SpaceX IPO allocates more shares to retail investors

NEW YORK: As SpaceX prepares for its record-breaking $75 billion market debut, Wall Street traders, brokers and exchanges are racing to ensure their systems can handle the blockbuster initial public offering and avoid the chaos that marred other high-profile listings.
The troubled 2012 debut of Facebook still weighs heavily. That listing was disrupted by technical glitches that left traders uncertain for hours over whether trades had been properly executed, ultimately costing market-makers hundreds of millions of dollars.
Financial firms have spent weeks preparing for SpaceX’s expected Friday trading debut, with the outcome likely to influence sentiment before other major listings anticipated later this year from Anthropic and OpenAI.
“It’s an historic event,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “I hope it trades successfully afterwards, for the market’s sake.” While Wall Street executives host client events, those responsible for trading infrastructure are focused on a smooth opening. One executive at a Wall Street firm working on the IPO, who requested anonymity, referred to lingering scar tissue from Facebook’s debut.
Executives at Nasdaq and leading market-makers including Citadel Securities and Jane Street have been running simulations and stress-testing systems, according to three people familiar with the matter. Nasdaq invited clients to weekend mock IPOs over the past month, two sources said.
Bookrunner Morgan Stanley has a central role as the IPO’s stabilisation agent, responsible for the stock’s opening and for helping ensure orderly trading. Morgan Stanley did not respond to requests for comment.
S&P Global, which is providing technology to help facilitate allocations to institutional investors, has also been testing its systems because of the deal’s size. Darren Thomas, head of enterprise solutions at S&P Global Market Intelligence, said the firm used artificial intelligence to ensure its code was operating efficiently.
“We really had to scale the infrastructure so that it could handle much larger volumes,” Thomas said. “We’ve never seen anything of this size before.” Exchanges have upgraded infrastructure since a technology failure disrupted Facebook’s $16 billion IPO. Nasdaq, where Facebook was listed, paid nearly $42 million in claims to participants who estimated collective losses of $500 million. The exchange was also fined $10 million by the US Securities and Exchange Commission.
Nasdaq has since overhauled its trading systems, upgraded its flagship IPO technology, Bookviewer, and has a backup platform if its primary technology fails. Nasdaq has conducted IPO test runs before, including ahead of Arm Holdings’ 2023 debut. Nasdaq declined to comment.
Citadel, Jane Street and other high-frequency trading firms have conducted internal tests to prepare for heavy volumes of client orders, the sources said. S&P has stress-tested its infrastructure over the past six weeks through upgrades and live tests designed to increase capacity by 200% and improve response times.
Adding to uncertainty, SpaceX has set aside an unusually large number of shares for retail investors, coinciding with a sell-off in Big Tech shares on concerns that the artificial intelligence-fuelled rally has become overextended.
“No one’s ever tried an IPO of this size, and no one has tried to place as much with retail,” said one individual close to the transaction, who asked not to be named. The possibility of a “chaotic and volatile aftermarket” may cause wariness among institutions and individuals, the person said.
In a typical IPO, the exchange collects buy and sell orders before trading begins as investors cancel and replace orders while gauging sentiment. Underwriters delay the launch until they find a balanced opening price where supply meets demand.
The process is intended to prevent sharp price swings when trading opens, but first-day trading remains unpredictable. Technology problems undermined that process during the Facebook IPO, causing a backlog in unprocessed orders and hours of uncertainty over trade execution.
“Every investment management firm in the country is talking about and considering SpaceX,” said Jed Ellerbroek, portfolio manager at Argent Capital Management. “We all know Friday’s trading day is going to be crazy.”_ Reuters