NYSE tests systems, to brief investors before Alibaba's debut

By Herbert Lash NEW YORK (Reuters) - The New York Stock Exchange tested its trading systems over the summer to make sure Alibaba Group Holding Ltd's market debut on Friday goes without a hitch, after the Chinese e-commerce company's initial public offering raised $21.8 billion. Alibaba chose the NYSE over rival exchange operator Nasdaq OMX Group Inc to list its shares in part because it worried about Nasdaq's ability to handle a massive IPO after Facebook Inc's botched market debut in 2012, sources have previously said. Nasdaq systems buckled under the tremendous volume of orders for Facebook's stock, leading to hours of delay and losses to investors. In a bid to avoid any glitch from marring Alibaba's market debut, the NYSE conducted two mock trading sessions to ensure brokers are able to connect to its systems and do everything they normally do during daily trading, said David Ethridge, who is in charge of IPOs at the NYSE, a unit of Intercontinental Exchange Inc . The exercises, held for a few hours on the afternoons of July 12 and Sept. 6, both Saturdays, allowed brokers to test their messaging systems, which transmit their orders and receive the all-important confirmation messages that wreaked havoc on Nasdaq's system. "It's really about orders and message traffic," said Ethridge, who traveled to China before and after Alibaba chose the iconic Big Board as its listing venue. Customers could ask all the questions they need answered so that "we all feel good going into this thing." The NYSE also plans to hold a conference call at 8:30 a.m. (1230 GMT) to provide operational updates to members of the trading, technology and operations segments of the industry. Alibaba's shares priced at $68 per share, at the top end of the range, on Thursday, valuing the company at $167.6 billion. Its shares are expected to start trading some time after the market opens on Friday. It could be the largest-ever initial public offering if underwriters exercise an option to sell more shares, as many expect. Alibaba, which was founded 15 years ago in former English teacher Jack Ma's one-bedroom apartment, is responsible for 80 percent of online sales in China. As a result, investors, eager to buy into China's rapid growth and evolving Internet sector, have been clamoring to get shares. NYSE's testing comes after a series of glitches in recent years roiled markets and weighed on investor confidence, placing a bigger focus on operational risk by both regulators and market participants. Market operators have been testing their systems to ensure order routing systems function properly. Nasdaq, for example, has said it responded to Facebook by putting extra safeguards in place, creating new positions within the company to improve communications with the industry and regulators when errors occur, and establishing an engineering team to monitor and analyze daily performance. TWITTER MODEL NYSE often conducts systems testing during the weekends, but it was only last October, ahead of Twitter Inc's market debut, that it opened up for an IPO simulation requested by member firms, many of which participated in Facebook's IPO. "We did it for Twitter, in response to another transaction that had caused people to be somewhat uncomfortable," Ethridge said. "That got everybody comfortable on Twitter going into it, and it went fine." Still, each IPO is different because of the number of shares offered and the make-up of demand in the after-market, when investors who were unable to completely fill their order book before initial trading begins must enter the market. Estimating the number of sellers also is important to ensure a successful market debut. Ethridge said after the pricing, a lengthy process of allocating shares to all the parties that agreed to take part in the IPO begins. It can go into the wee hours as underwriters divvy up shares among investors. To ensure trading at the open of the IPO and during the day goes smoothly, the NYSE will work with a so-called stabilization agent, which is Goldman Sachs Group Inc in Alibaba's case, Ethridge said. Goldman will determine when to open trading in Alibaba and at what price, and will manage the flow of orders. General Motors Co's shares started trading about 10 minutes after market open in their debut, while Twitter took about 70 minutes to open. Every IPO is different, Ethridge said. (Editing by Paritosh Bansal, Bernard Orr)