The Securities and Exchange Commission has opened an inquiry into the trading of a number of initial public offerings and so-called direct listings that have debuted on the New York Stock Exchange, FOX Business has learned.
The inquiry, disclosed in SEC information requests under the heading “In Re NYSE,” seeks information on IPOs and or direct listings completed by the Big Board’s two largest designated market makers, or DMMs, Citadel Securities and a firm called GTS said people with direct knowledge of the matter.
Both Citadel and GTS received information requests, which cover a period of five years, these people say.
SEC officials are requesting troves of data from the firms including emails and other trading records, according to people familiar with the information requests.
Citadel, GTS and other DMMs ensure fluid trading of NYSE-listed stocks particularly during initial public offerings or direct listings of companies, where no new shares are created and investment bank involvement is limited.
Though the exact target of the inquiry is unknown, based on the information requested, the SEC interest appears to have been triggered by the direct offering of Slack Technologies Inc., for which Citadel served as a DMM. Morgan Stanley and Goldman Sachs served as advisers on the offering, according to people with knowledge of the matter.
The June direct offering of Slack Technologies Inc., was a particularly messy process because the price of its shares was adjusted numerous times before it began to trade—leading to complaints by floor brokers to NYSE staffers. The offerings of other so-called “unicorns” or tech companies with valuations of $1 billion or more are also part of the SEC's probe, these people say. SEC officials are said to be looking at whether any of the players involved in the offerings improperly shared information prior to the listing, these people say.
A spokesman for NYSE, a unit of the Intercontinental Exchange, tells FOX Business: “NYSE places a premium on transparency, fair access and robust price discovery in helping companies access the public markets.”
Citadel Securities, a unit of Ken Griffin's securities and hedge fund conglomerate, said in a statement: "The direct listing of Slack was a tremendous success for the company, its shareholders and our nation’s capital markets. From our vantage point, we stand firmly behind the integrity and transparency of the listing and pricing process on this important transaction."
A spokesman for GTS and the SEC declined to comment, as did press officials from Morgan Stanley and Goldman.
News of the probe was first reported by FOX Business.
As tech companies like Slack have listed on NYSE, there has been consternation about trading patterns—setting off alarm bells with some regulators and traders. Floor traders tell FOX Business investment bankers working on the various deals have been known to engage in possibly abusive practices such as pushing market makers to indicate prices that are lower than they should be.
Traders have complained to the NYSE that bankers have also pushed DMMs to delay the opening of stocks during IPOs and direct listings, giving Wall Street firms more time to provide their clients with sensitive pricing information before offerings officially begin to trade.
On the Slack listing, market makers initially issued price estimates of $30 to $34 a share and then revised to $32 to $34 share. The stock eventually opened at $38.50 a share after nearly a dozen total adjustments, which took more than an hour. Floor traders complained that the process should have taken just minutes.
The NYSE has faced investigations involving trading on its floor in the past including a sweeping probe in the early 2000s that led to massive structural changes in the way the Big Board handles orders to buy and sell stocks.
The current probe doesn't appear to match such scale, and as in any inquiry, the SEC could find no wrongdoing.