New York: In a breakdown that resembled a mini version of the 2010 "flash crash," a series of blunders hit the market debut of BATS Global Markets Exchange on Friday, causing the company to take the extremely rare step of withdrawing its initial public offering of shares.
The problems on Friday morning caused BATS shares briefly to trade for less than a penny, confusing investors and potentially threatening the future of the fledgling exchange itself.
The glitches also fouled a trade in shares of Apple and caused a temporary halt in the stock. Prices plunged shortly after BATS shares began their first day of trading on the BATS exchange, a start-up that in a few years has captured about 11 per cent of US equity market volume and 3 per cent of equity options volume.
Integrity
"The one thing they would have guarded against is the integrity of their platform on the day they went public," said Francis Gaskins, president of IPO research site IPOdesktop.com, in Los Angeles.
The exchange operator had priced 6.3 million shares at $16 per share late on Thursday in an initial public offering sold by lead underwriters Citigroup, Morgan Stanley and Credit Suisse Group. Several former or current Credit Suisse bankers serve on BATS' board, according to a BATS regulatory filing.
As trading began on Friday, BATS stock dipped to $15.25. Then extreme turbulence hit. A slew of bad trades at less than a penny sent the stock plunging. Though the trades were later voided, the plunge unnerved investors.
Around the same time, a bad trade for 100 shares of Apple also went through, triggering a circuit breaker that temporarily halted trading of Apple.
At 11.07am EDT the BATS exchange said it was investigating system issues with trading in symbols in the range "A" through "BF," which include Apple and BATS. The problems caught the company flatfooted and unable to provide a detailed statement. A series of updates on its website noted but did not explain "system issues." At 3.10pm EDT, the company said shares will not resume trading on Friday and that ‘all executions in the opening auction will be cancelled.'
BATS officials declined repeated requests for comment.
The IPO was an embarrassment for the lead underwriters, and late in the day BATS announced that the IPO would be withdrawn. Spokespersons for the banks either declined to comment or were not available for comment.
Market participants lost little time criticising the exchange, and the debacle lit up Twitter.
Black eye
"It's just another black eye for the fragmented equity structure," said Joe Saluzzi, co-head of equity trading at Themis Trading in Chatham, New Jersey, and a frequent critic of US equities market structure. "Every day we see things like flash crashes and now IPOs that can't get off the ground."
On StockTwits.com, a stock-related Twitter site, commentators took aim at the company. "Man are those investors who participated in the IPO breathing a sigh of relief right now," wrote one.
The BATS exchange was forced to declare "self-help," which means an exchange is dealing with internal problems processing trades and needs to send trades through other venues, such as Nasdaq.
