The Corporate Law Group

BATs Failed IPO

A funny thing happened on the way to the initial public offering of BATS Global Markets, Inc.; a computerized stock exchange; it failed.  A bug in their own trading system disrupted trading within seconds of its debut and raised concern the exchange didn’t work.  By mid-day on IPO day BATS has fixed the bug, but by then had lost the confidence of its IPO buyers, mostly hedge funds and buy-side analysts.  The fiasco raised doubts about BATS technology, business model, and valuation, and no one wanted to pay $16 a share anymore.  So it withdrew its IPO and trades for more than a million BATS shares were voided.  BATS CEO said, “The fact that our own stock was out there to be traded for the first time, and we showed systems problems, eroded customer confidence.  Of course investors are going to say, ‘Hey, wait a second.’”  And the IPO already wasn’t going great guns.  The first trade was at 10:45 and was down $0.75 to $15.25.  When that hit, some people wanted to liquidate their entire position in BATS.  BATS wanted to reopen trading but some brokers said it would have been a bloodbath.  And pre-IPO shareholders, including the underwriters, had awarded themselves a $100 million dividend contingent on the IPO.  Had they kept trading, a lawsuit was almost certain.
Paul Marotta

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