That's Some Latency

BATS apparently reeeaally wanted those first few trades to be practice trades. This is amazing: Bats Global Markets Inc., the six- year-old equity exchange, canceled its initial public offering, stunning Wall Street after errors on its own computer systems derailed trading in the stock and forced a halt in Apple Inc. (AAPL) “We believe withdrawing the IPO is the appropriate action to take for our company and our shareholders,” Joe Ratterman, the chief executive officer, said in a statement. Asked if that meant Bats is no longer going public, Randy Williams, a company spokesman, replied by e-mail, “Yes, that’s correct.” It's nice to see Bloomberg as incredulous as I am - that paragraph means: the CEO said "we are withdrawing our IPO" and Bloomberg emailed to ask "wait, no, REALLY?" And got the response, "yes, really." Because what's weird here is not a withdrawn IPO but a withdrawn IPO that had already priced. And opened for trading - for a few seconds anyway - to print a few trades at $15.25 (down from last night's IPO price of $16) at around 10:45 this morning before halting, unwinding those trades and ultimately unwinding the IPO.
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BATS apparently reeeaally wanted those first few trades to be practice trades. This is amazing:

Bats Global Markets Inc., the six- year-old equity exchange, canceled its initial public offering, stunning Wall Street after errors on its own computer systems derailed trading in the stock and forced a halt in Apple Inc. (AAPL)

“We believe withdrawing the IPO is the appropriate action to take for our company and our shareholders,” Joe Ratterman, the chief executive officer, said in a statement. Asked if that meant Bats is no longer going public, Randy Williams, a company spokesman, replied by e-mail, “Yes, that’s correct.”

It's nice to see Bloomberg as incredulous as I am - that paragraph means: the CEO said "we are withdrawing our IPO" and Bloomberg emailed to ask "wait, no, REALLY?" And got the response, "yes, really." Because what's weird here is not a withdrawn IPO but a withdrawn IPO that had already priced. And opened for trading - for a few seconds anyway - to print a few trades at $15.25 (down from last night's IPO price of $16) at around 10:45 this morning before halting, unwinding those trades and ultimately unwinding the IPO.

When I toiled in the fields of capital markets banking, a task I took pretty seriously was to impress upon companies that just because they didn't like the price they got in an offering didn't mean they could pull it with impunity. Legally, of course, they could - but withdrawing a deal after a public launch and a roadshow leaves a lot of egg on the faces of the company and its bankers. But withdrawing it after pricing - that raises thornier legal and reputational issues, and in my line of work it literally never happened. I was surprised to learn that, in the IPO business, there are a few precedents that have been withdrawn after pricing. And the Journal rather dryly puts it, "Even though BATS had priced its IPO, it was still able to withdraw the deal because the trades weren't scheduled to settle until March 28."* But Bloomberg found someone who shared - maybe overshared a bit - its and my stronger reaction**:

“This is a tragedy,” James Angel, a finance professor at Georgetown University’s business school in Washington, said in a phone interview. “I’m reeling from the shock. It’s like seeing an airplane crash on takeoff. To see defeat snatched from the jaws of victory is always a sad thing.”

The JOBS Act, the Facebook IPO, etc. etc. have put a lot of attention on why companies would ever want to be public. BATS's desire for a public ticker, anyways, seems to have been pretty take-it-or-leave it. Part of that is because the company wasn't getting any proceeds from its IPO; rather, the selling was all secondary by a mix of executives, entities like Lehman Brothers (fancy meeting them here!), and some other individuals. You can imagine some of them - zombie-Lehman, say - being a bit miffed that they had an agreed trade at $16 and then saw it pulled by BATS and its underwriters. Because, just a guess here, now they're not going to realize $16 on that stock for quite some time.

In normal markets, if I agree to buy at $16 and you agree to sell at $16 - and that is what happened here; MS and Citi and CS and the rest of BATS's underwriters agreed to buy the stock last night at $16 (less a gross spread) and BATS agreed to sell there - then if you back out of the deal I have at the very least the right to complain. Here, of course, the seller pulled the deal, and you would not expect the buyers to complain too much - the stock moved immediately below the IPO price and was clearly headed lower after a day of glitches. Still you might expect BATS's shareholders to be annoyed that BATS pulled their sales on their behalf, especially since the sales look smart: you'd probably be a seller of BATS at $16, too.

They'll probably get over it, though. If BATS hadn't pulled the deal, you could expect a lot of buyers to be lining up to sue BATS, the underwriters, the selling shareholders and everyone else in sight for selling stock in a stable trading platform that turned out to be ... not ... that. You might even expect the underwriters to avoid those lawsuits by invoking a material adverse change, the semi-mythical clause in the underwriting agreement that lets them pull the deal between pricing and closing if the company turns out to be not quite what they signed up to underwrite. I, for one, would be happy to see a MAC declared, because it is not something that you see in capital markets deals, y'know, ever, so that would brighten up my week. But I guess it's not surprising that BATS was less interested in that novelty, and went instead with ... well, with an almost equally novel and unprecedented end to its IPO process.

Bats Withdraws IPO After Errors Pummel Stock, Halt Apple [Bloomberg]
BATS Cancels Its IPO After a Day of Glitches [WSJ]

* So, I mean, technically, sure, but if there had been two full days of trading including price moves in both directions, you could expect a LOT of lawsuits out of pulling the deal between pricing and close. BATS did well to halt trading after only a few trades at one, below-IPO price.

** There's no reason for this footnote to be in this particular location, but I feel compelled to recognize FT Alphaville's contributions in the field of BATS puns, including: Don't call it a come-BATS and the glorious Always a few BATS AAPLs.

Related

Have Some European Bank Deleveraging / US Bank Releveraging

I'm back! What'd I miss? Well, that one thing. Also yesterday the BIS put out its quarterly review, which ponders the state of the world financial system, complete with ugly charts* and a cheering story of European bank deleveraging that goes something like this: As deleveraging pressures grew towards the end of 2011, European banks offered for sale a significant volume of assets, notably those with high risk weights or market prices close to holding values. Offerings with high risk weights included low-rated securitised assets, distressed bonds and commercial property and other risky loans. Although some such transactions were completed, others did not go through because the offered prices were below banks’ holding values. Selling at these prices would have generated losses, thus reducing capital and preventing the banks from achieving the intended deleveraging. Thoughts could be thought about that collection of words!