NASDAQ Races Past NYSE to Claim the Top Spot in 2019 as the Battle of the Exchanges Continues to Rage.

Nov 28
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For only the third time in about 20 years, NASDAQ is all set to overtake its chief rival – the NYSE – in terms of the money raised through IPOs.

NASDAQ first surpassed NYSE at the turn of the millennium during the dotcom bubble. Thereafter, 2012 had proven to be the only other year when the technology-heavy exchange managed to outpace its primary contender. Now 2019, for all intents and purposes, is ready to serve as the third iteration of NASDAQ’s triumph.

SEC Unwilling To Let Companies Raise Capital Through Direct Listings

According to the data provided by Dealogic, the Times Square-based NASDAQ raised $32 billion through 153 IPOs in the first 11 months of 2019, thereby, exceeding the $26 billion raised by NYSE through 46 listings during the same time period. This development has toppled the usual hierarchy where the NYSE typically bags the largest offerings and, consequently, manages to raise greater amounts through those listings while NASDAQ pursues a multitude of relatively modest listings.

One of the crucial factors responsible for NASDAQ’s outperformance this year may be the current business cycle’s tail end expansionary phase where firms with bloated valuations typically rush towards public markets in order to raise hefty amounts of cash before the inevitable recession hits. This means that NASDAQ may have simply benefited from a larger number of startups vying to raise capital in the public markets in anticipation of an eventual economic downturn.

Interestingly, NASDAQ managed to secure two of the top-five offerings this year. These include Lyft’s (NASDAQ:LYFT) IPO which raised $2.6 billion and is ranked as the third-largest listing of 2019. Nonetheless, NYSE bagged Uber’s (NYSE:UBER) $8.1 billion bumper public offering that currently ranks at the top of the pack.

It should be noted that NYSE has implemented a number of changes over the past couple of years to lure a greater proportion of tech companies and startups away from NASDAQ. About a decade back, the exchange abolished a policy that prevented lossmaking entities from using its platform to go public.

More recently, biotech has emerged as another key battleground between the two exchanges. So far this year, NASDAQ has raised $4.7 billion from biotech IPOs while the NYSE did not raise even a single dime. In order to rectify this lapse, the “Big Board” reduced its listing fees by 75 percent in May and capped those charges at $100,000 over a duration of three years for businesses with valuations of over $200 million but revenue of less than $5 million.

NYSE Hopes To Convince SEC To Change Direct Listing Policy & Allow Capital Generation

A direct listing, also known as a Direct Public Offering (DPO), is emerging as another avenue of potential competition between the two exchanges. It is an alternate method of listing shares on a stock exchange, whereby, a company forgoes the safety net provided by underwriters – usually a consortium of investment banks – and offers to the general public only existing outstanding shares. This is different from an IPO where new shares are created, underwritten, and then sold. Consequently, in pursuing a DPO, the company does not raise new capital but incurs significant cost savings in the form of reduced fees charged by the investment banks functioning only in an advisory role.

This mode of flotation is preferred by some companies as it allows the insiders an opportunity to sell their shares while eschewing an investor roadshow, thereby, circumventing the intense scrutiny from investors. As a reference, the direct listing mode of public flotation was popularized by the music streaming company, Spotify (NYSE:SPOT), and the workplace messaging enterprise, Slack Technologies Inc (NYSE:WORK). Moreover, Airbnb also seems to be leaning towards a DPO for its public flotation next year.

The NYSE is apparently eager to stake its claim on DPOs as evidenced by its letter to the U.S. Securities and Exchange Commission (SEC) earlier this week (read our related coverage here). In the letter, the exchange called upon the commission to amend a rule in the Listed Company Manual so as to allow firms to raise fresh capital through direct listings in addition to serving as a platform for insiders to sell a portion of their stakes to the public.

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