasco raised doubts about BATS
technology, business model, and valuation, and no one wanted to pay $16 a share
anymore. So it withdrew its IPO and trades for more than a million BATS
shares were voided. BATS CEO said, “The fact that our own stock was out
there to be traded for the first time, and we showed systems problems, eroded
customer confidence. Of course investors are going to say, ‘Hey, wait a
second.’” And the IPO already wasn’t going great guns. The first trade
was at 10:45 and was down $0.75 to $15.25. When that hit, some people
wanted to liquidate their entire position in BATS. BATS wanted to reopen
trading but some brokers said it would have been a bloodbath. And pre-IPO
shareholders, including the underwriters, had awarded themselves a $100 million
dividend contingent on the IPO. Had they kept trading, a lawsuit was
almost certain.
-- Paul Marotta
