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Published On: Mon, Sep 15th, 2014

Why Alibaba neglected Nasdaq in favor of NYSE

Alibaba decided in favor of the New York Stock Exchange for its IPO, not being persuaded by Nasdaq’s insistence it has taken measures to prevent another Facebook-type debut from occurring.

Alibaba decided in favor of the NYSE for its IPO, not being persuaded by Nasdaq’s insistence it has taken measures to prevent another Facebook-type debut from occurring.

Alibaba Group Holding Ltd would have been able to sell stock worth around $2 billion, without any effort. For the purpose, it should have listed its shares with Nasdaq, and by year end inclusion in the benchmark would have come true. However, according to knowledgeable sources, Alibaba executives were unsure how efficiently Nasdaq would go about their IPO amounting to $21 billion later in the month. The reason for the concern was the spoiling of Facebook’s market debut. Nasdaq has many times stated the problem has been thoroughly gotten rid of, but Alibaba seems to have apprehensions regarding Nasdaq’s technology, remembering the case with Facebook’s two years ago.

Listings brought just 12 percent of Nasdaq’s revenues of $1.9 billion for 2013; Alibaba’s large listing, like others of that size, does not bring such profits for exchanges. However, for the financial community they are a gauge of success.

Nasdaq systems literally bent with piles of orders in 2012, when the first day came for trading in Facebook shares, and delays were formidable. Again according to informed sources, when Nasdaq presented its offer to Alibaba, it made a detailed explanation of the measures taken to prevent the Facebook case type from recurring, laying special emphasis on the improvement in communications with the industry and with regulators to take swift action in the event of errors. Furthermore, Nasdaq established a special engineering team for monitoring on a daily basis.

Alibaba’s avoiding Nasdaq listing signaled a small likelihood of it joining any other major index by year end. According to investors, index inclusion is tantamount to stability. Exchange traded funds and mutual funds tracking benchmarks of that kind have to purchase and hold their stock.

Nasdaq 100 including large companies, Apple and Google being examples, has a market capitalization of $4.75 trillion. Nasdaq 100 is tracked by funds like QQQ PowerShares, with a capitalization $46.8 billion, ranking the fifth in the world. Should the IPO put the company value at $200 billion, the index percentage for Alibaba would have been around 3.3 percent. Just ETF assets related to the index comprise in excess of $54 billion; hence, at least $1.7 would have been spent on Alibaba shares.

Being registered at the Cayman Islands, Alibaba does not qualify for many of the major indices globally. S&P 500, a hefty Index with $18.6 trillion market cap, lists just US companies. As for MSCI or FTSE, other reasons hamper its inclusion, albeit MSCI is considering some rule changes which may favor Alibaba’s inclusion.

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