Coinbase Global Inc., the big cryptocurrency exchange, went public yesterday in a direct listing that ended up valuing it at about $86 billion. Here is an odd fact:
Coinbase Chief Financial Officer Alesia Haas said in an interview Wednesday morning that one of the reasons that the company picked Nasdaq was because the bourse offered the ticker symbol “COIN,” which wasn’t part of the New York Stock Exchange’s pitch.
“Ultimately that they had the ticker COIN, and that was a really great ticker for us to get,” Haas said.
So, one, yes, she’s absolutely right, that's a great ticker for them to get, and of course they couldn’t go with NYSE if Nasdaq offered them the COIN ticker. Finance is not especially rational these days, and investors want a good ticker, so you have to give them one.
Second, how weird is it that Nasdaq owned the COIN ticker? As far as I can tell, the rules allow each exchange to reserve a small number of tickers for their own use forever, and a larger number of tickers temporarily (for up to two years). You might think that the way this would work would be (1) the exchanges pitch a company on going public, (2) the company chooses an exchange, (3) the company chooses its preferred ticker, (4) the exchange reserves that ticker, and (5) eventually the company goes public with that ticker. But apparently there is nothing to stop an exchange from squatting on a ticker and saying to the company “hey, if you want the only logical ticker, you gotta go with us.” What a strange competition.
Anyway, Coinbase was also the first big direct listing on Nasdaq. An odd thing about direct listings is that you don’t know how much stock was sold. In a traditional initial public offering, a company says “we are going to sell 10 million shares, and our current shareholders are going to sell another 5 million shares,” and then they sell those shares, all at once, at a single price that the company’s investment banks negotiate with public investors. And then the stock opens for trading and the public investors can trade it among themselves, but generally the company and its early investors sign lockups promising not to sell any more stock for a while. So those 15 million shares are all the shares that you can buy or sell, for months, and investors just trade them back and forth.
With a direct listing, the stock just opens for trading on the stock exchange. It opens with an opening auction, the same way every stock opens every morning on the stock exchange: People who want to sell put in sell orders, and people who want to buy put in buy orders, and the stock exchange’s machines match them up to find a market-clearing price. (In practice, the machines send out notices about what the price seems to be, so that people can put in more orders, in an iterative process that can take a while; Coinbase didn’t open until about 1:25 p.m. yesterday.)
Generally speaking you’d expect that the only people putting in sell orders, in that opening auction, would be the company’s private investors: They’re the only ones who have any stock to sell.[1] But a second after the stock opens, the stock will trade normally on the exchange, and there will be buyers and sellers. Some of the sellers will be people who bought the stock in the opening auction and want to flip it; other sellers might be early investors who owned the stock before the direct listing, decided not to sell in the opening auction, and then decided to sell later — a second or minute or hour or week later — in regular market trades. There’s generally no lockup, so they can do that any time. If you buy on the stock exchange, you won’t know if you’re buying from a hedge fund flipping stock it bought a minute ago, or from a venture capitalist who owned the stock before it went public, or from the company’s founder.
A theory that I sometimes hear from capital markets bankers is that IPOs result in higher stock prices than direct listings, because in an IPO there are just fewer shares available. If a company sells 10% to 20% of its stock in an IPO — sort of the normal range — then there just won’t be that much supply; people wanting to buy the stock will have to buy some of that relatively small supply from other public shareholders. (This is sometimes given as an explanation of the IPO pop.) If a company does a direct listing where most or all of its stock is available for sale, then there will be a lot more supply, so the price will be lower.
Coinbase has about 186 million shares outstanding[2]; it registered almost 115 million of them for sale in its direct listing. About 81 million shares traded yesterday, at an average price of $366.87, for a total of about $29.7 billion of trading. Presumably Coinbase’s private shareholders did not sell 81 million shares yesterday; presumably most of that trading was new public shareholders trading among themselves. On the other hand, in the opening trade, some 8.84 million shares were sold for $381 each, for a total of about $3.4 billion of stock that definitely came from Coinbase’s existing private shareholders. That’s the minimum amount of stock that existing shareholders sold yesterday — the minimum size of the IPO, as it were — and the maximum is something less than 81 million. A broad range.
You can see something like this in the price action: The stock opened at $381, and 8.84 million shares were sold at that price; the stock then climbed (as you might expect from an IPO with limited supply), and then it dropped (as you might expect if more insiders sold and more stock became available), closing at $328.28. If you are an early Coinbase shareholder who sold in the opening trade, you did well; you didn’t “leave money on the table” by selling at a low price and then watching the stock climb. You just sold at the market price, in a market without a lot of supply.
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