The fall-out from Michael Lewis’s new book on high speed trading was too much for Virtu Financial Inc. The company postponed its initial public offering Thursday. The move came as other recent IPOs have gotten off to rocky starts.
Bloomberg had this story by Leslie Picker and Sam Mamudi:
Virtu Financial Inc., the high-frequency trader that announced plans last month to sell shares, will start marketing the offering weeks later than bankers anticipated, two people with knowledge of the matter said.
Virtu won’t start marketing the initial public offering until after April 20, a process its bankers had expected to begin this week, according to the people, who asked not to be named because the decision is private.
The delay comes amid unprecedented scrutiny of high-frequency traders. “Flash Boys,” the Michael Lewis book released March 31, says high-speed traders, Wall Street brokerages and exchanges have rigged the $23 trillion U.S. stock market. New York Attorney General Eric Schneiderman is examining privileges such as enhanced data feeds marketed to high-speed firms, while the Federal Bureau of Investigation is looking into whether those traders are breaking U.S. laws by acting on nonpublic information.
Chris Concannon, the president of New York-based Virtu, declined to comment on the IPO. The trading firm provides quotes in more than 10,000 securities and contracts on more than 210 venues in 30 countries, according to its IPO filing. It earned money from trading on every day but one in the last five years, according to the document.
In its IPO filing released in March, Virtu said U.S. derivatives regulators are looking into its trading practices.
The decision comes the day after the Chinese version of Twitter, Weibo, failed to sell as many shares as they wanted. The stock climbed 19% in trading Thursday. The Wall Street Journal story by Paul Mozur, Telis Demos and Matt Jarzemsky:
Weibo, which is growing fast but posted a net loss last year, raised $286 million in its initial public offering Wednesday. The amount fell short of expectations because the price of $17 a share was at the bottom of the projected range of $17 to $19, and the company sold 16.8 million shares, fewer than the 20 million expected.
Despite that sluggish start, the stock surged in its first day in the market. The company’s American depositary shares, which trade under the symbol “WB,” hit an intraday high of $24.48, up 44%.
In all, nearly 33 million Weibo shares exchanged hands Thursday.
The offering comes amid broad weakness in the U.S. IPO market and a month-long pullback in stock prices for both Chinese and U.S. Internet companies, including Twitter, whose shares have fallen 18% since the beginning of March.
The New York Times story by Michael J. de la Merced pointed out that Sabre, a travel technology company, also priced below expectations, but that shares climbed 4 percent on the first day of trading:
Both companies made their trading debuts during one of the roughest times for new stock sales in weeks, as shareholders have shown ambivalence about riskier investments. Until earlier this month, I.P.O.s had been on a tear, with many offerings pricing above expectations and then trading even better once they made their official market debut.
As investors began to fall out of love with fast-growing sectors like Internet and biotechnology, however, many prospective I.P.O.s began to falter as well, sending indexes like the Nasdaq in free fall on some days. An index of shares in newly public companies created by Renaissance Capital is down more than 1 percent so far this year.
Thomas Klein, Sabre’s chief executive, said in an interview that he wasn’t surprised about the change in investor sentiment since his company filed a prospectus in January. Still, he added that the travel services provider viewed its listing as the first step in a long-term journey toward becoming a public company after seven years of ownership by private equity firms.
“We were pleased with the decision to change the size a little bit,” he said.
Writing for Forbes, Steve Schaefer predicted that investors are beginning to steer away from IPOs:
The two-year anniversary of Facebook’s 2012 IPO is just a month away, and if recent trends continue the demand for new offerings may start resembling the freeze that followed the social network’s debut.
After that botched open, it took weeks for the next batch of IPOs to come through, and in the midst of the hottest IPO market since the dot-com bubble there are signs that conditions have gotten overheated and investor appetite is waning.
For one thing, the number of unprofitable companies flowing through the IPO pipeline has swelled. Jason Goepfert, author of the SentimenTrader Daily Report, cites a statistic that 83% of deals in the last three months were from money-losing companies, the highest such figure since the first quarter of 2000 (h/t to the Wall Street Journal).
That alone doesn’t mean the IPO market is going to grind to a halt. Far more important are the returns for both the broader market and the most recent predecessors to companies going public today. Unfortunately for the optimists there is softness on that front as well.
The Nasdaq Composite and Russell 2000, home to high-growth names in sectors like tech and biotech that are well-represented in the IPO market, are each in negative territory for the year, down 1.9% and 2.7% respectively.
It may that there were just a few too many tech companies looking to tap the markets or that investors are pulling back from the market in general. But those who got in on the ground floor of these are happy about their decision after today.
