Last week’s technical glitch that rocked the Nasdaq was a massive blow that will hurt the stock exchange’s credibility with companies who will be weary of listing with it for their public market debuts, right?
The long-running debate of where a newly public company should list — be it on the Nasdaq, the NYSE, or any other exchange — has lost meaning in recent years as the differences that distinguish one exchange from another shrink. The reality, said Jay Ritter, a professor at the University of Florida’s Warrington College of Business, is that for both Nasdaq and the NYSE, high-frequency traders have significantly altered the elements that differentiated the two, almost entirely replacing market makers at the former and specialists at the latter. Thus, the decision of where to list makes very little difference to a company’s investors. And the bigger the company is, the less it matters where to list, since virtually one of the only differentiating factors between the NYSE and the Nasdaq are the fees, which are relatively negligible considering the immense costs associated with IPOs.
“If you are a large established tech company, such as Google, Apple, or Facebook, it largely doesn’t matter, and I would actually go so far as to say the fees aren’t different enough to sway a company one way or another,” said Ken Marlin, partner and founder of Marlin & Associates, a financial advisory and investment bank that works with tech firms. “Those numbers are meaningless in the context of the other fees these guys are paying, underwriting, lawyer fees, up to the millions, so a difference of $50,000 in annual fees is not enough to swing the decision.”
Dan Weaver, professor of finance and economics at Rutgers Business School, has also noticed the exchanges moving in similar directions in terms of what they offer newly public companies. On both the Nasdaq and the NYSE, the fragmentation of where trading occurs has fundamentally changed, bringing them closer together in structure.
“I would say, comparing companies that go public on different exchanges, Nasdaq versus NYSE, it’s getting closer together between the two exchanges,” said Weaver. “I still think there’s an advantage to the NYSE because all the orders come together at once. If you have concentration of orders in one place, it reduces information asymmetry and uncertainty and you get a smaller amount of underpricing at an IPO.”
Marlin agrees that the NYSE has a slight advantage, mainly from a brand perception standpoint. This paradigm shift may have something to do with the fact that the NYSE has been bolstering its efforts to attract notable tech IPOs lately.
“That has really changed in the last few years, advantage NYSE, because a few years ago there was a marketing perception of stock that the NYSE was for old-line industrial companies and the cool, fast movers all went to Nasdaq,” Marlin said. “But NYSE has done a great job and people have moved in both directions.”
For its part, Marlin said the Nasdaq appears slightly more accommodating for smaller companies since it features several tiers of listings that a company can grow into over time. Still, the exchanges appear nearly equally appealing to most companies, glitches notwithstanding.
“Neither one of these exchanges can afford glitches; they have both had glitches in the past,” Marlin said. “Unfortunately Nasdaq has had more of its share recently, but the NYSE has had them too. Normally, they are both extremely reliable systems.”
So what does ultimately sway a decision that appears to be growing more meaningless by the IPO?
“This is mostly about the company they want to be in, and how the CEO wants to keep their sense of self-image, how they wanted to market the firm,” Marlin said. “But if I were the CEO of Twitter, I could make a case either way.”