The Coinbase direct listing: What you should expect, according to Nasdaq's IPO impresario
April 14, 2021, 5:43AM EDT · 3 min read
Crypto exchange Coinbase's long-in-the-making, history-making stock market debut is finally here.
The exchange's stock is set to begin trading under the ticker COIN in one of the most hotly anticipated market launches in not just the fast-growing crypto market, but for the technology and financial services sectors as well.
Uniquely, the crypto-exchange operator is going public through a direct listing—an alternative to the more commonplace initial public offering (IPO) process that allows a firm to trade publicly without having to offer a specific amount of shares to the public.
In other words, a direct listing allows a company to tap the public market without having to raise capital from the deal. Furthermore, that company doesn't have to team up with bulge-bracket investment banks to underwrite and woo interest from large investors. The exchange venue—in this case, Nasdaq—plays a bigger role in the direct listing process.
Jay Heller, who has been with Nasdaq for over a decade, has overseen thousands of transactions during his time at its Times Square MarketSite. In an interview with The Block, Heller broke down the seemingly complicated process into a few steps.
In a direct listing, Nasdaq works with a company's financial advisors to determine the reference price for the stock to trade. As revealed on Tuesday, Nasdaq, along with Goldman Sachs, determined the stock's reference price would be $250—way lower than many shares had traded in private markets ahead of the direct listing day.
That number is more than half the price at which synthetic shares of Coinbase on FTX are trading.
"We will be communicating to the Street throughout the process: There are no underwriters, you have what are deemed advisors. There is no offering, no distribution," Heller said. "With an IPO you have an offering price. Here, without that occurring, we are providing some clarity in after-hours to publish the reference price."
A market source suggested that Goldman Sachs likely set the reference price low to cover themselves and is expecting a big pop in tomorrow's debut.
Indeed, market expectations predict a lively day with interest from the retail segment of the market as well. A source at Robinhood said that it will offer trading in Coinbase's stock on day one. TDAmeritrade declined to comment specifically, noting: "I can tell you that at TD Ameritrade we’re accustomed to navigating market-moving events. We have to be prepared for the busiest moment of any given day."
So when will trading begin exactly? That's not 100% clear. Heller said that Nasdaq typically leaves time between the market open and when they commence trading for a direct listing. This, he said, allows Wall Street to digest as much information as possible.
"Tomorrow morning the team will work to set up the security for trading," Heller said. "There is a lot of activity that happens at 9:30 so we let investors clear their pallet. It could start as early as 9:50. That's still to be finalized."
That said, trading will likely commence in the early afternoon.
Still, Nasdaq won't rush on figuring out what price the stock will trade at, according to Heller. Since there won't be an offering of stock, the market won't have a set supply of shares being issued—a state of affairs that contributes to volatility and complicates the work of finding equilibrium between supply and demand. There's also the added crypto element, which adds an additional layer of volatility to the debut.
"You have to ensure there is ample supply coming in," Heller said. "That's why the process can take so much time. We won't rush it. It's about getting to the right point: when you open the security for trading you're trying to mitigate volatility. But make no mistake about it, larger-scale IPOs also take a lot of time."
As for how much interest there will be in the stock, Heller pointed to past debuts in an email to The Block. The first trade size for Palantir, which went public via a direct listing, topped 58 million shares. Slack, another direct listing, topped 45 million.
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