Friday should have been Facebook’s day to shine — and Nasdaq’s as well.
Investors and the media from around the world were waiting for 11 a.m., when shares in Facebook would finally begin trading on the Nasdaq stock market. At $16 billion, it was one of the biggest initial public offerings ever held in the United States, and the largest by far handled by the exchange.
Business Day Live: Was Facebook Priced Correctly?But at 11 a.m., Facebook’s lead underwriter, Morgan Stanley, requested a 20-minute delay. That in and of itself was not unusual — but what happened next was. Traders were first informed that the company’s opening price was indicated to be $42 a share. But orders failed to be executed, or in trader parlance, “print.”
The quiet confused many. Some underwriters wondered whether Morgan Stanley had asked for another delay, and traders called Nasdaq, only to be told to stand by.
Beginning around 11:13:50 a.m., Nasdaq issued a system status update noting “a delay in delivering the opening print.”
When Facebook finally opened up at $42.05, some traders’ monitors, which should have reflected a steady stream of orders for company shares, were “frozen.” Worse, some reflected a mess of conflicting information. In one instance, according to people with direct knowledge of the matter, one listed trade was a bid for $200 shares — at $20.
Shares in Facebook initially appeared to climb, but by 11:30 began the first of several plunges. With Nasdaq still unable to deliver trade execution messages until mid-afternoon, traders were unable to know whether their orders had gone through or where the stock price currently stood. Some traders did not get confirmation of their bids until after 2:30 p.m., according to market participants.
As lead underwriter and stabilization agent, Morgan Stanley was responsible for supporting Facebook’s stock price. The supreme imperative was to maintain the offer price of $38 a share, an important psychological barrier. Should the stock fall below that level, big institutions that had bought into Facebook before the I.P.O. would have been saddled with a loss, potentially prompting them to cut their holdings.
Morgan Stanley appeared to hold the line: Despite testing the offer price limit, Facebook shares never broke below that level, sparing the social network from a dreaded “busted I.P.O.” on its first day as a public company. The stock closed barely up, at $38.23.
The day was disappointing for Facebook’s underwriters, many of whom argued that if trading had operated normally from the start, the company’s shares could have risen significantly higher.
Many involved in the initial offering blamed Nasdaq, which fought hard for Facebook’s listing. Nasdaq, one person said, should have run countless tests on its system to ensure it could handle Facebook’s volume.
The offering was the biggest that Nasdaq had ever listed. Of the top 25 initial offerings by amount of proceeds raised, the market had handled only three, according to data from Thomson Reuters.
Facebook’s I.P.O. was big in other ways as well. With more than 571 million shares changing hands today, the offering had the biggest volume of any I.P.O. with more than $800 million in proceeds, according to Thomson Reuters. Such volume could have taxed Nasdaq’s systems, according to market participants.
Facebook’s roller-coaster debut mirrors that of Netscape, the Internet company co-founder by Marc Andreessen, a director at the social network and a mentor of Mark Zuckerberg. When the Web browser developer sought to go public in August of 1995, a watershed for a burgeoning Internet industry, Nasdaq was unprepared for the high level of demand.
Demand for shares rose so high that trading was delayed for two hours that morning. When trading resumed, the stock — which had priced at $28 and hit $75 at one point — closed at $58.
A Facebook spokeswoman declined to comment. A Nasdaq spokesman did not return calls or e-mails seeking comment.
Nicole Perlroth contributed reporting.
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