As someone who believes in competition and challenges to the entrenched ways of doing things, I think this is a great idea (from the Wall Street Journal):
By virtue of its size, business model and popularity, Facebook is the rare company that doesn’t need Wall Street to go public. It should press home the advantage and blaze a trail for others to follow.
Mr. Zuckerberg’s has two options: a traditional [initial public offering], in which banks distribute shares to investors in exchange for a percentage of total proceeds; and the little-used “Dutch auction” that cuts out the Wall Street middlemen by making the allocation of shares dependent on prices bid by each investor.
The biggest difference between the two systems, apart from the lower fees paid by companies in auctions, is that when IPOs go Dutch, banks don’t choose who gets shares, giving all investors a fair shake and avoiding potential conflicts of interests.
This is particularly important for “hot” IPOs, like Facebook. Since these deals often record sharp rises in the first days of trading, there is a temptation for banks to dole out shares to their favorite investor clients, who stand to profit if they get in early.
Wall Street’s penchant for being both poacher and gamekeeper has left banks with conflicted loyalties; they take companies public while at the same time trying to keep hedge funds and other high-paying customers satisfied.
Granted, Sarbanes-Oxley has led to Wall Street’s losing IPO business to exchanges in other countries. So, Wall Street already faces more competition in this area. And deep, liquid equity markets remain vital to a (mostly) capitalist system. So, it should go without saying we don’t want to shut down the Street.
But put a little pressure on the banks? The real kind of pressure that comes from declining to play by their rules (thus denying one of them a big payday), not the fake kind of pressure regulators exert via rules that are eventually skirted, if not co-opted from the beginning to favor certain players?
Have at it, Mr. Zuckerberg.
P.S. — And then, if it goes well and you really want to mess with the banks, why not explore whether a certain social-networking giant with world-wide reach could get into the IPO business itself?
– By Kyle Wingfield