Barclays Grabs Alibaba’s NYSE Market-Maker Role

By Mani
Updated on

Alibaba has appointed Barclays PLC (NYSE:BCS) (LON:BARC) as the designated market-maker for its highly anticipated U.S. public offering, which is expected to garner over $20 billion. The much initial public offering could prove to be the biggest ever, surpassing the $16 billion raised by Facebook Inc (NASDAQ:FB) in 2012.

Barclays as market-maker

Citing sources familiar with the developments, CNBC reported on Wednesday that Barclays had bagged the mandate as the designated market-market for Alibaba Group Holding Ltd’s upcoming U.S. IPO. Interestingly, Barclays was also tapped as the “designated market maker” for Twitter Inc (NYSE:TWTR)’s IPO last year.

The British bank is one of the biggest market-makers and specialist firms on the New York Stock Exchange trading floor. Alibaba’s shares will trade on that exchange under the ticker symbol “BABA.”

Goldman as stabilization agent

According to a report in The Wall Street Journal, Goldman Sachs Group Inc (NYSE:GS) bagged the coveted role of “stabilization agent” for Alibaba’s IPO. The prized role was sought by banks working on the Chinese ecommerce giant’s IPO because of the prestige and potential additional commission that could be generated from overseeing the trading. The offering could be made as soon as next week.

Interestingly, Goldman Sachs Group also worked on Twitter’s IPO last year, wherein the firm received praise for the stock’s smooth debut. In contrast, Facebook’s IPO in 2012 was beset by both a NASDAQ technology glitch and heavy selling in early trading.

NYSE tests trading software ahead of Alibaba IPO

To ensure smooth trading in what could be the biggest IPO ever, the NYSE said in July that it would test its trading software ahead of the Alibaba offering. The stock exchange wants to ensure that its systems will be able to handle a huge amount of messages and that firms would immediately receive reports when their orders are completed.

The Chinese ecommerce giant has taken the unusual approach of appointing several banks, including Credit Suisse Group AG (ADR) (NYSE:CS), Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB), Goldman Sachs, JPMorgan Chase & Co. (NYSE:JPM) and Morgan Stanley (NYSE:MS) as equal coleads of the deal instead of designating one or two banks as clear leads among a group of senior banks. However, Twitter and Facebook took the more traditional approach in their IPOs by tapping Goldman Sachs and Morgan Stanley as the lead banks.

Goldman Sachs, as stabilization agent for Alibaba, has the greatest hand in trying to ensure that the shares trade successfully once the company’s stock becomes publicly listed. The firm may decide whether to buy back shares sold to the market to support the share price, which is permitted under U.S. securities laws. The agent can also play a big role in deciding whether to exercise the “green shoe” option, in which underwriters buy more stock from the company to support demand beyond the original deal.

Alibaba’s banks collectively are expected to share a pool of base fees of 1% of the proceeds of the deal, though the fee share is lower than the typical 6%+ for most IPOs. However, fees for other mega deals, such as General Motors Company (NYSE:GM) and Facebook, ranged between .75% and 1.1%.

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