NYSE To Test Trading Software Ahead Of Alibaba IPO

The New York Stock Exchange (NYSE) would test its trading software prior to the highly anticipated initial public offering (IPO) of Alibaba Group Holding Limited, the largest e-commerce company in China.

The management of the stock exchange showed that the securities industry is focused on risk controls after a number of technical glitches over the past years.

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Alibaba: The largest technology IPO

In a note to traders, the NYSE said it would allow firms to test its trading software before the first day of trading of Alibaba Group Holding Limited on June 12. The IPO of Chinese-e-commerce giant might become the largest in the history of the technology industry.

Market observers speculated that Alibaba’s IPO would potentially exceed the initial public offering of Facebook Inc (NASDAQ:FB) in May 2012. The social network giant’s IPO price of $38 per share increased its market valuation to $104 billion, 100 times its historical earnings. Facebook’s profit in 2011 was $1 billion.

Facebook’s IPO suffered technical glitches at the NASDAQ. The trading software of the stock exchange failed to handle the massive volumes of orders that came in, which resulted to a series of events that cost market traders an aggregate of $500 million.

The Securities and Exchange Commission (SEC) imposed a $10 million penalty on NASDAQ in connection with the technical glitch. NASDAQ also voluntarily compensated the firms affected by the problem by up to a total of $62 million.

The technical glitches during the IPO of Facebook Inc (NYSE:FB) was one of the high-profile technology related problems that negatively affected the confidence of investors in the securities industry. Regulators, stock exchanges, and other market participants focused their efforts on operational risks.

NYSE regularly tests systems

The NYSE is testing its trading systems regularly. The stock exchange conducts its test during weekends.

Prior to the IPO of Twitter Inc (NYSE:TWTR), the stock exchange carried out an IPO simulation for the first time due to requests from member firms—many of them participated in Facebook’s IPO. The NYSE primarily tested two aspects during the Twitter IPO simulation to ensure that its system could handle a huge number of message traffic, and firms would immediately receive reports informing them that their orders have been completed.