With smooth SpaceX debut, Wall Street sets new template for mega IPOs

Highlights:

• Firms that processed record volumes saw no technical glitches
• Schwab saw over 1 million orders for SpaceX during first hours of trading
• Nasdaq and market makers have been stress-testing trading systems for weeks leading up to SpaceX IPO

A collective sigh of relief swept across Wall Street after trading for SpaceX's landmark Nasdaq launch went smoothly, setting a new template for the trading firms and exchanges that are bracing for the giant IPOs of OpenAI and Anthropic later this year.

SpaceX's record-breaking debut on Friday dwarfed the previous largest flotation on US exchanges by nearly three times. The sheer size of the launch had worried market participants who had lingering bad memories from the disastrous stock market debut of Facebook in 2012.

However, trading systems at the banks underwriting the IPO, exchanges, market makers, clearinghouses, and other market infrastructure firms held up to the challenge of processing millions of client orders.

"People go back to the Facebook ... days and 'was this going to turn into one of those companies,' but I honestly think the banks in the US did a fantastic job, the SpaceX crew did a fantastic job telling the story when they did their rounds. And as you can see it went extremely smoothly," said Jeff Parks, CEO of Canadian investment firm Stack Capital Group. Nearly a third of Stack's portfolio is SpaceX, in which the company began investing in 2021.

He was referring to the turbulence that surrounded Facebook's ill-fated IPO, when technical problems turned a landmark listing into one of Wall Street's most notorious trading fiascos. It left investors and brokers in limbo for hours and ultimately cost market makers hundreds of millions of dollars.

According to Citadel Securities, the largest US retail market maker, SpaceX's debut generated the highest retail order activity for an IPO auction ever. A Citadel Securities spokesperson said the firm handled the majority of the retail orders for SpaceX.

Morgan Stanley, the so-called "stabilisation agent" for the glitzy market debut, had the key role in managing SpaceX's market opening. The bank had to ensure an orderly rollout even as it grappled with unprecedented investor demand. A stabilisation agent typically buys up shares in the open market to shore up stocks that witness steep declines on opening day.

One of the lead underwriters advising SpaceX, who requested anonymity as the matter is confidential, said the IPO was a monumental event for the exchanges and the banks and crucial to get right.

Trading platform Charles Schwab said it has seen well over a million orders in SpaceX in the first few hours of trading, which is a significant figure in comparison to past IPOs, according to a spokesperson for the company.

Reuters reported on Thursday that Wall Street traders, brokers and exchanges had been stress-testing their trading systems for several weeks leading up to the blockbuster IPO.

SpaceX shares "are not going up in huge blocks, but they're bleeding higher, and a lot of that is due to a little bit more of a boring and softer opening print than a lot of folks expected," said Mike Dickson, head of research & quantitative strategies at Horizon Investments. "I'm a little surprised there's not more volatility, given a lot of the oversubscription headlines."

Smooth rollout

Past trading debuts for large IPOs have often faced delays because exchanges must match enormous volumes of buy and sell orders before determining an opening price. For SpaceX, the stock started trading shortly before noon on Friday. That was relatively early compared to the recent IPOs of Cerebras Systems and Quantinuum, which opened later in the afternoon on their respective debut days.

Barring some issues with early trading on Robinhood on Friday, Wall Street largely skirted the technical glitches that hampered Facebook's rollout in 2012 – much to the relief of Nasdaq, the market makers, and investors.

"We all worked really well together. We did a lot of preparation with our banking partners," said Nasdaq CEO Adena Friedman in an interview with CNBC on Friday. "We made sure that we were talking to all of the firms throughout the process of preparing for this, and it came off really flawlessly."